UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended OCTOBER 30, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ____________ to ____________
Commission File Number: 001-12951
THE BUCKLE, INC.
(Exact name of Registrant as specified in its charter)
NEBRASKA 47-0366193
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2407 WEST 24TH STREET, KEARNEY, NEBRASKA 68845-4915
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (308) 236-8491
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
The number of shares issued of the Registrant's Common Stock, outstanding as of
December 1, 2004 was 21,619,290 shares of Common Stock.
THE BUCKLE, INC.
FORM 10-Q
INDEX
Pages
-----
Part I. Financial Information (unaudited)
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits 18
Signatures 19
2
THE BUCKLE, INC.
BALANCE SHEETS
(Columnar amounts in thousands)
(Unaudited)
October 30, January 31,
2004 2004
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 123,473 $ 119,976
Investments 26,578 23,346
Accounts receivable, net of
allowance of $118,000 and $181,000, respectively 2,173 3,585
Inventory 94,719 61,156
Prepaid expenses and other assets 5,692 9,563
--------- ---------
Total current assets 252,635 217,626
PROPERTY AND EQUIPMENT 144,312 139,434
Less accumulated depreciation and amortization 78,002 73,134
--------- ---------
66,310 66,300
LONG-TERM INVESTMENTS 46,521 52,647
OTHER ASSETS 1,107 1,307
--------- ---------
$ 366,573 $ 337,880
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 16,145 $ 14,207
Accrued employee compensation 11,204 12,171
Accrued store operating expenses 6,925 5,127
Gift certificates redeemable 1,911 3,102
Income taxes payable 8,658 2,760
--------- ---------
Total current liabilities 44,843 37,367
DEFERRED COMPENSATION 1,689 1,467
DEFERRED TAX LIABILITY 1,490 1,490
--------- ---------
Total liabilities 48,022 40,324
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, authorized 100,000,000 shares
of $.01 par value; issued 21,549,690 and
21,484,316 shares, respectively 215 215
Additional paid-in capital 23,906 24,245
Retained earnings 295,115 275,836
Unearned compensation - restricted stock (685) (2,740)
--------- ---------
Total stockholders' equity 318,551 297,556
--------- ---------
$ 366,573 $ 337,880
========= =========
See notes to financial statements.
3
THE BUCKLE, INC.
STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
October 30, November 1, October 30, November 1,
2004 2003 2004 2003
---- ---- ---- ----
SALES, net of returns and allowances $133,722 $121,325 $325,344 $288,721
COST OF SALES (including buying,
distribution and occupancy costs) 81,480 77,680 212,545 197,609
-------- -------- -------- --------
Gross profit 52,242 43,645 112,799 91,112
-------- -------- -------- --------
OPERATING EXPENSES:
Selling 24,785 21,353 61,518 54,312
General and administrative 4,814 3,822 12,564 9,998
-------- -------- -------- --------
29,599 25,175 74,082 64,310
-------- -------- -------- --------
Income from operations 22,643 18,470 38,717 26,802
OTHER INCOME, Net 910 776 2,653 2,848
-------- -------- -------- --------
Income before income taxes 23,553 19,246 41,370 29,650
PROVISION FOR INCOME TAXES 8,643 7,063 15,190 10,885
-------- -------- -------- --------
NET INCOME $ 14,910 $ 12,183 $ 26,180 $ 18,765
======== ======== ======== ========
Per share amounts:
Basic income per share $ 0.70 $ 0.57 $ 1.22 $ 0.89
======== ======== ======== ========
Diluted income per share $ 0.67 $ 0.56 $ 1.18 $ 0.87
======== ======== ======== ========
Basic weighted average shares 21,357 21,207 21,377 21,091
Diluted weighted average shares 22,132 21,682 22,177 21,603
See notes to financial statements.
4
THE BUCKLE, INC.
