Not Much Happened But That’s Not So Bad; The Buckle’s Quarter

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.

Boring, though kind of in a good way. I’d describe the discussion during the conference call like a bunch of people at a party they don’t really want to be at trying to think of something to talk about.

The balance sheet is strong. The only thing I might note is the increase in inventory from $128 to $151 million on flat sales. This was a subject of conversation in the conference call. They had reasonable explanations and noted that comparable store inventory was up 10%, but was down 5.5% at the end of last year’s quarter, so the growth wasn’t quite what it seemed to be.

The Buckle ended the quarter with 464 stores, up from 456 a year ago. Comparative store sales fell by 1.7%. Here’s the explanation for that decline.

“The comparable store sales decline for the quarter was primarily attributable to a 4.7% reduction in the number of transactions at comparable stores and a 1.7% reduction in the average number of units sold per transaction, partially offset by a 4.6% increase in the average retail price per piece of merchandise sold during the quarter. Sales growth for the thirteen week period was, therefore, attributable to the inclusion of a full quarter of operating results for the 15 new stores opened after the first quarter of fiscal 2014 and to the opening of 4 new stores during the first two quarters of fiscal 2015. Online sales for the quarter increased 17.4% to $20.1 million for the thirteen week period ended August 1, 2015 compared to $17.1 million for the thirteen week period ended August 2, 2014.”

You know, it’s not necessarily a bad thing to be able to increase your average retail price even at the cost of some sales. But not too many sales of course, and not so that your comparable store sales decline.

What else did we learn? Private label is about one third of theirs business. Average denim price point for women was $95.45 compared to $94.40 for men. I guess I would have expected the average men’s price point to be way lower than for women. Does anybody know what the comparison is like for other retailers?

In discussing the inventory, President and CEO Dennis Nelson notes the following:

“…we’re trying to do a better job of inventory in all our stores, some of the smaller stores have been a little low on inventory so we’re trying to get a better mix there for them. We’re also having the stores as for more extended sizes like in Men’s XX, XXX shirts for guys and certain spin brands also on the other end carrying more small both the men’s and women’s we’re getting more request for longer length jeans and extra-long jeans than we’ve been stocking, we’re introducing additional lifestyle brands, our own brands that we think would attract the guest that may be is not buying it as much as they could be from us, as well as expanding our kids inventory to all stores, still not at a high level inventory but definitely getting that out and raising our inventory there as well.”

The reason I quoted that at length is so we focus on the extent of change and detail that’s going into managing inventory. Sizes, brands, assortments changing all the time. I don’t know if The Buckle is doing this better or worse than its competitors, but I know all retailers have to be doing it. It’s especially important in a market where there doesn’t seem to be a dominant trend driving inventory decisions.

He goes on to make a related comment:

“…we probably have more guest over the age of 25 than under the age of 25 and so that kind of shifts some of the shopping at different times of the year. We have such a wide selection of product and a wide selection of fits as far as in our denim and even in our top categories that we can hit on different lifestyles with all our guest of different ages. So that gives us an opportunity there but it also creates challenges of how to narrowly focus on certain ones as well. But I think the team does a very nice job on that.”

Think of the complexity that implies and the impact on inventory management. Opportunity but also, as he notes, “challenges.”

The other thing I find interesting at The Buckle is how they are looking at new stores. CEO Nelson indicates they aren’t looking for a specific number of stores, but to open stores in the right circumstances where they can expect long term success. It sounds like they may remodel more stores than they open this year.

I guess you can be disappointed that they didn’t grow sales, but if profitability and their balance sheet remain strong as they try to run their business better and are discriminating in how they expand, that’s not a bad result in this environment.