Business context and reporting period
The filing is The Buckle, Inc.’s unaudited Form 10-Q for the 13 and 39 weeks ended November 3, 2018 (fiscal 2018 third quarter and year to date). This differs from the request metadata of “2017 Q3”; the filing’s actual reporting period should be verified. Buckle operates one reportable segment, selling apparel, footwear, and accessories through stores and e-commerce. It had 453 stores in 43 states at quarter-end.
Financial performance
Amounts below are in millions except per-share data and percentages.
| Metric | 13 weeks ended Nov. 3, 2018 | Comparable prior-year period | 39 weeks ended Nov. 3, 2018 | Comparable prior-year period |
|---|---|---|---|---|
| Net sales | $215.1 | $224.3 | $621.1 | $632.2 |
| Gross profit / margin | $86.2 / 40.0% | $90.9 / 40.5% | $244.8 / 39.4% | $246.8 / 39.0% |
| Operating income / margin | $26.3 / 12.2% | $30.9 / 13.8% | $69.7 / 11.2% | $73.4 / 11.6% |
| Net income | $20.5 | $19.9 | $54.5 | $47.7 |
| Diluted EPS | $0.42 | $0.41 | $1.12 | $0.99 |
| Operating cash flow | Not separately presented | Not separately presented | $48.6 | $58.6 |
- Quarterly sales fell 4.1%; comparable sales declined 1.4%. Year-to-date sales fell 1.8%; comparable sales declined 1.1%. Online sales increased 8.8% in the quarter to $25.5 million and 7.8% year to date to $69.8 million.
- Quarterly gross margin contracted 0.5 percentage points, mainly from deleveraged occupancy, buying, and distribution costs, partly offset by improved merchandise margins. Year-to-date gross margin expanded 0.4 points, primarily from better merchandise margins.
- Net income rose despite lower operating income, principally because the effective tax rate declined to 25.9% from 37.3%, following the federal corporate tax-rate reduction under the Tax Cuts and Jobs Act.
- Year-to-date operating cash flow declined $10.0 million. Higher inventory used $27.8 million of cash, partly offset by higher accounts payable. Capital expenditures were $7.8 million; dividends paid were $36.7 million.
- At November 3, cash and equivalents were $177.9 million, short-term investments $45.6 million, and working capital $295.0 million. Total cash and investments were $241.8 million. The company had no bank borrowings; its $25 million unsecured credit facility expires July 31, 2019.
- Total assets were $559.1 million and stockholders’ equity $412.9 million. Current liabilities were $102.2 million. Contractual operating-lease payments totaled $285.8 million, including $64.2 million due within one year.
Changes, outlook, and risks
- Management attributed comparable-sales weakness primarily to lower average selling prices per piece: down 2.1% in the quarter and 2.0% year to date. Store closures also affected total sales. The store count declined from 461 a year earlier; four stores were closed in the first three quarters of fiscal 2018.
- Management estimated fiscal 2018 capital expenditures of $9 million to $12 million, mainly for store projects and technology, and expected two additional full remodels during the remainder of the year. It stated that cash, investments, and operating cash flow should cover anticipated needs for several years. No earnings or sales guidance was provided.
- The business is seasonal; holiday and back-to-school periods historically generate the greatest sales volume. Management cautioned that demand, product mix, fashion trends, competition, economic conditions, markdowns, and store investment plans could affect results and liquidity.
- The company adopted ASC 606 using the modified retrospective method, recording a $0.4 million retained-earnings adjustment. Adoption did not materially affect results; it changed the classification of gift-card breakage. The company was evaluating the forthcoming lease standard and expected a significant increase in reported lease assets and liabilities.
- A 2016–2017 retail-store payment-card data incident remained unresolved as to potential assessments, fines, penalties, or other liabilities; the company said these could not then be reasonably estimated. No material change to previously disclosed risk factors was reported.
Important facts for investors to verify
- Confirm the intended period: the request says 2017 Q3, while this filing reports the quarter ended November 3, 2018.
- Check the comparable-sales comparison dates: the filing uses corresponding periods ended November 4, 2017, while reported total-sales comparisons use October 28, 2017, due to the prior fiscal year’s 53rd week.
- Assess whether weaker comparable sales and lower selling prices are offset by online growth and merchandise-margin gains, and monitor inventory, which rose to $145.5 million from $118.0 million at fiscal year-end.
- Evaluate the sustainability of earnings growth given lower operating income and the reduced tax rate; review cash conversion, dividends, lease commitments, and the pending data-incident exposure.