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Thirty-nine Weeks Ended
-----------------------
October 30, 2004 November 1, 2003
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 26,180 $ 18,765
Adjustments to reconcile net income to net cash
flows from operating activities
Depreciation 9,548 9,369
Loss on disposal of assets 381 546
Amortization of unearned compensation-restricted stock 2,055 802
Changes in operating assets and liabilities
Accounts receivable 1,412 (2,291)
Inventory (33,563) (24,040)
Prepaid expenses and other assets 3,871 (1,154)
Accounts payable 1,938 4,768
Accrued employee compensation (967) (3,828)
Accrued store operating expenses 1,798 1,264
Gift certificates redeemable (1,191) (1,028)
Income taxes payable 5,898 5,927
Deferred compensation 222 390
---------- ---------
Net cash flows from operating activities 17,582 9,490
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (17,837) (23,161)
Proceeds from sales and maturities of investments 20,731 22,669
Purchase of property and equipment (9,939) (11,505)
Change in other assets 200 (1,146)
---------- ---------
Net cash flows from investing activities (6,845) (13,143)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the exercise of stock options 3,121 1,553
Purchases of common stock (3,460) (1,401)
Dividends paid to shareholders (6,901) (2,137)
---------- ---------
Net cash flows from financing activities (7,240) (1,985)
---------- ---------
Net increase/(decrease) in cash and cash equivalents 3,497 (5,638)
Cash and cash equivalents, Beginning of period 119,976 92,976
---------- ---------
Cash and cash equivalents, End of period $ 123,473 $ 87,338
========== =========
See notes to financial statements.
5
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED
OCTOBER 30, 2004 AND NOVEMBER 1, 2003
(Unaudited)
1. Management Representation - The accompanying unaudited financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. In the opinion
of management, all adjustments necessary for a fair presentation of the
results of operations for the interim periods have been included. All such
adjustments are of a normal recurring nature. Because of the seasonal
nature of the business, results for interim periods are not necessarily
indicative of a full year's operations. The accounting policies followed
by the Company and additional footnotes are reflected in the financial
statements for the fiscal year ended January 31, 2004, included in The
Buckle, Inc.'s 2003 Annual Report.
Stock-Based Compensation - The Company has three stock option plans which
allow for granting of stock options to employees and directors, as
described more fully in the notes included in the Company's 2003 Annual
Report. A total of 3,225,000 shares of common stock are authorized for
grants under such plans as of October 30, 2004; of these authorized
shares, 308,797 shares were available for grant under the various plans,
of which 187,700 were available to executive officers. The Company
accounts for those plans under the recognition and measurement principles
of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. The stock-based compensation expense reflected in
net income is the result of the issuance of 169,840 shares of restricted
stock on June 26, 2003. There is no recorded expense from the issuance of
stock options, as all options granted under the various plans had an
exercise price equal to the market value of the common stock on the date
of grant. The following table illustrates the effect of the restricted
stock expense on net income and the impact on net income and earnings per
share if the Company had applied the fair value recognition provisions of
FASB Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.
Thirteen Weeks Ended Thirty-nine Weeks Ended
Oct 30, 2004 Nov. 1, 2003 Oct. 30, 2004 Nov. 1, 2003
-------------------------- --------------------------
Net income, as reported $ 14,910 $12,183 $ 26,180 $ 18,765
Add: Stock-based employee compensation
expense included in reported net
income, net of related tax effects 434 377 1,290 509
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related tax effects (884) (1,053) (3,142) (2,536)
-------- ------- -------- --------
Pro forma net income $ 14,460 $11,507 $ 24,328 $ 16,738
======== ======= ======== ========
Earnings per share:
Basic - as reported $ .70 $ .57 $ 1.22 $ .89
======== ======= ======== ========
Basic - pro forma $ .68 $ .54 $ 1.14 $ .79
======== ======= ======== ========
Diluted - as reported $ .67 $ .56 $ 1.18 $ .87
======== ======= ======== ========
Diluted - pro forma $ .65 $ .53 $ 1.09 $ .77
======== ======= ======== ========
6
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED
OCTOBER 30, 2004 AND NOVEMBER 1, 2003
(Unaudited)
2. Description of the Business - The Company is a retailer of medium to
better priced casual apparel, footwear and accessories for fashion
conscious young men and women. The Company operates their business as one
reportable industry segment. The Company had 327 stores located in 38
states throughout the central, northwestern and southern regions of the
United States as of October 30, 2004, and 319 stores in 38 states as of
November 1, 2003. During the third quarter of fiscal 2004, the Company
opened three new stores and substantially renovated one store. During the
third quarter of fiscal 2003, the Company opened six new stores and
substantially renovated two stores.
