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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 APRIL 30, 2005
[ ] 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 Exchange Act). Yes [X] No [ ]
The number of shares issued of the Registrant's Common Stock, outstanding as of
May 25, 2005 was 18,967,273 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 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits 17
Signatures 18
2
THE BUCKLE, INC.
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
APRIL 30, JANUARY 29,
ASSETS 2005 2005
--------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 86,272 $ 173,897
Investments 27,980 25,523
Accounts receivable, net of allowance of $80 and $113, respectively 1,361 1,887
Inventory 73,030 68,330
Prepaid expenses and other assets 5,830 5,693
--------- ---------
Total current assets 194,473 275,330
--------- ---------
PROPERTY AND EQUIPMENT: 185,426 179,056
Less accumulated depreciation and amortization (98,667) (95,514)
--------- ---------
86,759 83,542
--------- ---------
LONG-TERM INVESTMENTS 42,394 44,032
OTHER ASSETS 2,639 2,639
--------- ---------
$ 326,265 $ 405,543
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 21,390 $ 12,665
Accrued employee compensation 6,464 18,467
Accrued store operating expenses 3,785 4,236
Gift certificates redeemable 3,487 4,654
Income taxes payable 5,948 5,714
--------- ---------
Total current liabilities 41,074 45,736
DEFERRED COMPENSATION 2,164 1,799
DEFERRED RENT LIABILITY 25,270 25,080
--------- ---------
Total liabilities 68,508 72,615
--------- ---------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, authorized 100,000,000 shares of $.01 par value; issued and
outstanding; 18,889,162 and 21,685,008 shares, respectively 189 217
Additional paid-in capital 31,826 26,857
Retained earnings 228,241 305,854
Unearned compensation - restricted stock (2,499) -
--------- ---------
Total stockholders' equity 257,757 332,928
--------- ---------
$ 326,265 $ 405,543
========= =========
See notes to financial statements.
3
THE BUCKLE, INC.
STATEMENTS OF INCOME
(Dollar Amounts in Thousands Except Per Share Amounts)
THIRTEEN WEEKS ENDED
---------------------
APRIL 30, MAY 1,
2005 2004
-------- --------
SALES, net of returns and allowances of
$7,594 and $6,978, respectively $105,547 $ 94,774
COST OF SALES (including buying,
distribution and occupancy costs) 68,298 64,112
-------- --------
Gross profit 37,249 30,662
-------- --------
OPERATING EXPENSES:
Selling 20,893 18,334
General and administrative 4,128 3,897
-------- --------
25,021 22,231
-------- --------
Income from operations 12,228 8,431
OTHER INCOME, Net 1,481 918
-------- --------
Income before income taxes 13,709 9,349
PROVISION FOR INCOME TAXES 5,088 3,461
-------- --------
NET INCOME $ 8,621 $ 5,888
======== ========
Per share amounts:
Basic income per share $ 0.42 $ 0.28
======== ========
Diluted income per share $ 0.40 $ 0.27
======== ========
Basic weighted average shares 20,665 21,370
Diluted weighted average shares 21,508 22,175
See notes to financial statements.
THE BUCKLE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
ADDITIONAL
COMMON PAID-IN RETAINED UNEARNED
STOCK CAPITAL EARNINGS COMPENSATION TOTAL
--------- ----------- --------- ------------ ---------
FISCAL 2005
- -------------------------------------
BALANCE, January 29, 2005 $ 217 $ 26,857 $ 305,854 $ - 332,928
Net income - - 8,621 - 8,621
Dividends paid on common stock,
($0.12 per share) - - (2,264) - (2,264)
Common stock (126,654 shares)
issued on exercise of stock options 1 2,304 - - 2,305
Issuance of restricted stock 1 2,665 - (2,666) -
Amortization of restricted stock grant - - - 167 167
Common stock (3,000,000 shares)
purchased and retired (30) - (83,970) - (84,000)
--------- --------- --------- --------- ---------
BALANCE, April 30, 2005 $ 189 $ 31,826 $ 228,241 $ (2,499) $ 257,757
========= ========= ========= ========= =========
FISCAL 2004
- -------------------------------------
BALANCE, January 31, 2004 $ 215 $ 24,245 $ 272,125 $ (2,740) 293,845
Net income - - 5,888 - 5,888
Dividends paid on common stock,
($0.10 per share) - - (2,157) - (2,157)
Common stock (100,300 shares)
issued on exercise of stock options 1 1,528 - - 1,529
Amortization of restricted stock grant - - - 685 685
--------- --------- --------- --------- ---------
BALANCE, May 1, 2004 $ 216 $ 25,773 $ 275,856 $ (2,055) $ 299,790
========= ========= ========= ========= =========
See notes to financial statements.
