The Buckle, Inc. — Form 10-Q Summary
Period: The filing covers the thirteen and twenty-six weeks ended July 30, 2016, with comparisons to periods ended August 1, 2015. This differs from the request metadata of “2015 Q2.” The filing is unaudited.
Business context
Buckle operates as a single-segment retailer of casual apparel, footwear, and accessories, with 470 stores in 44 states at July 30, 2016. In the first half, it opened three stores, substantially remodeled 12, and closed one.
Key financial results
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Net sales | $212.2 million | $236.1 million | $455.7 million | $507.4 million |
| Gross profit / margin | $79.9 million / 37.7% | $94.6 million / 40.1% | $174.6 million / 38.3% | $208.2 million / 41.0% |
| Operating income / margin | $24.1 million / 11.4% | $37.2 million / 15.7% | $60.5 million / 13.3% | $90.0 million / 17.7% |
| Net income | $15.5 million | $23.5 million | $38.6 million | $57.1 million |
| Diluted EPS | $0.32 | $0.49 | $0.80 | $1.18 |
| Operating cash flow | Not stated separately | Not stated separately | $44.4 million | $30.8 million |
Q2 sales fell 10.1% and first-half sales fell 10.2%. Comparable-store sales declined 10.8% in Q2 and 10.9% in the first half. The new Guest Loyalty program reduced sales by an estimated $3.4 million in Q2 and $6.8 million year to date; excluding that impact, reported sales were down 8.7% and 8.8%, respectively. Online sales increased 1.4% in Q2 to $20.4 million and decreased 0.9% year to date to $43.9 million.
Q2 gross margin contracted 2.4 percentage points; first-half gross margin contracted 2.7 points. Management attributed the decline chiefly to deleveraged occupancy, buying, and distribution costs amid weaker comparable sales; first-half results also reflected lower merchandise margins. Selling expense declined in dollars but rose as a share of sales. The effective income tax rate was 37.3% in both comparative periods.
Financial position and cash flows
- At July 30, 2016, cash and cash equivalents were $168.2 million, short-term investments $38.6 million, and working capital $278.6 million. Total cash and investments were $234.9 million.
- Total liabilities were $149.2 million and stockholders’ equity was $430.7 million. The company had no bank borrowings; its $25 million unsecured credit line, expiring July 31, 2017, was undrawn. Letters of credit outstanding were $2.2 million.
- First-half investing cash outflow was $13.1 million, including $17.0 million of property and equipment purchases; financing cash outflow was $24.3 million for dividends. Cash increased $7.0 million to $168.2 million.
- The company paid $0.50 per share in dividends during the first half. It reported $363.1 million of future operating lease payments, including $67.3 million due within one year.
Outlook, risks, and notable items
- Management estimated fiscal 2016 capital expenditures of approximately $28–$32 million and expected about nine additional store construction projects in the remainder of the year, including about two new stores and seven remodels or relocations.
- Management said existing cash, investments, and operating cash flow should fund anticipated capital expenditures and working capital for the next several years. No specific sales or earnings guidance was provided.
- Management cited demand, product mix, fashion trends, competition, and general economic conditions as factors that could pressure sales, profitability, and cash flow. The business is seasonal, with holiday and back-to-school periods historically accounting for about 35% of annual sales.
- Auction-rate securities had a reported fair value of $3.2 million versus $3.5 million par value, reflecting a $0.3 million temporary impairment. Some securities have limited liquidity; management believed it could hold them until recovery, but further impairment remains possible.
- The company reported no material changes to previously disclosed risk factors, no legal proceedings, and no material changes in internal control over financial reporting. It was evaluating the effects of new revenue, lease, inventory, and stock-compensation accounting standards.
Important facts for investors to verify
- Whether sales and comparable-store trends improve, and how much reported sales are affected by the Guest Loyalty program.
- Whether merchandise margins and occupancy-cost leverage stabilize as sales change.
- Progress against the $28–$32 million capital expenditure plan and the expected store openings and remodels.
- Liquidity, valuation, and recovery assumptions for auction-rate securities, including the Level 3 estimates.
- Seasonal performance and any subsequent guidance or developments not included in this quarter’s filing.