The following is information regarding the Company's major product lines,
stated as a percentage of the Company's net sales:
Percentage of Net Sales Percentage of Net Sales
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
Oct. 30, 2004 Nov. 1, 2003 Oct. 30, 2004 Nov. 1, 2003
------------- ------------ ------------- ------------
Merchandise Group
Denims 43.8% 39.6% 39.0% 35.3%
Slacks/Casual bottoms 2.3% 5.1% 2.4% 3.9%
Tops (incl. sweaters) 32.1% 31.4% 32.2% 32.3%
Sportswear/Fashions 1.1% 1.0% 6.0% 6.5%
Outerwear 3.3% 4.6% 1.6% 2.3%
Accessories 10.0% 10.1% 10.9% 10.0%
Footwear 7.3% 8.2% 7.9% 9.6%
Other 0.1% 0.0% 0.0% 0.1%
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
3. Net Income Per Share - Basic earnings per share data are based on the
weighted average outstanding common shares during the period. Diluted
earnings per share data are based on the weighted average outstanding
common shares and the effect of all dilutive potential common shares,
including stock options. Options to purchase 179,835 and 1,002,750 shares
of common stock for the periods ended October 30, 2004 and November 1,
2003, respectively, are not included in the computation of diluted
earnings per share because the options would be considered anti-dilutive.
Thirteen Weeks Ended Thirteen Weeks Ended
October 30, 2004 November 1, 2003
---------------- ----------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
Basic EPS
Net Income $ 14,910 21,357 $ 0.70 $ 12,183 21,207 $ 0.57
Effect of Dilutive Securities
Stock Options - 775 (.03) - 475 (.01)
--------- ------ -------- -------- ------ ------
Diluted EPS $ 14,910 22,132 $ 0.67 $ 12,183 21,682 $ 0.56
========= ====== ======== ======== ====== ======
7
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED
OCTOBER 30, 2004 AND NOVEMBER 1, 2003
(Unaudited)
Thirty-nine Weeks Ended Thirty-nine Weeks Ended
October 30, 2004 November 1, 2003
---------------- ----------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
Basic EPS
Net Income $ 26,180 21,377 $ 1.22 $ 18,765 21,091 $ 0.89
Effect of Dilutive Securities
Stock Options - 800 (.04) - 512 (.02)
---------- ------ -------- -------- ------ ------
Diluted EPS $ 26,180 22,177 $ 1.18 $ 18,765 21,603 $ 0.87
========== ====== ======== ======== ====== ======
8
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and notes thereto of the Company included in this Form 10-Q. The
following is management's discussion and analysis of certain significant factors
which have affected the Company's financial condition and results of operations
during the periods included in the accompanying financial statements.
EXECUTIVE OVERVIEW
Company management considers the following items to be key performance
indicators in evaluating Company performance.
Comparable Store Sales - Stores are deemed to be comparable stores if they were
open in the prior year on the first day of the fiscal period being presented and
were open for the full fiscal period in both the current and prior year. Stores
which have been remodeled, expanded and/or relocated, but would otherwise be
included as comparable stores, are not excluded from the comparable store sales
calculation. Management considers comparable store sales to be an important
indicator of current company performance, helping provide positive operating
leverage for certain fixed costs when results are positive. Negative comparable
store sales results could reduce net sales and have a negative impact on
operating leverage, thus reducing net earnings.
Beginning with the four-week period ended May 1, 2004, the Company changed its
method of reporting comparable store sales to exclude internet sales. Comparable
store sales reported for all periods subsequent to that date reflect the impact
of this change. The impact of internet sales on comparable store sales results
for all prior periods was immaterial.
Net Merchandise Margins - Management evaluates the components of merchandise
margin including initial markup and the amount of markdowns during a period. Any
inability to obtain acceptable levels of initial markups or any significant
increase in the Company's use of markdowns, could have an adverse effect on the
Company's gross margin and results of operations.
Operating Margin - Operating margin is a good indicator for Management of the
Company's success. Operating margin can be positively or negatively affected by
comparable store sales, merchandise margins, occupancy costs and the Company's
ability to control operating costs.
