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Buckle Inc. (BKE) Analysis

February 24, 2014 | About:
David Kerr

David Kerr

12 followers

The Buckle Inc. (BKE) is a well-known retailer of moderately, and higher than moderately, priced casual apparel. The Buckle also sells footwear and accessories for men and women between the ages of 15 and 30. The company primarily targets college students and recent college grads. Roughly 41% of the company’s merchandise is men’s, with the remaining 59% for women. The Buckle is well known for being a major denim retailer. The company carries over 1,000 various denim styles from over 20 leading brands. Denims account for roughly 45% of revenue for The Buckle.

Company Strength

Let’s talk statistics. Buckle is one of the better-run retail stores. The company has had a steady five-year operating margin of about 22%. That’s one of the best in the industry. In fact, it’s better than 95% of the industry. The Buckle also has a current P/E ratio of 12.57x, which again is better than over 90% of competitors in the industry. That’s not all. The company is currently rocking a return of equity of 40.14%. That’s huge. The Buckle also has an impressive return on assets of 34.40%. This is higher than all of the other 1030 companies in the apparel industry. Return on equity, return on capital, and return on assets improved 50%, 49%, and 32% in fiscal 2013 (up from 24%, 22% and 17% in fiscal 2008).

You will quickly become even more impressed when you look at the company’s balance sheet. Let’s first take a look at the big picture: Total Assets = $546 million, Total Liabilities = $113 million. That’s strong. And here’s why:

The Buckle has close to $500 million in assets, with zero debt. That’s not something that we see too often. They even hold a decent $131 million in cash.

For the first five years, through fiscal year 2013, The Buckle experienced a revenue compound annual growth rate (CAGR) of 14%, an earnings before interest and taxes (EBIT) CAGR of 19%, and an earnings from continuing operations CAGR of 17%.

Management

Management has taken advantage of a “slow and steady” growth strategy. The Buckle has elected to return the bulk of its cash flow to shareholders in the form of dividends. The company currently has a dividend yield of 1.9%. On top of this, The Buckle has also paid out random huge dividends every year for the last six years. The giant payouts have ranged from 3% to 9%.

The Buckle’s team is seasoned, experienced, and even very vested. Founder and chairman Daniel Hirschfeld still owns 33.5% of the company. Chief Executive Officer Dennis Nelson has been in his position since 1997 and owns roughly 6% of his own, while Chief Financial Officer and Director Karen Rhoads stays with the firm with over 20 years of experience. Here’s a breakdown of how they get paid:

Valuation

If we take a look at the conventional P/E method, we can subtract the $131 million in cash and turn this into a $1.96 billion company. The current net income of $165 million equates to a P/E of 11.87x. The P/E is currently close to a 3-year low.

We can also take a quick look at the DCF Calculator for The Buckle found on GuruFocus.com. This calculation values the company at $70.39, which gives us a 39% moat. This is assuming a 15% growth rate over the next 15 years, which is, in my opinion, somewhat conservative.

It’s also a good idea to take a look at a metric loved by the great Peter Lynch. If we compare the share price over time to the price at P/E = 15 we can view the chart below, which assumes that the company is currently undervalued.

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End Notes

In my view, it’s a great time to invest in this company. Investing in retail is always tricky, but between the steady increase in revenue per share and the consistent margins, it seems like a great time to jump in. What do you think?

Disclosure: No current position held at the time of writing.

Disclaimer: The opinions and ideas in this article are for informational and educational purposes only. They are not a recommendation to buy or sell any stock at any given time. As always, it is imperative for each individual investor to do their own due diligence and perform their own research on any and all stocks before making an investment decision.

About the author:

David Kerr
Previously licensed to sell securities, David now utilizes his knowledge and experience solely for the purpose of growing his own personal portfolio and educating those around him.

Rating: 3.4/5 (10 votes)

Voters:

Comments

ramos285
Ramos285 premium member - 6 months ago

always like to read your articles as I am still new in these matters can tell where I will get these company `s balance sheet elements and data administrators? thank you

David Kerr
David Kerr premium member - 6 months ago

Thank you for the positive feedback. You can find the company's balance sheet information on GuruFocus.com under the stock's 10-Year Financials tab. For Buckle, that can be found here.

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