The Buckle, Inc. — Form 10-Q Summary
Period and business: This filing covers the 13 and 39 weeks ended November 2, 2019 (fiscal 2019 third quarter and year to date), compared with periods ended November 3, 2018. The request metadata says 2018 Q3, but the filing itself is for 2019 Q3. Buckle operates as a single-segment apparel retailer, selling through stores and e-commerce; it had 449 stores in 42 states at quarter-end.
Financial performance
| Metric | Q3 2019 | Q3 2018 | 39 weeks 2019 | 39 weeks 2018 |
|---|---|---|---|---|
| Net sales | $224.1 million | $215.1 million | $629.3 million | $621.1 million |
| Gross profit / margin | $93.5 million / 41.7% | $86.2 million / 40.0% | $248.9 million / 39.6% | $244.8 million / 39.4% |
| Operating income / margin | $33.3 million / 14.8% | $26.3 million / 12.2% | $71.6 million / 11.4% | $69.7 million / 11.2% |
| Net income | $26.0 million | $20.5 million | $57.5 million | $54.5 million |
| Diluted EPS | $0.53 | $0.42 | $1.18 | $1.12 |
| Operating cash flow | — | $64.9 million | $48.6 million |
- Quarterly sales rose 4.2%; comparable sales increased 4.7%. Year-to-date sales rose 1.3%, with comparable sales up 1.8%.
- Quarterly online sales grew 5.4% to $26.9 million; year-to-date online sales grew 6.6% to $74.4 million.
- Quarterly gross-margin improvement reflected stronger merchandise margins and lower occupancy, buying, and distribution costs as a share of sales. Year-to-date improvement was mainly from expense leverage, partly offset by lower merchandise margins.
- Quarterly net income increased 26.9%; year-to-date net income increased 5.5%. The reported effective tax rate was 24.5% in both 2019 comparison periods, versus 25.9% in 2018.
Liquidity, debt, and capital
- At November 2, 2019, cash and cash equivalents were $213.8 million, short-term investments $31.9 million, and total cash and investments $261.5 million. Working capital was $237.6 million.
- Operating cash flow was $64.9 million year to date. Investing activities provided $17.4 million, including net investment maturities; dividends used $36.8 million. Cash increased $45.4 million to $213.8 million.
- The company reported no bank borrowings. It had an unsecured $25 million credit line expiring July 31, 2021, including $10 million available for letters of credit; $3.3 million of letters of credit were outstanding.
- Adopting lease accounting standard Topic 842 added operating lease right-of-use assets and liabilities to the balance sheet. At quarter-end, operating lease assets were $340.4 million and lease liabilities totaled $368.2 million. Adoption did not materially affect reported operating results.
- Dividends paid during the first 39 weeks were $36.8 million ($0.75 per share). No shares were repurchased during the quarter.
Changes, outlook, and risks
- Management estimated fiscal 2019 capital expenditures of approximately $7 million to $9 million and expected two additional full store remodels during the remainder of the year. It said available cash, investments, and operating cash flow should fund anticipated needs for the next several years. No sales or earnings forecast was provided.
- Management attributed quarterly comparable-sales growth chiefly to more transactions and units per transaction, partly offset by lower average unit retail. Average unit retail declined 1.5% in the quarter and 3.1% year to date.
- Seasonality is significant: holiday and back-to-school periods historically represented about 35% of annual sales. Results remain exposed to consumer demand, fashion and product mix, markdowns, competition, and broader economic conditions.
- Inventory markdown and obsolescence adjustments were $12.7 million at quarter-end, versus $10.6 million at fiscal year-end; management said it was not aware of conditions indicating the valuation was materially inaccurate.
- The company disclosed a 2017 store-payment data incident. It said the affected code was removed and security enhancements implemented, and did not expect potential card-brand assessments or penalties to materially affect results or financial position. Legal proceedings were reported as none; the filing said risk factors had not materially changed from the prior annual report.
- Management stated that disclosure controls were effective and there were no material changes in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Confirm the intended period: the supplied filing is for the quarter ended November 2, 2019, not 2018.
- Assess whether comparable-sales gains and margin improvement can persist, particularly given lower average unit retail and year-to-date merchandise-margin pressure.
- Review holiday-season performance and inventory levels, markdown exposure, and the planned capital spending and remodel schedule.
- Track lease obligations and cash generation alongside dividends; the filing reports no borrowings but substantial operating lease liabilities.
- Monitor the status and any further consequences of the previously disclosed payment-card security incident.