The Buckle, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first 39 weeks ended November 1, 2014, compared with periods ended November 2, 2013. The request metadata says “2013 Q3,” but the filing is for 2014 Q3.
Business context and performance
Buckle operates as a single-segment retailer of casual apparel, footwear, and accessories for young men and women. It had 461 stores in 44 states at quarter-end, versus 452 stores in 43 states a year earlier. In the first 39 weeks, it opened 14 stores, substantially remodeled 17, and closed 3.
| Metric | 13 weeks ended Nov. 1, 2014 | 13 weeks ended Nov. 2, 2013 | 39 weeks ended Nov. 1, 2014 | 39 weeks ended Nov. 2, 2013 |
|---|---|---|---|---|
| Net sales | $292.2 million | $286.8 million | $799.6 million | $789.0 million |
| Gross profit | $127.8 million | $126.2 million | $339.9 million | $337.7 million |
| Operating income | $64.6 million | $64.1 million | $162.5 million | $162.7 million |
| Net income | $40.6 million | $40.6 million | $102.4 million | $103.3 million |
| Diluted EPS | $0.84 | $0.85 | $2.13 | $2.15 |
| Gross margin | 43.7% | 44.0% | 42.5% | 42.8% |
| Operating margin | 22.1% | 22.3% | 20.3% | 20.6% |
Financial position, cash flow, and material changes
- At November 1, 2014, cash and cash equivalents were $182.3 million, short-term investments $25.8 million, and long-term investments $44.3 million. Working capital was $285.1 million.
- Total liabilities were $179.0 million; the company had no bank borrowings and reported no borrowings during either comparable 39-week period. Its unsecured credit line was $25.0 million, including a $20.0 million limit for letters of credit; outstanding letters of credit were $3.4 million.
- For the first 39 weeks, operating cash flow was $91.6 million, versus $69.3 million a year earlier. Investing cash outflow was $42.5 million, versus $27.4 million; financing cash outflow was $31.8 million, versus $28.7 million. Cash increased $17.4 million to $182.3 million.
- Quarterly sales grew 1.9%, but comparable-store sales declined 0.3%; year-to-date sales grew 1.3%, while comparable-store sales fell 0.5%. Management attributed the comp declines mainly to fewer transactions, partly offset by higher average selling prices and more units per transaction. Online sales rose 3.8% in the quarter to $22.8 million and 2.8% year to date to $61.4 million.
- Gross margin declined 0.3 percentage points in both the quarter and year-to-date periods, primarily from deleveraged occupancy, buying, and distribution costs amid lower comparable sales; merchandise margins were essentially flat. Year-to-date net income fell 0.8%, while quarterly net income was approximately unchanged.
- Cash dividends paid in the first 39 weeks totaled $31.9 million, or $0.66 per share. No shares were repurchased during the quarter; 543,900 shares remained under the existing repurchase authorization.
Outlook, risks, and unusual items
- Management estimated fiscal 2014 capital expenditures of $48–$53 million and expected approximately two additional store openings and one substantial remodel or relocation during the remainder of the year. It said cash, investments, and operating cash flow should fund anticipated capital and working-capital needs for the next several years.
- The business is seasonal: the holiday and back-to-school periods historically generated about 35% of annual sales. Management cautioned that quarterly results can vary with demand, merchandise mix, markdowns, competition, store activity, and economic conditions; it provided no sales or earnings forecast.
- Auction-rate securities had par value of $10.1 million and reported fair value of $8.9 million, including a $1.2 million temporary impairment. Failed auctions limit liquidity; valuation depends partly on unobservable estimates. Management believed it could hold the securities until recovery, but further impairment remains possible.
- Management identified consumer demand, fashion trends, product mix, competition, and general economic conditions as risks. It reported no material changes to previously disclosed risk factors, no material legal proceedings, and no material impairment of long-lived assets.
- The company was evaluating the impact of the new revenue-recognition standard, effective for periods beginning after December 15, 2016. Disclosure controls were deemed effective, with no reported material change in internal control over financial reporting.
Important facts for investors to verify
- Whether comparable-store sales and transaction trends improved after quarter-end, and how sales growth is split between stores, new locations, and online.
- Whether gross-margin pressure from occupancy and other costs persists, and whether merchandise margins or markdown levels change.
- Actual fiscal 2014 capital spending and store openings/remodels compared with management’s estimates.
- Liquidity and valuation developments for auction-rate securities, including any additional impairment or recovery.
- The effects of seasonal sales, inventory levels, and the forthcoming revenue-recognition standard on subsequent results.