Business context and reporting period
The Buckle, Inc. is a U.S. retailer of casual apparel, footwear, and accessories, operating as one reportable segment. It had 470 stores in 44 states as of October 29, 2016.
Period mismatch: Although the request identifies 2015 Q3, the supplied Form 10-Q covers the 13 and 39 weeks ended October 29, 2016, compared with periods ended October 31, 2015. The filing is for fiscal 2016 Q3, not 2015 Q3.
Key financial results
| Metric | 13 weeks ended Oct. 29, 2016 | 13 weeks ended Oct. 31, 2015 | 39 weeks ended Oct. 29, 2016 | 39 weeks ended Oct. 31, 2015 |
|---|---|---|---|---|
| Net sales | $239.2 million | $280.2 million | $694.9 million | $787.6 million |
| Gross profit / margin | $96.9 million / 40.5% | $117.3 million / 41.9% | $271.5 million / 39.1% | $325.5 million / 41.3% |
| Operating income / margin | $36.8 million / 15.4% | $56.3 million / 20.1% | $97.3 million / 14.0% | $146.3 million / 18.6% |
| Net income | $23.4 million | $35.9 million | $62.0 million | $92.9 million |
| Diluted EPS | $0.48 | $0.74 | $1.28 | $1.93 |
For the 39-week period, operating cash flow was $64.1 million, versus $53.6 million a year earlier. Capital expenditures were $26.7 million; dividends paid were $36.4 million. Cash and cash equivalents were $163.0 million, short-term investments $50.0 million, and total cash and investments $232.8 million at quarter-end.
Working capital was $294.7 million. The company reported no bank borrowings and had a $25.0 million unsecured credit line, expiring July 31, 2017. Total liabilities were $138.4 million and stockholders’ equity was $443.2 million. Operating lease obligations totaled $362.5 million.
Material changes versus prior comparable periods
- Quarterly sales fell 14.6%; comparable-store sales declined 15.3%. Management attributed the comp decline mainly to 10.8% fewer transactions and a 5.6% reduction in average retail price per item, partly offset by more units per transaction.
- Year-to-date sales fell 11.8%; comparable-store sales declined 12.5%. Excluding the estimated impact of the new Guest Loyalty program, quarterly sales declined 13.2% and year-to-date sales declined 10.4%.
- Online sales decreased 8.5% in the quarter to $23.7 million and 3.7% year to date to $67.6 million.
- Quarterly gross margin contracted 1.4 percentage points and year-to-date gross margin contracted 2.2 points, primarily from deleveraged occupancy, buying, and distribution costs. Year-to-date merchandise margins were essentially flat.
- Operating income declined 34.6% for the quarter and 33.5% year to date. Selling expenses fell in dollars but rose as a share of sales; quarterly G&A increased 6.1%.
Outlook, risks, and unusual items
- Management estimated fiscal 2016 capital expenditures of approximately $28–$32 million and expected about three additional store projects for the remainder of the year, including one new store. It stated that available cash, investments, and operating cash flow should fund anticipated needs for the next several years; no earnings or sales guidance was provided.
- Management cited fashion and product-mix changes, competition, general economic conditions, consumer demand, and markdowns as factors that could pressure sales, margins, and cash flows. The business is seasonal, with holiday and back-to-school periods historically accounting for about 35% of annual sales.
- The new Guest Loyalty program reduced reported sales by an estimated $3.9 million in the quarter and $10.7 million year to date through reward redemptions and accruals for future rewards.
- Auction-rate securities had a reported fair value of $3.2 million, below $3.5 million par, reflecting a $0.3 million temporary impairment. Failed auctions limit liquidity; the company said it intended and was able to hold the securities until recovery or maturity and did not expect further auction failures to materially impair business funding.
- No material legal proceedings were reported, and the company disclosed no material changes to its previously reported risk factors. Disclosure controls were deemed effective.
Important facts for investors to verify
- Confirm the intended reporting year: the supplied filing is fiscal 2016 Q3, despite the request’s 2015 Q3 label.
- Track comparable-store sales, transaction counts, average selling prices, and the loyalty program’s ongoing revenue impact.
- Monitor merchandise margins and fixed-cost deleverage, particularly occupancy and store operating costs.
- Review holiday-period performance and whether the planned capital spending and store projects remain consistent with management’s liquidity assessment.
- Assess auction-rate security liquidity and valuation assumptions, including the estimated recovery period for Level 3 holdings.