The Buckle, Inc. — Form 10-Q Summary
Reporting period: The quarter and 26 weeks ended August 2, 2014, compared with the corresponding 2013 periods. The request metadata says “2013 Q2,” but the filing covers fiscal 2014 Q2.
Business context and results
Buckle operates as one reportable segment, selling casual apparel, footwear and accessories. It had 456 stores in 44 states at quarter-end, versus 452 stores in 43 states a year earlier.
| Metric | 13 weeks ended Aug. 2, 2014 | Change vs. 2013 | 26 weeks ended Aug. 2, 2014 | Change vs. 2013 |
|---|---|---|---|---|
| Net sales | $235.7 million | +1.4% | $507.4 million | +1.0% |
| Gross profit | $94.9 million | +0.5% | $212.1 million | +0.3% |
| Gross margin | 40.3% | 40.6% prior year | 41.8% | 42.1% prior year |
| Operating income | $38.8 million | -$0.6 million | $98.0 million | -$0.7 million |
| Operating margin | 16.4% | 16.9% prior year | 19.3% | 19.6% prior year |
| Net income | $24.5 million | -$0.7 million | $61.8 million | -$0.9 million |
| Diluted EPS | $0.51 | $0.52 prior year | $1.29 | $1.31 prior year |
Cash flow, liquidity and debt
- First-half operating cash flow was $45.7 million, up from $26.2 million in 2013. Cash and cash equivalents increased to $169.5 million from $164.9 million at February 1, 2014.
- At August 2, cash, short-term investments and long-term investments totaled $230.5 million. Working capital was $258.2 million.
- First-half investing cash outflow was $20.0 million, including $22.7 million of property and equipment purchases; financing cash outflow was $21.1 million, primarily dividends of $21.3 million. Dividends paid were $0.44 per share.
- No bank borrowings were outstanding. The company had a $25.0 million unsecured credit line, with up to $20.0 million available for letters of credit; outstanding letters of credit were $4.1 million.
- Total liabilities were $163.2 million. The filing reports no funded bank debt at quarter-end.
Material changes and management commentary
- Comparable-store sales fell 0.5% in the quarter and 0.7% year to date. Management attributed the declines mainly to fewer transactions; higher average price per item and more units per transaction partly offset the weakness.
- Sales growth came from new stores and online sales. Online sales rose 1.7% to $17.1 million in the quarter and 2.1% to $38.6 million year to date.
- Gross margin declined 0.3 percentage points in both comparison periods, principally from deleveraged occupancy, buying and distribution costs amid lower comparable sales. Merchandise margins were described as essentially flat.
- Selling costs rose as a share of sales, while general and administrative expense declined, including lower equity compensation and legal expense. Lower operating income and other income contributed to lower net income.
- Management expects fiscal 2014 capital expenditures of approximately $48–$53 million and plans about 16 additional store projects during the remainder of the year, including approximately seven new stores and nine substantial remodels or relocations. It expects existing cash, investments and operating cash flow to fund anticipated needs for the next several years. No earnings or sales guidance was provided.
Risks, contingencies and unusual items
- Auction-rate securities had $10.1 million par value and $8.9 million estimated fair value, including a $1.2 million temporary impairment. Failed auctions limit liquidity; valuation includes significant unobservable inputs. Management believes it can hold the securities until recovery, but further impairment is possible.
- The business is seasonal, with holiday and back-to-school periods historically contributing about 35% of annual sales. Results may vary with demand, fashion trends, competition, markdowns, store activity and economic conditions.
- All 240,200 shares granted under the fiscal 2013 performance-based restricted-stock plan were forfeited after performance targets were not met.
- Management reported no material change in risk factors from the prior annual report, no legal proceedings, and no material change in internal control over financial reporting. It was evaluating the effect of the new revenue-recognition standard.
Important facts for investors to verify
- Whether comparable-store sales and transaction trends improve, and whether new-store and online growth can offset store weakness.
- Whether margin pressure from occupancy and selling costs persists, especially through seasonal periods.
- Execution and funding of the $48–$53 million capital-spending plan and planned store projects.
- Recoverability and liquidity of auction-rate securities, including any changes in fair value or impairment assessment.
- Seasonal working-capital needs, inventory markdown assumptions and the company’s continued ability to generate operating cash flow.