The Buckle, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended May 2, 2020 (fiscal 2020 first quarter), compared with the 13 weeks ended May 4, 2019. This differs from the “2019 Q1” period in the request metadata.
Business context
Buckle sells casual apparel, footwear, and accessories through stores and e-commerce. It operated 446 stores in 42 states at May 2, 2020. All stores temporarily closed beginning March 18 due to COVID-19; 37 had reopened by May 2 and 397 of 444 stores by June 5. Online sales continued.
Financial performance
| Metric | 13 weeks ended May 2, 2020 | 13 weeks ended May 4, 2019 |
|---|---|---|
| Net sales | $115.4 million | $201.3 million |
| Gross profit / margin | $26.8 million / 23.2% | $76.7 million / 38.1% |
| Operating income (loss) / margin | $(16.2) million / (14.0)% | $18.7 million / 9.3% |
| Net income (loss) | $(11.8) million | $15.1 million |
| Diluted EPS | $(0.24) | $0.31 |
| Cash flow from operations | $(28.3) million | $29.3 million |
Sales fell 42.7%. Online sales increased 31.5% to $32.1 million and represented 27.8% of sales, versus 12.1% a year earlier. Gross margin contracted primarily because store closures deleveraged occupancy, buying, and distribution costs and markdown and obsolescence reserves increased. SG&A declined 25.7% to $43.0 million, including $13.5 million lower compensation and benefits costs; the decline was partly offset by $1.0 million of store-asset impairment charges and higher shipping and marketing costs.
Liquidity, cash flow, and obligations
At May 2, cash and cash equivalents were $185.0 million, short-term investments $17.7 million, and working capital $201.1 million. Total cash and investments, including $15.9 million of long-term investments, were $218.6 million. Cash declined $35.9 million during the quarter. Inventory was $121.7 million, broadly level with the prior-year quarter according to management.
The company had no bank borrowings and had an undrawn $25.0 million unsecured credit line, with up to $10.0 million available for letters of credit. Operating lease liabilities totaled $354.5 million; these are lease obligations, not reported bank debt. The company reported $390.5 million of undiscounted future operating lease payments.
Material changes, outlook, and risks
- COVID-19 store closures drove the sales decline and operating loss. Management said the duration and severity of the pandemic’s effects could not be reasonably estimated.
- Inventory markdown and obsolescence reserves were $15.1 million at May 2, versus $12.2 million at February 1, 2020. The shortened selling season increased inventory aging risk.
- Buckle paid essentially full April rent but negotiated substantial May and June rent deferrals. Deferrals did not reduce reported rent expense for the quarter.
- The Board suspended quarterly dividends, announced June 2, to preserve cash and flexibility. No dividend was paid during this quarter; the prior-year quarter included $12.3 million of dividend payments.
- Management estimated fiscal 2020 capital expenditures of $7 million to $10 million and anticipated six additional store construction projects during the remainder of the year. It said available cash, investments, and operating cash flow should fund anticipated needs for the next several years, while noting uncertainty from COVID-19 and general economic conditions. No earnings or sales guidance was provided.
- Other risks include demand, product mix, fashion trends, competition, markdowns, and the possibility of further impairment or inventory write-downs. The filing reported no material change to previously disclosed risk factors and no legal proceedings.
Key facts for investors to verify
- Confirm the reporting period: this is fiscal 2020 Q1, ended May 2, 2020, not 2019 Q1.
- Track store reopening progress, comparable sales once management considers them meaningful, and e-commerce growth.
- Monitor cash generation, liquidity, inventory aging and markdown reserves, and the effects of rent deferrals.
- Assess the resumption of dividends and whether planned capital expenditures change as pandemic conditions evolve.