Negative sales and earnings growth over the last five years have put Buckle Inc.'s (BKE, Financial) future in Jeopardy.
In 2013, it earned $164 million on $1.1 billion in sales with gross margins of 44% and return on equity of 50%. In the last 12 months, it generated just $96 million in profit on $911 million in sales. This trend should scare investors and prevent new buyers from getting into the stock.
Buckle sells casual apparel, footwear and accessories through more than over 465 stores in 44 states across the U.S. Since the June high of $28, the stock is off 28%. If its earnings estimates of $1.85 for 2019 come to fruition, the fair value based on historical earnings multiples could be $22 per share.
The problem is Buckle has posted lower sales and profit every year going back to 2013 and, to the market's credit, its stock has followed suit. Since the end of 2013, Buckle is down 58%. While some are hopeful the retailer can bring back value to shareholders, the numbers are telling a different story.
Despite Buckle's fiscal second-quarter results coming in "better than expected," with a slight rise in same-store sales, two weeks ago, the company issued dismal comps performance in September. For the five-week period ending Oct. 6, the company's same-store sales recorded a drop of 2.4% year over year. Prior to this, it witnessed comps decline of 0.7% in August and 1.2% in June, and an increase of 2.3% in July. Women's merchandise sales were down 1.5%, and the average price point fell 4.5%. Men's merchandise sales were up 9.5%, though the average price point here dropped 3%. Footwear sales were up 8.5%, but accessories sales were down 4.5%.
The one bright spot is with the company's online sales, which rose 8.6%; however, that could just mean customers who want to shop at Buckle won't be doing so at its stores. The retailer generated net sales of $75.4 million in September, down 3.2% year over year, and same-store sales for the current fiscal year declined 1.1%, while net sales were off 1.7% to $556.6 million.
The company has been able to sell merchandise at higher price points, helping it slightly expand gross margins. Investors, however, should not be caught up in the low price-earnings ratio and positive net current asset value, but instead think about the intense uphill battle it is facing to turn around its financial performance in the middle of a potential market correction cycle.
If the market capitalization was close to its net current asset value of $238 million, the stock would be a bargain, especially if the company could continue paying the 5% dividend. In the last five years, Buckle has seen significant declines across its net margins, return on assets, equity and invested capital. Investors relying on the current snapshot are simply not getting the full picture.
Things are bad at Buckle and short sellers have taken note, building a 54% position in the float. Retail as a whole has been on a tear of late and, as it comes to an end, Buckle will likely continue to post 10% yearly profit declines. The management could use some of the $220 million in cash to buy back stock, but if margins continue to fall, the stock is toast.
Disclosure: I am not long or short BKE.
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