The Buckle, Inc. — Form 10-Q Summary
Period: The filing covers the 13 weeks ended April 29, 2017 (first quarter of fiscal 2017), with comparison to the 13 weeks ended April 30, 2016. This differs from the request metadata, which says 2016 Q1.
Business context and results
The Buckle operates as a single-segment retailer of casual apparel, footwear, and accessories. It had 462 stores in 44 states at quarter-end, compared with 468 stores a year earlier. During the quarter it closed five stores, substantially remodeled two, and opened none.
| Metric | Q1 FY2017 | Q1 FY2016 | Change |
|---|---|---|---|
| Net sales | $212.3 million | $243.5 million | -12.8% |
| Comparable-store sales | -12.7% | Not stated here | |
| Gross profit / margin | $81.7 million / 38.5% | $94.7 million / 38.9% | Profit -13.7%; margin -0.4 pts |
| Operating income / margin | $25.0 million / 11.8% | $36.4 million / 15.0% | Income -31.3% |
| Net income | $16.3 million | $23.1 million | -29.5% |
| Diluted EPS | $0.34 | $0.48 | -29.2% |
| Operating cash flow | $28.2 million | $12.3 million | +$15.9 million |
Financial position, cash flow, and liquidity
- At April 29, 2017, cash and cash equivalents were $207.9 million; short-term investments were $53.4 million and long-term investments were $15.5 million. Management reported total cash and investments of $276.7 million and working capital of $299.9 million.
- Total assets were $583.7 million and total liabilities were $147.5 million. The filing reports no bank borrowings. The company had a $25 million unsecured credit line, including $10 million available for letters of credit, expiring July 31, 2017; $3.8 million of letters of credit were outstanding.
- Operating cash flow was $28.2 million. Investing activities used $4.7 million, including $3.9 million of capital expenditures; dividends used $12.2 million. Cash increased $11.3 million to $207.9 million. The year-over-year cash-flow increase included working-capital movements, including changes in inventory, payables, and accrued employee compensation.
- Quarterly dividends were $0.25 per share. Contractual operating lease obligations totaled $340.3 million, including $66.8 million due within one year.
Material changes and management commentary
- The comparable-sales decline reflected 9.3% fewer transactions and a 6.7% decrease in average retail price per item, partly offset by 3.4% more units per transaction. Online sales fell 7.2% to $21.8 million.
- Gross margin declined to 38.5% from 38.9%. Deleveraged occupancy, buying, and distribution costs weighed on margin; improved merchandise margins and the phase-out of the former Primo Card loyalty program partly offset the pressure.
- Selling expense fell slightly in dollars but rose to 22.1% of sales from 19.5%, reflecting deleverage and higher store payroll, online fulfillment and marketing, and health insurance costs. G&A expense also declined in dollars but increased as a share of sales.
- Management expected fiscal 2017 capital expenditures of approximately $25–$30 million and planned about seven additional store projects during the rest of the year, including approximately two new stores and five remodels or relocations. Management said available cash, investments, and operating cash flow should fund anticipated needs for the next several years.
- The filing provides no revenue or earnings guidance. Management noted that seasonal results are not necessarily indicative of the full year; holiday and back-to-school periods historically account for about 35% of annual sales.
Risks, contingencies, and unusual items
- Key business risks cited include changes in demand, product mix and fashion trends, competition, general economic conditions, markdowns, and the retail apparel environment. Further demand or pricing weakness could pressure sales, inventory values, margins, and cash flow.
- The company held auction-rate securities with $1.8 million par value and a $0.13 million temporary impairment. Some valuation inputs are Level 3 estimates; management believes it can hold the securities until recovery, but further impairment remains possible.
- The company is evaluating the effect of the new lease accounting standard, which management expects will significantly increase reported assets and liabilities related to store leases. No material legal proceedings or material changes to previously disclosed risk factors were reported.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the reporting-period mismatch: the filing is for Q1 FY2017 ended April 29, 2017, not 2016 Q1.
- Track whether comparable-store sales, transactions, average selling prices, and online sales stabilize after the reported declines.
- Assess whether merchandise-margin gains can continue to offset fixed-cost deleverage and selling-expense pressure.
- Review the composition and sustainability of operating cash flow, planned capital spending, dividends, and liquidity, including the credit line’s July 2017 expiration.
- Monitor inventory markdown exposure, auction-rate securities recoverability, and the eventual balance-sheet impact of lease accounting.