The Buckle, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended May 3, 2014, the first quarter of fiscal 2014. The request metadata says “2013 Q1,” but the filing’s reporting period is in 2014. Financial statement amounts below are in millions unless otherwise stated.
Business context
Buckle is a retailer of casual apparel, footwear, and accessories for young men and women, operating as one reportable segment. It had 450 stores in 43 states at quarter-end, compared with 443 stores a year earlier. During the quarter it opened one store, remodeled six, and closed one.
Financial performance and liquidity
| Metric | 13 weeks ended May 3, 2014 | Prior-year comparable period |
|---|---|---|
| Net sales | $271.7 | $269.7 |
| Gross profit | $117.2; 43.1% of sales | $117.0; 43.4% of sales |
| Operating income | $59.2; 21.8% of sales | $59.3; 22.0% of sales |
| Net income | $37.3 | $37.6 |
| Diluted EPS | $0.78 | $0.78 |
| Cash from operations | $29.9 | $21.1 |
- Net sales rose 0.7%, while comparable-store sales fell 0.9%. Online sales increased 2.5% to $21.4 million.
- Gross margin declined 0.3 percentage points, primarily from deleveraged occupancy, buying, and distribution costs; merchandise margins were essentially flat.
- Cash and cash equivalents were $169.7 million and short-term investments were $22.1 million. Working capital was $244.3 million; cash and investments totaled $237.8 million, including $46.0 million of long-term investments.
- There were no bank borrowings. The company had a $25.0 million unsecured credit line and $4.2 million of outstanding letters of credit. No debt balance is reported.
- Operating cash flow increased year over year. Investing activities used $14.6 million, including $10.1 million for property and equipment; dividends paid were $10.6 million.
Changes and management commentary
- Comparable-store sales weakness reflected 3.0% fewer transactions and a 0.9% reduction in average retail price per item, partly offset by 3.1% more units per transaction. Total sales growth reflected new-store contributions and online growth.
- Management said the comparable-store sales decline pressured operating leverage. Selling expense rose 1.1%; general and administrative expense fell 2.5%, partly due to lower equity-compensation expense.
- Management expected approximately 16 new stores and 12 substantial remodels or relocations during the remainder of fiscal 2014. Estimated fiscal-year capital expenditures were $48–$53 million, including store projects, IT investments, and a new office building.
- Management believed cash, investments, and operating cash flow would fund anticipated capital expenditures and working-capital needs for the next several years. The business is seasonal, with holiday and back-to-school periods historically contributing the greatest sales volume.
Risks, contingencies, and unusual items
- The company held auction-rate securities with $11.0 million par value and $9.6 million reported fair value, reflecting a $1.3 million temporary impairment. Failed auctions limit liquidity; management believed it could hold the securities until recovery and did not expect further auction failures to materially affect business funding. Additional impairment remains possible.
- Operating lease obligations totaled $375.5 million, including $64.5 million due within one year. Management reported no known contractual-obligation trend expected to materially affect financial condition, results, or cash flows.
- Approximately 240,200 fiscal 2013 performance-based restricted shares were forfeited because the company did not meet either performance target.
- The filing reported no legal proceedings and no material changes to the risk factors in the prior annual report. Management reported disclosure controls were effective and no material change in internal control.
- A new revenue-recognition standard issued in May 2014 was being evaluated; the filing did not quantify its expected effect.
Important facts for investors to verify
- Confirm the period: this filing is for the quarter ended May 3, 2014, despite the request metadata’s “2013 Q1.”
- Track comparable-store sales, transaction trends, average selling prices, and online sales to assess whether sales momentum improves.
- Monitor gross-margin and operating-margin trends, particularly occupancy-cost leverage and markdowns.
- Assess planned capital spending and store expansion against cash generation, dividend commitments, and seasonal working-capital needs.
- Review auction-rate securities’ liquidity, valuation assumptions, and potential for further impairment.