The way The Buckle 10K and conference call come across, you can’t quite decide, at first read, if they’ve made a specific decision to focus on brick and mortar or if they are just way, way behind in online. I think it’s the former given how they describe their business and how they compete.
As I’ve recently written, Tilly’s and Zumiez were kind of caught by surprise by their very positive end of October quarterly results. But because the surprise was of the positive kind, nobody seemed to care. Though perhaps they should.
The Buckle, on the other hand, reported a 14.6% decline in revenues from $280 million in last year’s quarter to $239 million in this years.
At almost the same time Abercrombie & Fitch (owner of Hollister), Tilly’s, The Buckle, and Genesco (owner of the Journeys chain) released, in early June, 10-Qs for their quarters that ended April 30th.
I was going to do my usual thing and review each one separately. But I was busy, too much time passed and honestly, there’s so much sameness to what our industry’s retailers are saying that I wasn’t sure anybody would want to read four separate reports. Hell, I didn’t even want to.
So what I’ve done is gone through the 10-Qs and collected a few observations and some summary data. It is, I think, enough.
The Buckle didn’t say anything unusual or intriguing in its conference call or 10-Q. I guess that’s good. But at the moment, this is the last retailer I haven’t reported on, and it appeals to my sense of order to get it done before settling in for Christmas and the holidays.
What we can learn from The Buckle is that they basically have the same general market related issues as all the other retailers in our space.
For the quarter ended October 31, 2015, their sales fell 4.1% to $280.2 million. In the same quarter last year, sales were $292.2 million. They ended the quarter with 468 stores in 44 states compared to 461 a year ago. Private label was about 35% of their business. I’ve remarked in the past about The Buckle’s apparent success in integrating its owned with purchased brands. I think they continue to be good at that.
Comparable store sales declined $15.2 million or by 5.2%. The number of transactions was down 5.6%. Online sales were up 13.6% to $25.9 million during the quarter. We haven’t heard much talk lately about online sales cannibalizing brick and mortar. I’m beginning to think it’s something retailers should refocus on, if they ever lost their focus.
The gross profit margin also declined from 43.7% to 41.9% while total gross profit fell $10 million to $117.3 million. “The decrease was primarily attributable to a reduction in merchandise margins (1.00%, as a percentage of net sales) and deleveraged occupancy, buying, and distribution expenses as a result of the comparable store sales decline (0.80%, as a percentage of net sales).”
Selling expenses declined very slightly to $52.3 million and general and administrative expense was down 15.5% from $10.3 to $8.7 million. As a percentage of revenues, selling expense rose from 18.1% to 18.7%. General and administrative expense fell from 3.5% to 3.1%.
Operating income fell 12.9% from $64.6 to $56.3 million and net income was down 11.6% from $40.6 to $35.9 million.
Cash flow from operating activities through three quarters was $53.4 million compared to $91.6 million in the same period the previous year, but the balance sheet remains strong. I would note an increase in inventory from $147 million last year to $176 million in this year’s quarter. Not what you want to see with declining sales.
One analyst asked some penetrating and rigorous questions of CEO Dennis Nelson. I can’t quote everything he said here, but he was very concerned with comparative store sales declines that go back to 2013. After laying that all out, he asks, “…what is going on with the retail market and Buckle, in particular? And is brick-and-mortar stores are going through secular decline, what is Buckle’s strategy to resume comps growth going forward?”
I guess I’d characterize CEO Nelson’s response as nonspecific. I never expect CEOs to be very detailed in explaining their strategies during a pubic conference call. But I thought his answer could have been given by other retail CEOs and demonstrated the common issues and uncertainty as to how to respond to those issues they all face.
Even with sales down a bit, The Buckle had a pretty good bottom line although it exhibited the same issues and uncertainty as its competitors. I guess my conclusion, after seeing the results from various retailers, is that you need to build your balance sheet, control your inventory, be thoughtful to cautious about the roles of brick and mortar and where you open new stores, and define omnichannel in a way that does more than just make things easier for customers.
What does your store stand for as a brand that can differentiate it from its competitors?
In the retail and economic environment we’ve got right now and given the results of some of its competitors it’s kind of hard to complain about a company that put 10% of revenue to the net income line in the quarter that ended August 1st.