Cash Flow and Liquidity (working capital) - Management reviews current cash and
short-term investments along with cash flow from operating, investing and
financing activities to determine the Company's short-term cash needs for
operations and expansion. The Company believes that existing cash and cash flow
from operations will be sufficient to fund current and long-term anticipated
capital expenditures and working capital requirements for the next several
years.
9
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The table below sets forth the percentage relationships of sales and various
expense categories in the Statements of Income for each of the thirteen and
thirty-nine week periods ended October 30, 2004, and November 1, 2003:
THE BUCKLE, INC.
RESULTS OF OPERATIONS
Percentage of Net Sales Percentage of Net Sales
----------------------- -----------------------
Thirteen weeks ended Percentage Thirty-nine weeks ended Percentage
Oct. 30, Nov. 1, increase Oct. 30, Nov. 1, increase
2004 2003 (decrease) 2004 2003 (decrease)
---- ---- ---------- ---- ---- ----------
Net sales 100.0% 100.0% 10.2% 100.0% 100.0% 12.7%
Cost of sales (including
buying, distribution and
occupancy costs) 60.9% 64.0% 4.9% 65.3% 68.4% 7.6%
----- ----- ----- -----
Gross profit 39.1% 36.0% 19.7% 34.7% 31.6% 23.8%
Selling expenses 18.6% 17.6% 16.1% 18.9% 18.8% 13.3%
General and
administrative expenses 3.6% 3.2% 26.0% 3.9% 3.5% 25.7%
----- ----- ----- -----
Income from operations 16.9% 15.2% 22.6% 11.9% 9.3% 44.5%
Other income, net 0.7% 0.6% 17.2% 0.8% 1.0% (6.8)%
----- ----- ----- -----
Income before income
taxes 17.6% 15.8% 22.4% 12.7% 10.3% 39.5%
Provision for income tax 6.5% 5.8% 22.4% 4.7% 3.8% 39.5%
----- ----- ----- -----
Net income 11.1% 10.0% 22.4% 8.0% 6.5% 39.5%
===== ===== ==== ===== ===== ====
Net sales increased from $121.3 million in the third quarter of fiscal 2003 to
$133.7 million in the third quarter of fiscal 2004, a 10.2% increase. Comparable
store sales increased from the third quarter of fiscal 2003 to the third quarter
of fiscal 2004 by $6.0 million or 5.1%. The comparable store sales increase
resulted partially from a 0.9% increase in the average price per piece of
merchandise sold compared with the fiscal 2003 third quarter.
Net sales increased from $288.7 million in the first nine months of fiscal 2003
to $325.3 million for the first nine months of fiscal 2004, a 12.7% increase.
Comparable store sales for the thirty-nine weeks ended October 30, 2004 compared
to the thirty-nine weeks ended November 1, 2003 increased $20.9 million or 7.5%.
The comparable store sales increase resulted partially from a 1.2% increase in
the average price per piece of merchandise sold compared with the first
thirty-nine weeks of fiscal 2003. Sales growth for this thirty-nine week period
was also attributable to the inclusion of a full nine months of operating
results for the 16 stores opened in 2003 and the opening of 11 new stores in the
first thirty-nine weeks of fiscal 2004.
The Company's increase in the average price per piece of merchandise sold (as
stated above) during the third quarter and year-to-date was primarily
attributable to the following changes: an increase in the average price of
10
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
accessories of 6.9% and an increase denim price points of approximately 4.5%,
partially offset by decreases average prices in fashion wear of 8.1%, decrease
in outerwear price points of 17.1%, and decreased average prices in footwear of
4.8%. The average price points for the remaining merchandise categories remained
even with the prior year. These changes are primarily a reflection of
merchandise shifts in terms of brands, product styles, fabrics, details and
finishes. Average sales per square foot increased 7.4% from $188 to $202 for the
nine months ended October 30, 2004.
Gross profit after buying, occupancy, and distribution expenses increased $8.6
million in the third quarter of fiscal 2004 to $52.2 million, a 19.7% increase.