5
THE BUCKLE, INC.
STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED
-------------------------
APRIL 30, MAY 1,
2005 2004
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,621 $ 5,888
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 3,897 3,894
Amortization of unearned compensation - restricted stock 167 685
Deferred taxes - (19)
Loss on disposal of assets 5 18
Changes in operating assets and liabilities:
Accounts receivable 526 1,174
Inventory (4,700) (11,602)
Prepaid expenses (137) (313)
Accounts payable 8,725 4,846
Accrued employee compensation (12,003) (7,294)
Accrued store operating expenses (451) 461
Gift certificates redeemable (1,167) (845)
Long-term liabilities and deferred compensation 555 44
Income taxes payable 234 1,477
--------- ---------
Net cash flows from operating activities 4,272 (1,586)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (7,135) (5,700)
Proceeds from sale of property and equipment 16 -
Decrease in other assets - 192
Purchase of investments (7,699) (3,527)
Proceeds from sales and maturities of investments 6,880 8,177
--------- ---------
Net cash flows from investing activities (7,938) (858)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options 2,305 1,529
Purchases of common stock (84,000) -
Payment of dividends (2,264) (2,158)
--------- ---------
Net cash flows from financing activities (83,959) (629)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (87,625) (3,073)
CASH AND CASH EQUIVALENTS, Beginning of period 173,897 119,976
--------- ---------
CASH AND CASH EQUIVALENTS, End of period $ 86,272 $ 116,903
========= =========
See notes to financial statements.
6
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED APRIL 30, 2005 AND MAY 1, 2004
(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 29, 2005, included in The Buckle, Inc.'s 2004
Form 10-K.
2. Stock-Based Compensation - The Company has several 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 2004 Annual
Report. A total of 3,225,000 shares of common stock are authorized for
grants under such plans as of April 30, 2005; of these authorized shares,
314,450 shares were available for grant under the various plans, of which
192,950 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 for the quarter ended April 30, 2005 relates to the issuance of
77,500 shares of restricted stock issued on February 22, 2005. The
stock-based compensation expense reflected in net income for the quarter
ended May 1, 2004 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
----------------------------
April 30, 2005 May 1, 2004
----------------------------
Net income, as reported $ 8,621 $ 5,888
Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects 104 685
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (650) (1,386)
---------- ----------
Pro forma net income $ 8,075 $ 5,187
========== ==========
Earnings per share:
Basic - as reported $ 0.42 $ 0.28
========== ==========
Basic - pro forma $ 0.39 $ 0.24
========== ==========
Diluted - as reported $ 0.40 $ 0.27
========== ==========
Diluted - pro forma $ 0.38 $ 0.23
========== ==========
7
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED APRIL 30, 2005 AND MAY 1, 2004
(Unaudited)
The weighted average fair value of options granted during the thirteen weeks
ended April 30, 2005 and May 1, 2004, under the SFAS No. 123 methodology was
$16.40 and $14.93 per option, respectively. The fair value of options granted
under the Plans was estimated at the date of grant using a Black-Sholes option
pricing model with the following assumptions:
2005 2004
Risk-free interest rate 4.00% 4.00%
Dividend yield 1.50% 1.50%
Expected volatility 65.0% 65.0%
Expected life (years) 7.0 years 7.0 years
A summary of the Company's stock-based compensation activity related to stock
options for the fiscal quarters ended April 30, 2005 and May 1, 2004 is as
follows:
2005 2004
------------------------ -------------------------
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
--------- --------- --------- ---------
Outstanding - beginning
of fiscal quarter 3,457,219 $ 19.40 3,502,052 $ 17.92
Granted 18,000 28.28 522,850 25.93
Expired/terminated (13,759) 27.07 (70,755) 21.67
Exercised (126,654) 18.20 (100,300) 15.40
--------- --------- --------- ---------
Outstanding - end of quarter 3,334,806 $ 19.47 3,853,847 $ 19.03
========= ========= ========= =========
There were 2,078,005 and 1,651,229 options exercisable at April 30, 2005 and May
1, 2004, respectively.
