The Buckle, Inc. — Form 10-Q Summary
Period mismatch: The request identifies 2019 Q3, but the supplied filing is for the quarter ended October 31, 2020 (fiscal 2020 third quarter), with comparisons to the quarter ended November 2, 2019. Figures below are for the filing provided. Dollar amounts are in millions unless stated otherwise.
Business context and reporting period
Buckle is a single-segment retailer of casual apparel, footwear, and accessories, operating stores and an e-commerce platform. The filing reports 13- and 39-week results. At October 31, 2020, it operated 446 stores in 42 states; 445 stores had reopened after pandemic-related temporary closures, and one remained closed because of damage.
Financial performance
| Metric | 13 weeks ended Oct. 31, 2020 | 13 weeks ended Nov. 2, 2019 | 39 weeks ended Oct. 31, 2020 | 39 weeks ended Nov. 2, 2019 |
|---|---|---|---|---|
| Net sales | $251.0 | $224.1 | $582.4 | $629.3 |
| Gross profit / margin | $117.0 / 46.6% | $93.5 / 41.7% | $237.2 / 40.7% | $248.9 / 39.6% |
| Operating income / margin | $54.1 / 21.6% | $33.3 / 14.8% | $83.5 / 14.3% | $71.6 / 11.4% |
| Net income | $41.6 | $26.0 | $64.5 | $57.5 |
| Diluted EPS | $0.85 | $0.53 | $1.32 | $1.18 |
- Quarterly comparable-store sales increased 12.4%; transactions rose 8.2%, average unit retail increased 2.8%, and units per transaction rose 0.8%. E-commerce sales grew 72.5% to $46.4 million and represented 18.5% of quarterly sales.
- Year-to-date comparable-store sales declined 7.1%, primarily reflecting a 10.9% drop in transactions amid pandemic store closures. E-commerce sales rose 67.3% to $124.4 million, or 21.4% of sales.
- Net income margins were approximately 16.6% for the quarter and 11.1% year to date, versus 11.6% and 9.1%, respectively, in the comparable periods.
- Operating cash flow was $126.3 million year to date, versus $64.9 million. Capital expenditures were $4.6 million; dividends paid were $14.8 million.
Financial position and liquidity
- At October 31, 2020, cash and cash equivalents were $331.9 million; short-term investments were $7.4 million and long-term investments $16.7 million. Management reported working capital of $278.3 million and total cash and investments of $356.1 million.
- Total liabilities were $455.5 million, including operating lease liabilities of $314.3 million. The company reported no bank borrowings and had a $25 million unsecured credit line, expiring July 31, 2021, with $1.9 million in outstanding letters of credit.
- Cash increased $111.0 million from the start of the fiscal year. Management attributed stronger operating cash flow partly to higher net income, working-capital timing, rent deferrals, and lower estimated tax payments.
Material changes, outlook, and risks
- Quarterly sales and profitability improved year over year, while year-to-date sales remained below prior year because all brick-and-mortar stores were temporarily closed beginning March 18, 2020. The online store remained open.
- Quarterly gross margin rose 4.9 percentage points, helped by leveraged occupancy, buying and distribution costs and improved merchandise margins. Year-to-date gross margin rose 1.1 points, mainly from improved merchandise margins.
- Management estimated fiscal 2020 capital expenditures of approximately $6 million to $8 million, primarily for store projects and technology, and expected one additional full store remodel. It stated that available cash, investments, and operating cash flow should fund anticipated needs for the next several years. No sales or earnings guidance was provided.
- COVID-19-related uncertainties, consumer demand, product mix, fashion trends, competition, and broader economic conditions could adversely affect sales, profitability, and cash flows. The filing recorded $1.0 million of store-asset impairment charges in the quarter ended May 2, 2020. May and June rent deferrals were recorded in accounts payable and did not affect rent expense under the company’s accounting election.
- Operating lease payments total $344.2 million undiscounted; reported lease liabilities were $314.3 million. The business is seasonal, with holiday and back-to-school periods historically contributing a substantial portion of annual sales.
- No material risk-factor changes or legal proceedings were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended filing period: the supplied 10-Q is for fiscal 2020 Q3, not 2019 Q3.
- Track whether e-commerce growth and reopened-store comparable sales persist, and how pandemic conditions affect traffic and transactions.
- Assess the sustainability of elevated margins and cash generation, including the effects of working-capital timing, rent deferrals, and tax-payment reductions.
- Review lease commitments, credit-line renewal after July 31, 2021, and capital-spending plans alongside dividend payments.