As a percentage of net sales, gross profit was 39.1% in the third quarter of
fiscal 2004 versus 36.0% in the third quarter of fiscal 2003. Gross profit
increased $21.7 million for the first thirty-nine weeks of fiscal 2004 to $112.8
million, a 23.8% increase. As a percentage of net sales, gross profit in the
first nine months increased from 31.6% for fiscal 2003, to 34.7% for fiscal
2004. Increases in gross profit, as a percentage of net sales, for both the
three and nine month periods of fiscal 2004 compared to the same periods of
fiscal 2003 resulted primarily from improvement in actual merchandise margins of
2.0% and 1.7%, respectively. This improvement was achieved through fewer
markdowns, timely sell-throughs on new products and an increase in sales of
private label merchandise which has higher margins. Additional improvements came
from occupancy costs which decreased as a percentage of net sales by 0.9% and
1.2% for the third quarter and year-to-date, respectively, and distribution
costs which decreased by 0.3% for each the three and nine-month periods reported
due to leverage provided by growth in comparable store sales for the periods.
Selling expense increased from $21.4 million in the third quarter of fiscal 2003
to $24.8 million for the third quarter of fiscal 2004, a 16.1% increase. Selling
expenses as a percentage of net sales increased from 17.6% for the third quarter
of fiscal 2003 to 18.6% for the third quarter of fiscal 2004. Year-to-date
selling expense rose 13.3% from $54.3 million through the first nine months of
fiscal 2003 to $61.5 million for the first nine months of fiscal 2004. As a
percentage of net sales, selling expense in the first nine months increased from
18.8% for fiscal 2003, to 18.9% for fiscal 2004. As a percentage of net sales,
the increases in selling expense for both the three and nine month periods were
primarily attributable to higher bonus accruals for year-end incentives based
upon growth in comparable store sales, growth in gross margin and growth in net
income. This resulted in additional expense of 1.2% and 0.8% for the three and
nine months, respectively. This increase was partially offset by slight
reductions in discretionary spending for advertising (down 0.1% each period) and
store and meeting travel (down 0.2% each period).
General and administrative expenses increased from $3.8 million in the third
quarter of fiscal 2003 to $4.8 million for the third quarter of fiscal 2004, a
26.0% increase. As a percentage of net sales, general and administrative
expenses increased from 3.2% for the third quarter of fiscal 2003 to 3.6% for
the third quarter of fiscal 2004. For the first nine months of fiscal 2004,
general and administrative expense rose 25.7% from $10.0 million for the nine
months ended November 1, 2003, to $12.6 million for the nine months ended
October 30, 2004. As a percentage of net sales, general and administrative
expense increased to 3.9% for the first nine months of fiscal 2004 compared to
3.5% for the first nine months of fiscal 2003. The increase in general and
administrative expense, as a percentage of net sales, for the three months ended
October 30, 2004, compared to the same period of fiscal 2003, resulted primarily
from a higher bonus accrual for year-end incentives based upon growth in
comparable store sales, gross margin and net income (0.4% increase). The
increase in general and administrative expense, as a percentage of net sales,
for the first nine months of fiscal 2004 compared to the same period of fiscal
2003 resulted primarily from
11
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
recording compensation expense related to restricted stock granted in 2003 (0.3%
increase) and higher bonus accruals for year-end incentives based upon growth in
comparable store sales, gross margin and net income (0.3% increase).
As a result of the above changes, the Company's income from operations increased
$4.1 million to $22.6 million for the third quarter of fiscal 2004 compared to
$18.5 million for the third quarter of fiscal 2003, a 22.6% increase. Income
from operations was 16.9% of net sales for the third quarter of fiscal 2004
compared to 15.2% of net sales for the third quarter of fiscal 2003. Income from
operations, year-to-date through October 30, 2004, was $38.7 million, an $11.9
million increase from the first nine months of the prior year. Income from
operations was 11.9% of net sales for the first nine months of fiscal 2004
compared to 9.3% for the first nine months of fiscal 2003.
For the quarter ended October 30, 2004, other income increased $0.1 million due
to additional interest and dividend income earned on a higher level of cash and
investments compared to the same period in the prior year. For the nine months
ended October 30, 2004, other income decreased $0.2 million primarily from lower
interest rates earned on cash and investments during the first half of the
current fiscal year compared to the same period of fiscal 2003.