The following table summarizes information about stock options outstanding as of
April 30, 2005:
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
$ 6.250 $ 6.333 231,450 0.75 years $ 6.33 231,450 $ 6.33
8.670 9.292 314,513 1.77 9.26 314,513 9.26
11.750 17.010 616,281 6.50 16.48 611,781 16.48
17.188 23.950 1,348,116 4.87 20.90 679,865 21.35
25.750 34.083 824,446 5.66 26.94 240,396 28.33
--------- ---- -------- --------- --------
3,334,806 5.04 years $ 19.47 2,078,005 $ 17.22
========= ==== ======== ========= ========
3. Description of the Business - The Company is a retailer of medium to better
priced casual apparel and footwear for fashion conscious young men and
women. The Company operates their business as one reportable industry
segment. The Company had 328 stores located in 38 states throughout the
central, northwestern and southern regions of the United States as of April
30, 2005, and 321 stores in 38 states as of May 1, 2004. During the first
quarter of fiscal 2005, the Company opened two new stores, substantially
renovated two stores and closed one store. During the first quarter of
fiscal 2004, the Company opened five new stores and substantially renovated
four stores.
8
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED APRIL 30, 2005 AND MAY 1, 2004
(Unaudited)
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
Thirteen Weeks Ended
Merchandise Group April 30, 2005 May 1, 2004
--------------------------------
Denims 41.7% 35.9%
Tops (including sweaters) 30.1 30.8
Accessories 9.3 11.0
Footwear 8.6 9.1
Sportswear/Fashions 5.8 9.5
Casual bottoms 3.1 3.1
Outerwear 1.4 0.5
Other - 0.1
----- -----
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 67,306 and 84,090 shares of
common stock for the periods ended April 30, 2005 and May 1, 2004,
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
April 30, 2005 May 1, 2004
------------------------------- -------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------------------------------- -------------------------------
Basic EPS
Net income $8,621 20,665 $ 0.42 $5,888 21,370 $ 0.28
Effect of Dilutive
Securities
Stock options - 843 (0.02) - 805 (0.01)
------ ------ -------- ------ ------ --------
Diluted EPS $8,621 21,508 $ 0.40 $5,888 22,175 $ 0.27
====== ====== ======== ====== ====== ========
5. Related Party Transactions - On March 24, 2005, the Company entered into an
agreement with Daniel J. Hirschfeld, founder and Chairman, to purchase a
total of 3,000,000 shares of the Company's outstanding stock from Mr.
Hirschfeld. The shares represent approximately 13.8% of the Company's total
outstanding Common Stock. The shares were purchased for $28.00 per share,
or a total purchase price of $84 million. The Company retired the purchased
shares, reducing the total shares outstanding and reducing Mr. Hirschfeld's
ownership percentage to approximately 53%.
The stock repurchase transaction was negotiated by a Special Committee of
The Buckle, Inc.'s Board of Directors. The Special Committee was comprised
of all of the Company's independent Directors, and therefore the
transaction was approved by the independent Directors on the Company's
Board. In connection with this transaction, the Special Committee received
a written fairness opinion from Houlihan Lokey Howard & Zukin Financial
Advisors, Inc., an international investment bank.
9
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
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.
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 and for all
prior periods the impact 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.
