A Brief Review of The Buckle’s Quarter

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?