Income tax expense, as a percentage of pre-tax income, was 36.7% in both the
third quarter of fiscal 2004 and the third quarter of fiscal 2003, bringing net
income to $14.9 million for the third quarter of fiscal 2004 versus $12.2
million for the third quarter of fiscal 2003, a 22.4% increase. Income tax
expense was also 36.7% of pre-tax income for both the first nine months of
fiscal 2004 and fiscal 2003, bringing net income to $26.2 million for the first
three quarters of fiscal 2004 versus $18.8 million for the same period of fiscal
2003, a 39.5% increase.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary ongoing cash requirements are for inventory, payroll, new
store expansion, and remodeling. Historically, the Company's primary source of
working capital has been cash flow from operations. During the first nine months
of fiscal 2004 and 2003, the Company's cash flow provided by operating
activities was $17.6 and $9.5 million, respectively.
The uses of cash for both thirty-nine week periods include payment of annual
bonuses accrued at fiscal year end, changes in inventory and accounts payable
for build up of inventory levels, and construction costs for new and remodeled
stores. The differences in cash flow for the first nine months of fiscal 2004
compared to the first nine months of fiscal 2003 were primarily due to growth in
net income, greater build-up of inventory, fewer purchases of investments, and
quarterly dividend payments to shareholders which began in the third quarter of
fiscal 2003.
The Company has available an unsecured line of credit of $17.5 million with
Wells Fargo Bank, N.A. for operating needs and letters of credit. The note
provides that outstanding letters of credit cannot exceed $10 million.
Borrowings under the line of credit note provides for interest to be paid at a
rate equal to the prime rate established by the Bank. The Company has, from time
to time, borrowed against this line
12
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
during periods of peak inventory build-up. There were no bank borrowings during
the first nine months of fiscal 2004 and only minor bank borrowings during the
first nine months of fiscal 2003. As of October 30, 2004, the Company had
working capital of $207.8 million, including $123.5 million of cash and cash
equivalents and short-term investments of $26.6 million.
During the first nine months of fiscal 2004 and 2003 the Company invested $9.1
million and $10.8 million (net of any construction allowances received from
landlords), respectively, in new store construction, store renovation and
upgrading store technology. The Company also spent approximately $0.8 million
and $0.7 million in the first nine months of fiscal 2004 and 2003, respectively,
in capital expenditures for the corporate headquarters and distribution center.
During the remainder of fiscal 2004, the Company anticipates completing
approximately three additional store construction projects, including
approximately two new stores and approximately one store to be remodeled and/or
relocated. As of October 30, 2004, three additional lease contracts have been
signed, and additional leases are in various stages of negotiation.
Management now estimates that total capital expenditures during fiscal 2004 will
be approximately $19.6 million before any landlord allowances estimated to be
$2.8 million. The Company believes that existing cash and cash flow from
operations will be sufficient to fund current and long-term anticipated capital
expenditures and working capital requirements for the next several years. The
Company has a consistent record of generating positive cash flow each year and,
as of October 30, 2004, had total cash and investments of $196.6 million. The
Company does not currently have plans for a merger, acquisition or accelerated
store expansion. The Company's plans for new store expansion and
remodels/relocations during the next three years are reasonably consistent with
its past three fiscal years' average. Based upon past results and current plans,
management does not anticipate any material changes in the Company's need for
cash in the upcoming year. However, future conditions may reduce the
availability of funds based upon factors such as a decrease in demand for the
Company's product, change in product mix, competitive factors and general
economic conditions as well as other risks and uncertainties which would reduce
the Company's sales, net profitability and cash flows. Also, the Company's
acceleration in store openings and/or remodels, or the Company entering into a
merger, acquisition, or other financial related transaction, could reduce the
amount of cash available for further capital expenditures and working capital
requirements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations are based upon The Buckle, Inc.'s financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
that management make estimates and judgments that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and liabilities, at
the financial statement date, and the reported amounts of sales and expenses
during the reporting period. The Company regularly evaluates its estimates.
Management bases its estimates on past experience and on various other factors
that are thought to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
13
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's certain critical accounting policies are listed below.
1. Revenue Recognition. Sales are recorded upon the purchase of merchandise
by customers. Revenue is not recorded when gift cards and gift
certificates are sold, but rather when a card is redeemed for merchandise.
