Last Thursday, Buckle (BKE, Financial) reported its monthly comparable store net sales, for stores open at least one year. The company reported a 10.9% decrease in its sales in the four-week period as of July 30 compared to the same time period last year. As a result, Buckle’s share price dipped 5.56% by closing on that day.
Also, Buckle’s share price has lost more than half (53.63%) of its market value since reaching its one year and eight-month high of $56 share in January 2015. In contrast, the broader Standard & Poor's 500 had returned 6.05% within the same time frame.
Buckle
According to its annual filing, Buckle is a 68-year old casual apparel, footwear and accessories retailer. The company was incorporated in Nebraska in 1948. Buckle has grown its store count for a 2% average in the past three years. Observably, Buckle has now been slowly opening new stores compared to the first half of this decade (2006 to 2010).
(Buckle’s net opened stores and sales growth, annual filings)
Further, Buckle’s sales growth per fiscal year also had declined accordingly. As of Jan. 30, it operated 468 retail stores in 44 states throughout the U.S. under the names "Buckle" and "The Buckle." In addition, Buckle also has its own ecommerce website (www.buckle.com). The online website was first launched in 1999 during the Internet go-go days and was redesigned in 2011.
In addition, Buckle provides personalized attention to its customers through its free hemming, free giftwrapping and easy layaway services. Buckle also provides its own private label credit card, including a frequent shopper program.
Buckle provides two different programs to further provide good services to its loyal customers. One is through the issuance of the rewards program under the Buckle Primo Card (soon to be changed to Buckle Guest Loyalty). The Buckle Primo Card is a card that carries a rewards program that is available to all of Buckle’s customers. Another is through the issuance of a special Buckle Black cardholder program. The latter is only provided to Buckle’s most loyal customers. Buckle identifies these loyal customers as being able to spend at least $500 on purchases in a 12-month period. According to the company, Buckle Black cardholders receive an exclusively designed card and also enjoy additional benefits, including free ground shipping on special orders and online purchases.
According to the company, Buckle’s Card marketing program is partially funded by Comenity Bank, a third-party bank that owns the Buckle Card accounts.
Sales and profits
Buckle derives most of its sales from two specific products: Denim and Tops. In fiscal year 2015, Denims contributed 42.5% while Tops delivered 31% of Buckle’s total sales. Buckle has more than 10 brands of denims that facilitate its business sales. Some of which were as follows: Miss Me, Rock Revival, Big Star Vintage, Buffalo Jeans, KanCan and Flying Monkey.
(Miss Me Boot Stretch Jean by Buckle)
In fiscal 2015, the brand names Miss Me/Rock Revival and Axis Denim (which produces private label denim for Buckle) accounted for 24.7% and 11.2% of Buckle’s net sales. On the other hand, Buckle’s same store sales* growth, a key metric for retailers, had shown a decline in recent years.
(Buckle’s Comparable Store Sales, Own Calculation; Buckle starts its fiscal year beginning February of each year.)
Comparable store sales definition
For Buckle’s first-quarter performance that was released in May, the company reported a 10.25% decline to $243.5 million in overall sales compared to the same period last year. Buckle also had its comparable sales store decreased by 11% year on year. Further, Buckle started including its online sales information starting 2015, Buckle’s filing revealed that its online sales also dipped by 2.8% to $23.5 million. Nonetheless, Buckle reported a profit decline of 28.78% to $23.9 million despite having reduction in overall costs and taxes.
Dividends
Buckle has been able to provide dividends to its shareholders despite the sales slump for the past three to four years. According to GuruFocus data, Buckle has a dividend payout ratio of 34%.
On a three-year average, Buckle has used 87% of its free cash flow to fund dividends and share buybacks. Also, Buckle had grown its dividends per share by 5.6%.
Share repurchases
In November 2008, Buckle authorized a 1 million share repurchase program. Interestingly, Buckle may have initially overpaid in repurchasing its shares back in the early part of the program. From 2008 to 2015, the company had spent some $53 million to repurchase 559,793 shares. The company had 440,207 or 44% shares left to repurchase as of fiscal year 2015.
Cash, debt and book value
As of April 30, Buckle had a total cash and short-term investments of $193 million and a total debt of zero. The company also had a book value of $426 million with zero goodwill and intangibles.
Cash flow
In fiscal year 2015, Buckle showed a 18.61% reduction to $159.3 million in cash flow from operations. Accordingly, the company allocated $34.58 million in capital expenditures leaving it with $124.7 million in free cash flow. Further, Buckle spent about $3.2 million in share repurchases and $93.77 million in dividend payouts. Overall, the company still had $27.76 million spare cash after all of its commitments.
In the first quarter, however, Buckle had to use $7.77 million of its cash and short-term investments to fund its dividend payouts amounting to $12.16 million secondary to significant reduction (-43.37%) in its cash flow from operations. The company still had $153.4 million in cash after the aforementioned deductions.
Valuations
According to GuruFocus data, Buckle currently has a trailing 12-month price-to-earnings ratio of 9 times, and price-to-book valuation of three times. The company also has a price-to-sales ratio 1.14 times. These findings suggest that Buckle is trading at a discount compared to its five-year averages. In comparison, the broader S&P 500 had price-to-earnings ratio of 20 times, and price-to-book value of 2.8 times.
Conclusion
Buckle is slated to report its second quarter performance on Aug. 19. There’s a good chance that Buckle’s share price would experience another dip secondary to its recent performance in monthly sales (see first paragraph). Nonetheless, the company is being traded at a good discount compared to its historical valuation and the broader market. In addition, Buckle seems to be able to maintain its dividend payouts and was able to responsibly allocate appropriate cash to fund its per-share growth overtime. In addition, the company has no debt to worry about.
Further, the company may attract some acquirers at a current market capitalization of $1.3 billion accompanied by its discounted valuations. Also, only when Buckle’s store sales demonstrate a turnaround will Mr. Market appreciate this company’s shares again.
Disclosure: I am long Buckle.
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