RESULTS OF OPERATIONS
The table below sets forth the percentage relationships of sales and various
expense categories in the Statements of Income for the thirteen-week periods
ended April 30, 2005, and May 1, 2004:
PERCENTAGE OF NET SALES
THIRTEEN WEEKS ENDED
----------------------------- PERCENTAGE
APRIL 30, 2005 MAY 1, 2004 INCREASE/(DECREASE)
----------------------------- -------------------
Net sales 100.0% 100.0% 11.4%
Cost of sales (including buying,
distribution and occupancy costs) 64.7% 67.6% 6.5%
----------------------------- -----
Gross profit 35.3% 32.4% 21.5%
Selling expenses 19.8% 19.4% 14.0%
General and administrative expenses 3.9% 4.1% 5.9%
----------------------------- -----
Income from operations 11.6% 8.9% 45.1%
Other income, net 1.4% 1.0% 61.3%
----------------------------- -----
Income before income taxes 13.0% 9.9% 46.6%
Provision for income taxes 4.8% 3.7% 47.1%
----------------------------- -----
Net income 8.2% 6.2% 46.4%
----------------------------- -----
10
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINNANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales increased from $94.8 million in the first quarter of fiscal 2004 to
$105.5 million in the first quarter of fiscal 2005, an 11.4% increase.
Comparable store sales increased from the first quarter of fiscal 2004 to the
first quarter of fiscal 2005 by $5.9 million or 6.4%. The comparable store sales
increase resulted primarily from a 5.0% increase in the average retail price per
piece of merchandise sold during the first quarter of fiscal 2005 compared to
the first quarter of fiscal 2004 and from an increase in the number of
transactions during the period. Additionally, sales growth of 5.0% for the
thirteen week period was attributable to the inclusion of a full three months of
operating results for the 13 stores opened in 2004 and the opening of two new
stores during the first thirteen weeks of fiscal 2005. Average sales per square
foot increased 8.0% from $59.47 to $64.23.
The Company's increase in the average price per piece of merchandise sold (as
stated above) during the first quarter of fiscal 2005 was primarily attributable
to a shift in the mix of merchandise sold during the period, a 4.0% increase in
average denim price points, a 12.7% increase in average outerwear price points,
a 0.7% increase in average knit shirt price points and a 1.6% increase in
average footwear price points. These changes were partially offset by a 5.9%
decrease in average woven shirt price points, a 3.8% decrease in average active
sportswear price points and a 4.3% decrease in average casual bottom price
points. These changes are primarily a reflection of merchandise shifts in terms
of brands, product styles, fabrics, details and finishes.
Gross profit after buying, occupancy, and distribution expenses increased $6.6
million in the first quarter of fiscal 2005 to $37.2 million, a 21.5% increase.
As a percentage of net sales, gross profit increased from 32.4% in the first
quarter of fiscal 2004 to 35.3% in the first quarter of fiscal 2005. This
increase was primarily attributable to a 1.2% improvement in actual merchandise
margins achieved through timely sell-through on new products and an increase in
sales of private label merchandise, which achieves higher margins, and to
leveraged occupancy expense (1.5%). Additional improvements, as a percentage of
net sales, came from reduced distribution expense (0.1%) and buying expense
(0.1%) due to comparable store sales leverage.
Selling expenses increased from $18.3 million for the first quarter of fiscal
2004 to $20.9 million for the first quarter of fiscal 2005, a 14.0% increase. As
a percentage of net sales, selling expenses increased from 19.4% in the first
quarter of fiscal 2004 to 19.8% in the first quarter of fiscal 2005. The
increase was primarily attributable to increases, as a percentage of net sales,
in the incentive bonus accrual based on growth in comparable store sales, gross
margins and net income (0.1%), internet advertising (0.1%), bankcard fees
(0.1%), store salaries (0.1%), payroll taxes (0.1%) and selling supplies (0.1%).
These increases were partially offset by decreases, as a percentage of net
sales, in certain other selling expenses.
General and administrative expenses increased from $3.9 million in the first
quarter of fiscal 2004 to $4.1 million in the first quarter of fiscal 2005, a
5.9% increase. As a percentage of net sales, general and administrative expenses
decreased from 4.1% in the first quarter of fiscal 2004 to 3.9% in the first
quarter of fiscal 2005. The decrease in general and administrative expense, as a
percentage of net sales, resulted primarily from a reduction in the amount of
expense recognized during the first quarter of fiscal 2005 compared to the first
quarter of fiscal 2004 related to restricted stock compensation (0.6%) and from
reductions in losses on the disposal of assets (0.1%), personal property taxes
(0.1%), corporate aircraft expenses (0.1%) and certain other general supplies
expense (0.1%). These decreases were partially offset by increases, as a
percentage of net sales, in professional fees related to the Company's stock
buyback from its founder and Sarbanes Oxley compliance (0.6%) and the incentive
bonus accrual based on growth in comparable store sales, gross margins and net
income (0.1%).