A current liability is recorded at the time of card purchases. The Company
establishes a current liability for estimated merchandise returns based
upon historical average sales return percentage, applying the percentage
using the assumption that merchandise returns will occur within nine day
following the sale. Customer returns could potentially exceed historical
average and returns may occur after the time period reserved for, thus
reducing future net sales results and potentially reducing future net
earnings. The accrued liability for reserve for sales returns was $258,000
and $258,000 at October 30, 2004 and January 31, 2004, respectively.
2. Inventory. Inventory is valued at the lower of cost or market. Cost is
determined using the average cost method that approximates the first-in,
first-out (FIFO) method. Management makes adjustments to inventory and
cost of goods sold based upon estimates to reserve for merchandise
obsolescence and markdowns that could affect market value, based on
assumptions using calculations applied to current inventory levels by
department within each of four different markdown levels. Management also
reviews the levels of inventory in each markdown group versus the
estimated future demand for such product and the current market
conditions. Such judgments could vary significantly from actual results,
either favorably or unfavorably, due to fluctuation in future economic
conditions, industry trends, consumer demand and the competitive retail
environment. Such changes in market conditions could negatively impact the
sale of markdown inventory causing further markdowns, or inventory
obsolescence, resulting in increased cost of goods sold from write-offs,
and reducing the Company's net earnings. The liability recorded as a
reserve for markdowns and/or obsolescence was $3.6 million and $2.5
million as of October 30, 2004 and January 31, 2004, respectively. We are
not aware of any events, conditions or changes in demand or price that
would indicate to us that our inventory valuation may be materially
inaccurate at this time.
3. Income Taxes. Current income tax expense is the amount of income taxes
expected to be payable for the current fiscal year. The Company records a
deferred tax asset and liability for expected future tax consequences
resulting from temporary differences between financial reporting and tax
bases of assets and liabilities. The Company considers future taxable
income and ongoing tax planning in assessing the value of its deferred tax
assets. If the Company determines that it is more than likely that these
assets will not be realized, the Company would reduce the value of these
assets to their expected realizable value, thereby decreasing net income.
Estimating the value of these assets is based upon the Company's judgment.
If the Company subsequently determined that the deferred tax assets, which
had been written down, would be realized in the future, such value would
be increased. Adjustment would be made to increase net income in the
period such determination was made.
14
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OFF BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS AND COMMERCIAL
COMMITMENTS
As referenced in the tables below, the Company has contractual obligations and
commercial commitments that may affect the financial condition of the Company.
Based on management's review of the terms and conditions of its contractual
obligations and commercial commitments, there is no known trend, demand,
commitment, event or uncertainty that is reasonably likely to occur which would
have a material effect on the Company's financial condition or results of
operations. In addition, the commercial obligations and commitments made by the
Company are customary transactions which are similar to those of other
comparable retail companies.
The following tables identify the material obligations and commitments as of
October 30, 2004:
Payments Due by Period
--------------------------------------------------------
Contractual obligations
(dollar amounts in Less than After 5
thousands) Total 1 year 1-3 years 4-5 years years
- --------------------------- -------- --------- --------- --------- --------
Long term debt and purchase
obligations $ - $ - $ - $ - $ -
Deferred Compensation $ 1,689 $ 1,689 $ - $ - $ -
Operating leases $205,369 $ 31,088 $ 57,225 $ 50,179 $ 66,877
Total contractual
obligations $207,058 $ 32,777 $ 57,225 $ 50,179 $ 66,877
Amount of Commitment Expiration Per Period
----------------------------------------------------------------------
Other Commercial
Commitments (dollar amounts Total Amounts Less than After 5
in thousands) Committed 1 year 1-3 years 4-5 years years
- ---------------------------- ------------- --------- --------- --------- -------
Lines of Credit $17,500 $17,500 $ - $ - $ -
Total Commercial Commitments $17,500 $17,500 $ - $ - $ -
The Company did not have any contingent liability for landlord allowances as of
October 30, 2004. The Company has available an unsecured line of credit of $17.5
million of which $10 million is available for letters of credit. Certain
merchandise purchase orders require that the Company open letters of credit.
When the Company takes possession of the merchandise, it releases payment on the
letters of credit. Amounts of outstanding letters of credit, reported in the
notes included in the Company's 2003 Annual Report, reflect the open letters of
credit on merchandise ordered, but not yet received or funded. The Company
believes it has sufficient credit available to open letters of credit for
merchandise purchases.