Revenues were pretty much the same as in last year’s quarter at $236 million. The cost of sales was more or less constant at $141 million. Gross profit stayed at $95 million as did selling expense at $46 million. Okay, here’s a dramatic change! General and administrative expenses actually rose from $10 to $11 million. That took income from operations down $1.5 million to $37.2 million and net income was down a million from $24.5 to $23.5 million.
The Buckle’s results for the year ended January 31st are certainly not news at this point, but I do think they have a few things to tell us about retail. There are some commonalities emerging among retailers in the active outdoor/fashion retailers that I want to highlight.
The Buckle is a retailer I think does a good job. I’ve been particularly impressed with their ability to integrate owned with purchased brands and the way they merchandise them together. Just to review briefly they had, at year end, 460 stores in 44 states. For the year they had revenue of $1.153 billion, up just slightly from $1.128 billion the previous year. Their gross margin didn’t change much and gross profit was up just a bit from $499 to $507 million.
Expenses rose a similar amount with the result that both operating and net income were more or less unchanged. Net income of $162.6 million was the same as last year. They haven’t managed an increase in comparable store sales for the last two years. No balance sheet issues to discuss.
That’s the shortest financial review I’ve ever done, probably to the relief of some of you.
For the quarter ended November 1, 2014, The Buckle’s revenues rose a little from $286.8 to $292.2 million. That’s a 1.9% increase over last year’s quarter.
The gross profit margin fell a little from 44% in last year’s quarter to 43.7%. In dollars it went up a little from $126.2 to $127.8 million.
Selling, General and Administrative expenses rose a little (1.7%) to $63.2 million. As a percentage of sales, selling expense stayed the same at 18.1% and general and administrative expense fell a little from 3.6% to 3.5%.
Operating income rose- you guessed it- a little, from $64.1 to $64.6 million.
Net income was up a really, really, really little (0.079%, or $32,000) to $40.6 million.
Well, these day holding your own isn’t the worst result we’re seeing among retailers in our industry.
The balance sheet is in good shape, with comparable store inventory down about 1.5% compared to a year ago. Net cash flow from operations was a positive $69.3 million in the three quarters of last fiscal year. It improved to $90.6 million this year. That’s more than a little. I like positive cash flow.
The company ended the quarter with 461 stores in 44 states, up from 452 stores in 42 states a year ago. So far this year, they’ve opened a net of 11 new stores and did what they call “substantial remodels” on 17. According to the conference call, plans presently call for 6 new stores next year and 10 of those substantial remodels. I’d love to hear something about the impact of the remodelings.
Comparable store sales were down 0.3% during the quarter. Online sales are not included in comparable store sales. They rose 3.7% during the quarter to $22.8 million compared to $22.0 million in last year’s quarter.
The conference call is short and not particularly intriguing either. Private label business, we hear, was 35% of revenues, the same as in last year’s quarter.
One analyst asked President and CEO Dennis Nelson “…about your philosophy on ecommerce versus stores.” I’d characterize his answer as noncommittal and understated.
“Well, we continue to look at new marketing and upgrading our staff and taking different approaches, so it is something we are not ignoring. We involve the merchandise teams continually more on that, so we would expect it to continue to have steady growth, and we have taken approach that it’s part of our business.”
While that isn’t the whole answer, you get the gist. Compare that to the soliloquy we’d get from Zumiez’s senior management in response to the same question. I’m not highlighting this as a problem. I doubt CEO Nelson’s answer encompasses his complete thinking about ecommerce. I hope not. But I do wish somebody had followed up and used the word “omnichannel” to see what response we’d gotten.
And that’s about it. I’d like to thank The Buckle for making this one easy for me, though I wouldn’t have minded a bit more information.
There’s a lot I like about The Buckle. I don’t find time to cover them every quarter, but whenever I visit one of their 450 stores, I am impressed with how they’ve merchandised their owned (34% of revenue) with purchased brands together. My sense is that they give credibility to the brands they carry, not the other way around. Long time readers know I like that and believe it distinguishes good retailers.
This, I’m happy to say, is going to be pretty short. But I’ve gone to the trouble of reviewing their information so I might as well write something.
There’s never time to write about everything I want to write about, and The Buckle is one that has often slipped through the cracks. And while there’s nothing dramatic to report, I thought it might be time to take a short look at their results.
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Market Watch updates
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