The Buckle, Inc. — Form 10-K Summary
Period clarification: The filing is for fiscal 2010, the 52 weeks ended January 29, 2011—not fiscal 2009 Q4. It reports fiscal 2009 comparisons and unaudited quarterly results, including fiscal 2010 Q4.
Business context and reporting period
Buckle is a specialty retailer of casual apparel, footwear, and accessories for young men and women. At fiscal year-end it operated 420 stores in 41 states. Denim represented 45.3% of sales and tops 34.0%. The company opened 21 stores and closed two during fiscal 2010; it also substantially renovated 25 stores.
Financial performance and liquidity
| Metric | Fiscal 2010 | Fiscal 2009 |
|---|---|---|
| Net sales | $949.8 million | $898.3 million |
| Comparable-store sales growth | 1.2% | 7.8% |
| Gross profit / margin | $419.1 million / 44.1% | $400.6 million / 44.6% |
| Operating income / margin | $210.8 million / 22.2% | $199.5 million / 22.2% |
| Net income | $134.7 million | $127.3 million |
| Diluted EPS | $2.86 | $2.73 |
| Cash from operations | $179.9 million | $158.0 million |
Net sales rose 5.7% and net income 5.8%. Comparable-store growth reflected a 1.9% increase in average retail price and 2.9% more units per transaction, partly offset by 3.3% fewer transactions. Online sales, excluded from comparable-store sales, increased 19.3% to $62.4 million. Gross margin declined 0.5 percentage points, principally because of higher distribution and occupancy costs; improved merchandise margins from lower markdowns and greater private-label sales partly offset the pressure.
At January 29, 2011, working capital was $160.7 million, including cash and cash equivalents of $116.5 million and short-term investments of $22.9 million. Total cash and investments were $205.5 million. The company had no bank borrowings and reported no long-term debt; its unsecured credit line was $17.5 million. Capital expenditures were $54.9 million, and financing cash outflows included $154.3 million of dividends and $6.0 million of share repurchases.
Material changes versus the prior comparable period
- Comparable-store sales growth slowed to 1.2% from 7.8%, despite overall sales growth from new stores and online sales.
- Gross margin decreased to 44.1% from 44.6%; operating margin held at 22.2%.
- Operating cash flow increased to $179.9 million from $158.0 million.
- Cash and cash equivalents fell to $116.5 million from $135.3 million, while total assets increased to $494.8 million from $488.9 million.
- Fiscal 2010 included a $1.1 million state sales-tax refund recorded in other income. No securities impairment gain or loss was recorded in fiscal 2010; fiscal 2009 included a $1.0 million gain.
Outlook, risks, contingencies, and unusual items
Management planned approximately 12 store openings and 25 remodels in fiscal 2011, with estimated capital spending of $30–$35 million. It expected to continue quarterly dividends and stated that cash, investments, and operating cash flow should fund anticipated working-capital needs and capital spending for several years. These are forward-looking expectations, not guarantees.
- Investment liquidity and valuation: $20.0 million of auction-rate and preferred securities was reported at fair value in long-term investments. The portfolio included $1.1 million of temporary impairment and $2.7 million of other-than-temporary impairment; failed auctions restrict liquidity. Management said it intended and was able to hold the securities, but further impairment remained possible.
- Retail and operating risks: Results depend on fashion choices, consumer spending, comparable-store sales, competition, and successful expansion. A single Kearney distribution center, foreign sourcing, staffing, and planned point-of-sale system replacement present operational risks.
- Commitments and contingencies: Future minimum operating lease commitments totaled $338.8 million. The company disclosed no litigation expected to have a material effect and no other off-balance-sheet arrangements.
- Returns to shareholders: Fiscal 2010 dividends totaled $154.3 million, including a $2.50-per-share special dividend. Management’s stated plan to continue quarterly dividends does not assure future special dividends.
- Controls and audit: Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether the slowdown in comparable-store sales and transaction counts continued after fiscal year-end.
- Progress on fiscal 2011 store openings, remodels, and the $30–$35 million capital-spending plan.
- Recoverability, valuation assumptions, and liquidity of the auction-rate and preferred securities.
- Whether higher distribution, occupancy, health-care, and fulfillment costs continue to pressure margins.
- The sustainability of operating cash generation and dividends relative to capital spending and lease commitments.