15
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEASONALITY AND INFLATION
The Company's business is seasonal, with the Christmas season (from
approximately November 15 to December 30) and the back-to-school season (from
approximately July 15 to September 1) historically contributing the greatest
volume of net sales. For fiscal years 2001, 2002, and 2003, the Christmas and
back-to-school seasons accounted for approximately 40% of the Company's fiscal
year net sales. Although the operations of the Company are influenced by general
economic conditions, the Company does not believe that inflation has had a
material effect on the results of operations during the thirty-nine week periods
ended October 30, 2004, and November 1, 2003.
FORWARD LOOKING STATEMENTS
Information in this report, other than historical information, may be considered
to be forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "1995 Act"). Such statements are made in good
faith by the Company pursuant to the safe-harbor provisions of the 1995 Act. In
connection with these safe-harbor provisions, this management's discussion and
analysis contains certain forward-looking statements, which reflect management's
current views and estimates of future economic conditions, company performance
and financial results. The statements are based on many assumptions and factors
that could cause future results to differ materially. Such factors include, but
are not limited to, changes in product mix, changes in fashion trends,
competitive factors and general economic conditions, economic conditions in the
retail apparel industry, as well as other risks and uncertainties inherent in
the Company's business and the retail industry in general. Any changes in these
factors could result in significantly different results for the Company. The
Company further cautions that the forward-looking information contained herein
is not exhaustive or exclusive. The Company does not undertake to update any
forward-looking statements, which may be made from time to time by or on behalf
of the Company.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has evaluated the disclosure requirements of Item 305 of S-K
"Quantitative and Qualitative Disclosures about Market Risk," and has concluded
that the Company has no market risk sensitive instruments for which these
additional disclosures are required.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains a system of disclosure controls and procedures that are
designed to provide reasonable assurance that material information, which is
required to be timely disclosed, is accumulated and communicated to management
in a timely manner. An evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act")) was
performed as of the end of the period covered by this report. This evaluation
was performed under the supervision and with the participation of the Company's
Chief Executive Officer and Chief Financial Officer. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective to provide reasonable
assurance that information required to be disclosed by the Company in the
Company's
16
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
reports that it files or submits under the Exchange Act is accumulated and
communicated to the management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure and are effective to provide reasonable assurance that such
information is recorded, processed, summarized and reported within the time
periods specified by the SEC's rules and forms.
There have been no significant changes in the Company's internal control over
financial reporting that occurred during the fiscal quarter ended October 30,
2004, that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
17
THE BUCKLE, INC.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:
The following table sets forth information concerning purchases made by the
Company of its common stock for the periods indicated:
APPROXIMATE
DOLLAR VALUE OF
TOTAL TOTAL NUMBER OF SHARES THAT MAY
NUMBER AVERAGE SHARES PURCHASED YET BE PURCHASED
OF SHARES PRICE PAID AS PART OF PUBLICLY UNDER PUBLICLY
PURCHASED PER SHARE ANNOUNCED PLAN ANNOUNCED PLAN
--------- ---------- ------------------- ----------------
August 1, to August 28, 2004 60,000 $ 26.25 60,000 $ 1,135,550
August 29, to October 2, 2004 25,000 $ 26.73 25,000 $ 485,550
October 3, to October 30, 2004 - - - $ 485,550
85,000 $ 26.39 85,000
These shares were part of a 500,000 share repurchase plan, announced by
the Company on December 27, 2000. Subsequent to October 30, 2004, the
Company has not repurchased any additional shares of its common stock,
bringing the total repurchased under the plan to 481,325 shares.
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits:
(a) Exhibits 31.1 and 31.2 certifications, as well as Exhibits 32.1 and
32.2 Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
18
THE BUCKLE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BUCKLE, INC.
Dated: December 8, 2004 /s/ DENNIS H. NELSON.
---------------------------------------------
DENNIS H. NELSON, President and
Chief Executive Officer
Dated: December 8, 2004 /s/ KAREN B. RHOADS.
---------------------------------------------
KAREN B. RHOADS, Vice President
of Finance and Chief Financial Officer
19