Business context and reporting period
The filing is The Buckle, Inc.’s unaudited Form 10-Q for the 13 and 26 weeks ended July 31, 2010, compared with periods ended August 1, 2009. This differs from the request metadata of “2009 Q2”; the filing itself reports fiscal 2010 Q2. Buckle operates one retail segment selling casual apparel, footwear, and accessories. It had 419 stores in 41 states at quarter-end.
Financial performance and liquidity
| Metric | 13 weeks ended July 31, 2010 | 26 weeks ended July 31, 2010 |
|---|---|---|
| Net sales | $188.6 million; down 2.2% | $403.4 million; up 2.8% |
| Gross profit / margin | $75.4 million / 40.0%, versus 42.7% | $168.8 million / 41.9%, versus 43.0% |
| Operating income / margin | $32.5 million / 17.3%, versus 19.8% | $78.7 million / 19.5%, versus 20.3% |
| Net income | $20.7 million, down 17.0% | $50.9 million, down 1.9% |
| Diluted EPS | $0.44, versus $0.54 | $1.08, versus $1.11 |
| Operating cash flow | Not separately reported for the quarter | $20.6 million, versus $31.1 million |
For the first half, investing cash outflow was $46.8 million, financing cash outflow was $16.1 million, and cash and cash equivalents declined $42.3 million to $93.1 million. At July 31, cash plus investments totaled $197.3 million; working capital was $188.5 million. The company reported no bank borrowings. It had an unused $17.5 million unsecured credit line, with letters of credit capped at $10.0 million; outstanding letters of credit were $2.2 million.
Total liabilities were $117.7 million, including $73.0 million of current liabilities. Operating lease commitments totaled $333.9 million; these are future contractual rent payments, not reported debt. Capital spending was $37.5 million in the first half. Inventory was $108.7 million, up from $88.2 million at fiscal year-end.
Material changes versus the prior comparable periods
- Second-quarter comparable-store sales fell 7.3%; first-half comparable-store sales fell 2.0%. Lower transaction counts were the primary stated driver. Average price per item and units per transaction partly offset the declines.
- Online sales grew 15.7% to $11.7 million in the quarter and 20.1% to $26.2 million year to date.
- Quarter gross margin fell 2.7 percentage points. Management attributed the decline to higher buying, distribution, and occupancy costs and somewhat weaker merchandise margins, including more markdown sales and Primo Card redemptions.
- First-half operating cash flow declined by $10.5 million year over year. Management cited seasonal bonus payments, inventory build, dividends, store projects, and other capital spending as cash uses.
- Store count increased from 401 a year earlier to 419. The company opened seven stores and substantially remodeled 12 during the quarter.
Outlook, commentary, risks, and unusual items
Management estimated fiscal 2010 capital expenditures of $58–$62 million and expected approximately three additional store openings and ten remodels and/or relocations during the remainder of the year. The new Kearney distribution center was expected to be occupied in the last week of September 2010. Management said cash, investments, and operating cash flow should fund anticipated needs for the next several years; no sales or earnings guidance was provided.
Key risks include weak discretionary consumer spending, fashion and product-mix changes, competition, markdowns, and economic conditions. The company also held $20.7 million of auction-rate and preferred securities at estimated fair value, including $8.6 million valued using Level 3 inputs. These investments were affected by failed auctions and limited liquidity; the filing disclosed $1.1 million of temporary impairment and $2.7 million of other-than-temporary impairment. Management believed it could hold the affected securities until recovery and did not expect further auction failures to materially impair its ability to fund operations, but acknowledged potential for additional impairment.
Other notable items: first-half other income included a $1.1 million state economic-incentive sales-tax refund; the company paid $18.7 million in dividends during the first half. Management reported effective disclosure controls and no material change in internal control over financial reporting. No legal proceedings were reported.
Important facts for investors to verify
- Confirm the fiscal-period labeling: the filing covers Q2 2010, despite the request metadata indicating 2009 Q2.
- Track comparable-store sales, transaction trends, online growth, and whether merchandise margins recover.
- Assess whether inventory growth and planned capital spending translate into sales and cash generation; compare subsequent operating cash flow with the first-half decline.
- Review liquidity, valuation assumptions, and recovery prospects for auction-rate securities, particularly the Level 3 holdings and potential further impairment.
- Monitor execution and costs of the new distribution center, store expansion, and remodel program, as well as the company’s stated capital-expenditure estimate.