Business Context and Reporting Period
Company: The Buckle, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: January 30, 2010 (Fiscal Year 2009)
Business Overview: The Buckle is a retailer of medium to better-priced casual apparel, footwear, and accessories targeting fashion-conscious young men and women. As of January 30, 2010, the company operated 401 retail stores across 41 states. The company emphasizes personalized service, brand-name merchandise (71% of sales), and private label products (29% of sales), with denim representing 42.9% of net sales.
Key Financial Metrics
| Metric | Fiscal 2009 (2010) | Fiscal 2008 (2009) | Change |
|---|---|---|---|
| Net Sales | $898.3 million | $792.0 million | +13.4% |
| Gross Profit | $400.6 million | $343.5 million | +16.6% |
| Gross Margin | 44.6% | 43.4% | +120 bps |
| Operating Income | $199.5 million | $162.2 million | +23.0% |
| Operating Margin | 22.2% | 20.5% | +170 bps |
| Net Income | $127.3 million | $104.4 million | +21.9% |
| Diluted EPS | $2.73 | $2.24 | +21.9% |
| Comparable Store Sales | +7.8% | +20.6% | - |
| Working Capital | $172.8 million | $197.5 million | -12.5% |
| Cash & Cash Equivalents | $135.3 million | $162.5 million | -16.7% |
| Long-Term Debt | $0 | $0 | - |
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 13.4% driven by a 7.8% increase in comparable store sales and the addition of 20 new stores. Online sales grew 45.2% to $52.3 million.
- Margin Expansion: Gross margin improved to 44.6% due to reduced markdowns, strong sell-through of new products, and a 1.0% improvement in actual merchandise margins.
- Expense Management: Selling expenses as a percentage of net sales decreased to 18.8% (from 19.1%) due to reduced incentive bonus accruals and store payroll efficiencies, partially offset by increased internet fulfillment costs.
- Investment Impairments: The company recorded a $2.7 million other-than-temporary impairment (OTTI) and a $1.3 million temporary impairment related to auction-rate securities (ARS). This contrasts with a $5.2 million OTTI loss in the prior year.
- Dividends: The company paid total cash dividends of $120.3 million, including a special one-time dividend of $1.80 per share in the third quarter.
Guidance, Outlook, and Risks
- Expansion Plans: Management anticipates opening approximately 20 new stores and completing 25 remodels in fiscal 2010. Total capital expenditures are estimated at $65 to $70 million, including the completion of a new 240,000 square foot distribution center in Kearney, Nebraska.
- Liquidity: The company maintains a strong liquidity position with $230.8 million in total cash and investments. It has a $17.5 million unsecured line of credit with no outstanding borrowings as of period end.
- Key Risks:
- Auction-Rate Securities (ARS): Approximately $22.8 million of investments are in ARS. While the company does not expect further auction failures to materially impact its ability to fund operations, continued market illiquidity poses a risk of additional impairments.
- Fashion Sensitivity: Success depends on accurately gauging fashion trends; misjudgments could reduce sales and profitability.
- Private Label Dependence: Private label merchandise accounts for 29% of sales and carries higher margins; a reduction in this mix would lower overall margins.
- Expansion Execution: Future growth relies on securing favorable lease terms, hiring qualified management, and managing store openings profitably.
Investor Verification Checklist
- ARS Liquidity: Verify the current status of the $22.8 million auction-rate securities portfolio and any new impairment charges in subsequent filings.
- Comparable Store Sales Trend: Monitor the deceleration in comparable store sales growth from 20.6% in 2008 to 7.8% in 2009 to assess demand sustainability.
- Capital Expenditure Execution: Track the completion and cost of the new distribution center and the 20 planned store openings for fiscal 2010.
- Private Label Mix: Review future product mix disclosures to ensure the 29% private label sales target is maintained to protect gross margins.
- Dividend Policy: Confirm the continuation of quarterly dividends and the potential for future special dividends given the strong cash flow generation.