The Buckle, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2011, the 13 weeks ended April 30, 2011. The filing compares results with the 13 weeks ended May 1, 2010. Dollar amounts below are in millions unless stated otherwise. The filing describes a retailer of casual apparel, footwear, and accessories, operating as one reportable segment.
Financial results
| Metric | Q1 FY2011 | Q1 FY2010 | Change |
|---|---|---|---|
| Net sales | $240.1 | $214.8 | +11.8% |
| Gross profit | $102.9 | $93.5 | +10.2% |
| Income from operations | $51.4 | $46.2 | +11.2% |
| Net income | $33.5 | $30.1 | +11.2% |
| Diluted EPS | $0.71 | $0.64 | +$0.07 |
| Operating cash flow | $38.9 | $33.6 | +$5.3 |
Gross margin was 42.9%, down from 43.5%; operating margin was 21.4%, versus 21.5%; net margin was 13.9%, versus 14.0%. Other income was $1.6 million, down from $1.8 million. The effective income-tax rate was 36.8%, compared with 37.3%.
Comparable-store sales rose 8.1%. Online sales increased 18.6% to $17.1 million. Management attributed comparable-store growth mainly to 5.8% more transactions and 2.3% more units per transaction; average retail price per item increased 0.1%. The company had 422 stores at quarter-end, versus 412 a year earlier; it opened two stores and substantially remodeled six during the quarter.
Financial position and liquidity
At April 30, 2011, cash and cash equivalents were $139.3 million, short-term investments $21.5 million, and long-term investments $65.2 million. Management reported total cash and investments of $226.0 million and working capital of $189.2 million. Total current assets were $277.6 million and current liabilities $88.4 million. Total liabilities were $142.2 million, including $8.5 million of deferred compensation and $37.6 million of deferred rent. The filing reports no bank borrowings at quarter-end and no borrowings during either comparison quarter; an unsecured $17.5 million credit line was available.
Operating cash flow was $38.9 million; property and equipment purchases were $10.6 million. Investing cash flow was a use of $8.2 million, including net investment-security activity. Financing cash flow was a use of $7.9 million, including $9.5 million of dividends paid. Cash increased $22.8 million to $139.3 million.
Changes, outlook, and risks
- Sales and earnings increased, but gross margin fell 0.6 percentage points. Management cited higher distribution costs, including depreciation at the new distribution center and shipping costs, and lower merchandise margins. Selling expenses declined as a share of sales; general and administrative expenses rose as a share of sales, partly due to a store-closure expense.
- Management expected approximately $30–$35 million of fiscal 2011 capital expenditures and about 30 additional store projects: approximately 11 new stores and 19 remodels and/or relocations. It stated that cash, investments, and operating cash flow should fund anticipated needs for the next several years. This is management’s outlook, not a guarantee.
- Auction-rate securities and preferred securities had $23.3 million par value and $19.5 million reported fair value. The filing describes restricted liquidity from failed auctions, $1.0 million of temporary impairment and $2.7 million of other-than-temporary impairment, and exposure to credit and valuation uncertainty. The company said it intended and was able to hold the investments pending recovery and did not expect further auction failures to materially impair its ability to fund operations.
- Operating lease obligations totaled $349.7 million, including $53.7 million due within one year. The company cited fashion and product-mix shifts, competition, general economic conditions, markdowns, and store-opening and remodeling costs as factors that could affect results. The business is seasonal, with holiday and back-to-school periods historically producing the greatest sales volume.
- No legal proceedings were reported, and management said there had been no material change to the risk factors in its prior annual report. Disclosure controls were deemed effective; no material change in internal control was reported.
Key facts for investors to verify
- Whether comparable-store and online sales momentum continued after the quarter, and how sales growth translated into merchandise margins.
- Progress on planned store openings, remodels, and the $30–$35 million capital-spending estimate.
- Liquidity, valuation assumptions, and any further impairments or redemptions of auction-rate securities.
- Cash generation and dividend payments relative to seasonal inventory needs and substantial lease commitments.