The Buckle Annual Report: Less Online, More Brick and Mortar Focus?

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. 

The Buckle, according to the 10K which you can see here, “…is a retailer of medium to better-priced casual apparel, footwear, and accessories for fashion-conscious young men and women….The Company emphasizes personalized attention to its customers and provides customer services such as free hemming, free gift-wrapping, easy layaways, the Buckle private label credit card, and a frequent shopper program.” Most stores have somebody to do alterations. The Buckle’s stores “…are located in regional, high-traffic shopping malls and lifestyle centers…” and they expect it will stay that way.
“The Company’s marketing and merchandising strategy is designed to create customer loyalty by offering a wide selection of key brand name and private label merchandise and providing a broad range of value-added services. The Company believes it provides a unique specialty apparel store experience with merchandise designed to appeal to the fashion-conscious 15 to 30-year old.”
“Management believes the Company provides a unique store environment by maintaining a high level of personalized service and by offering a wide selection of fashionable, quality merchandise. The Company believes it is essential to create an enjoyable shopping environment and, in order to fulfill this mission, it employs highly motivated employees who provide personal attention to customers. Each salesperson is educated to help create a complete look for the customer by helping them find the best fits and showing merchandise as coordinating outfits.”
Most of you know I’ve got a problem with the word “unique.” It’s not that we couldn’t use some of that in this industry. The Buckle does, as they say, some things to differentiate itself in the market, but as a group, they don’t rise to unique.
Here’s a breakdown of their sales for the last two years by product group:
They try to deliver new merchandise daily to stores, and have a program to shift merchandise to where it’s selling best.   They warehouse part of their initial shipments so they can distribute it as sales patterns require. They strive “…to provide a continually changing selection of the latest casual fashions.”
You can’t really read that without “fast fashion” coming into your brain. But every retailer is striving to improve their systems to make sure they get the right product to the right customer at the right time. That’s always been good business. You need to do it even if “fast fashion” isn’t where you see yourself competing.
Stores average about 5,000 square feet and range from 2,900 to 8,475. A reader pointed out to me that the wider the variation in square feet among stores, the more difficult it is to merchandise and inventory a store because different sizes require different layouts and quantities. I guess that’s something that most multi store retailers have to deal with. The Buckle expects to open 17 stores this year and complete 17 full store remodels.
The Numbers
Sales for the year ended February 1, 2014 were $1.128 billion (including online sales of $29.3 million), up from $1.124 billion in the year ended February 2, 2013. That’s an increase of 0.35%. So not much.
One of the analysts noted that online sales growth was “…below the industry growth rate for e-comm,” and asked why that was. Here’s the answer from President and CEO Dennis Nelson…
“…we have not been promotional with our online sales and have not had any free shipping specials. We continually run our business regular price like our stores and also over the last year we have added that if a guest orders or buys something that they can special order that out of the store and have free shipping and pick up at the stores and I know that has cut into the online business as well. So we think it’s been a good way to run the business in a profitable way.”
Gross profit was pretty much, well, the same at $499 million. The gross profit margin fell 0.2% to 44.2%. Selling expenses were up $4.9 million to $206.9 million while general and administrative expenses fell by $3.9 million.  The decline in G & A expense was mostly the result of lower equity compensation and incentive bonus accruals. I’d guess they’d like to be paying that, as it would be indicative of better performance. Anyway, not much change in expenses. Ho hum.
Net income fell a bit from $164.3 to $162.6 million, or by 1%.
Well this is all kind of boring. What the hell am I supposed to analyze? Their store count went up by ten during the year. Comparable store sales were unchanged after being up 2.1% the prior year, so the sales increase was the result of new stores. The Buckle does not include online sales in the comparable store sales computation. 
Ah, here’s something. Fourth quarter sales fell 6% from $360.6 to $339 million. All the other quarters had sales increases, though the third quarter increase was small.   We all already know that retailers had a tough holiday season so I guess there’s not much to discuss there either.
There’s no long term debt and hasn’t been. The current ratio is strong and improved. Hmmm. I do see that inventory is up almost 20% on a very small sales increase. It went from $103.9 to $124.1 million. New stores, they tell us, require a $200,000 inventory investment, so that would be $2 million. On a comparable store basis it was still up 18%. Mark down inventory was up compared to the end of the prior year. They tell us, “The adjustment to inventory for markdowns and/or obsolescence was $7.4 million as of February 1, 2014 and $6.3 million as of February 2, 2013, respectively.” A higher adjustment decreases inventory.
In the conference call, they characterize the inventory increase as being the result of being under inventoried in some areas.
Let me try and finish this up with an analyst’s question and the answer Dennis Nelson gives. I think it tell you something about how The Buckle views its competitive positioning.   The question was, “…do you think you are being negatively affected by the so called omnichannel where expectations are for 24/7 online, mobile, price ops kind of experience where you might actually be being showrooms or fitted at Buckle and then having customers make purchase — purchases somewhere else online?”
The answer was, “I think the key to our success along with our people is in our selection with our brands we almost probably 70% – 80% exclusive styles in most seasons and so to find that exact product or sometimes it’s an exclusive fit for us as well as design so that the guest cannot go elsewhere to buy that product and then among our own brands we have several of our own labels in both men’s and women’s that our teams merchandise and design and are also exclusive and now we have a great look, fit but it’s unique styling and has been very successful as well.”
Mr. Nelson kind of punted on the question. Not that this is the first time that’s happened in a conference call. But he said a couple of important things. First, that he thinks 70 to 80 percent of their styles are exclusive (I’m not entirely clear what that means). Second, in not directly addressing the omnichannel issue, he implies that The Buckle is relying on their brick and mortar presentation, their “exclusive” product, their people, and the services they offer in their stores to compete. It sounded to me like they are less focused on the omnichannel than some other teen retailers.
Doing pretty much the same as you did a year ago isn’t all that bad in the current retail market The Buckle serves. The retail strategy seems to emphasize some different services and points of distinction from certain of their competitors. I have trouble with their use of the words “exclusive” and “unique,” but I will watch with interest to see how their brick and mortar strategy, which seems to be less online focused, works out.