During the third quarter, Royce Premier Fund manager Chuck Royce (Trades, Portfolio) reduced his positions in Buckle Inc. (BKE, Financial) and Cato Corp. (CATO, Financial) as the companies offer weak revenue guidance for the rest of the year.
Buckle
Royce axed 69.8% of his Buckle position, selling 599,360 shares for an average price of $16.75 per share.
Company management said in a September quarterly report filing that Buckle’s same-store sales declined 7.7% during the three months ended July 29 compared to the prior-year period. Lower transactions at comparable stores and retail prices primarily contributed to the decline in same-store sales.
Buckle’s three-year revenue growth rate of -4.90% underperforms 73% of global apparel stores, suggesting the company is not as profitable as its competitors. Additionally, the company’s profit margins languish near a 10-year low despite outperforming 89% of competitors.
Cato
Royce sold 446,916 shares of Cato for an average price of $13.33 per share, reducing the position 73.77%.
On Aug. 17, CEO John Cato said his company reported a net loss of three cents per share for the 13-weeks ending July 29, driven by a 14% decline in same-store sales from the prior-year quarter. Cato then offered weak earnings guidance for the rest of the year, mentioning full-year earnings will significantly underperform the prior year due to “negative sales trends,” putting consistent pressure on company margins. Cato’s operating margin of 0.01% is near a 10-year low and underperforms 78% of global competitors.
See also
One of our top Forum posts from September discussed the retail sector, a volatile sector due to the presence of retail giant Amazon.com Inc. (AMZN, Financial).
We recently started a Forum post about how to research an industry. Based on the post on the retail sector, one way to research an industry is to run deep analyses on the top companies from the industry and look at competitive comparisons.
GuruFocus added industry-specific economic indicators to the Interactive Charts, allowing you to create charts like the one below:
The chart compares the per-share revenue for Dillard’s Inc. (DDS, Financial), Macy’s Inc. (M, Financial) and Ross Stores Inc. (ROST, Financial) to the average number of employees for clothing and accessories retail trade. In general, a higher number of employees in clothing stores should generate higher sales for apparel retail companies.
Disclosure: The author has no positions in the stocks mentioned.