As a result of the above changes, the Company's income from operations increased
to $12.2 million for the first quarter of fiscal 2005 compared to $8.4 million
for the first quarter of fiscal 2004, a 45.1% increase. Income from operations
was 11.6% of net sales for the first quarter of fiscal 2005 compared to 8.9% for
the first quarter of fiscal 2004.
For the quarter ended April 30, 2005, other income increased 61.3% from the
first quarter of fiscal 2004. The increase in other income during the quarter
was attributable to an increase in interest income earned on the Company's cash
and investments, as rates were higher than the prior year.
11
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income tax expense as a percentage of pre-tax income was 37.1% in the first
quarter of fiscal 2005 compared to 37.0% in the first quarter of fiscal 2004,
bringing net income to $8.6 million in the first quarter of fiscal 2005 compared
to $5.9 million in the first quarter of fiscal 2004.
Liquidity and Capital Resources
As of April 30, 2005, the Company had working capital of $153.4 million,
including $86.3 million of cash and cash equivalents, and short-term investments
of $28.0 million. 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.
The first quarter of each fiscal year is typically a period of decreasing cash
flows created by various operating, investing and financing activities. During
the first quarter of fiscal 2005, the Company's operating activities provided
$4.3 million in net cash flow compared to the first quarter of fiscal 2004, when
the Company's operating activities used $1.6 million in net cash flow.
The uses of cash for both thirteen 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 three months of fiscal 2005
compared to the first three months of fiscal 2004 were primarily due to growth
in net income, a reduced build-up of inventory, greater maturities in
investments and additional purchases of property and equipment. During the first
quarter of fiscal 2005, the Company completed a repurchase of 3 million shares
of common stock, resulting in a cash payout of $84 million.
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. Borrowing
under the line of credit note provide 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 these lines during periods of peak inventory build-up. There
were no bank borrowings during the first quarter of fiscal 2005 or 2004.
During the first quarter of fiscal 2005 and 2004, the Company invested $4.6
million and $5.7 million, respectively, in new store construction, store
renovation and store technology upgrades. The Company also spent approximately
$2.5 million in the first quarter of fiscal 2005 in capital expenditures related
to the expansion of its corporate headquarters and distribution center.
During the remainder of fiscal 2005, the Company anticipates completing
approximately 20 additional store construction projects, including approximately
thirteen new stores and approximately seven stores to be remodeled and/or
relocated. As of April 30, 2005, two additional lease contracts have been
signed, and additional leases are in various stages of negotiation.
Management now estimates that total capital expenditures during fiscal 2005 will
be approximately $23.4 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 April 30, 2005, had total cash and investments of
$156.6 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.
12
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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,
including those related to merchandise returns, inventory, health care costs and
income taxes. 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. The Company's certain critical accounting policies are listed below.
1. Revenue Recognition. Sales are recorded upon the purchase of merchandise by
customers. The Company accounts for layaway sales in accordance with SAB
No. 101, recognizing revenue from sales made under its layaway program upon
delivery of the merchandise to the customer. 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 days 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
$276,500 at April 30, 2005 and January 29, 2005.
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
fluctuations 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 for markdown reserves and/or obsolescence was $4.7 million and
$5.0 million as of April 30, 2005 and January 29, 2005, 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.
13
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
4. Operating Leases. The Company leases retail stores under operating leases.
Most lease agreements contain tenant improvement allowances, rent holidays,
rent escalation clauses and/or contingent rent provisions. For purposes of
recognizing lease incentives and minimum rental expenses on a straight-line
basis over the terms of the leases, the Company uses the date of initial
possession to begin amortization, which is generally when the Company
enters the space and begins to make improvements in preparation of intended
use. For tenant improvement allowances and rent holidays, the Company
records a deferred rent liability on the balance sheets and amortizes the
deferred rent over the terms of the leases as reductions to rent expense on
the statements of earnings.
For scheduled rent escalation clauses during the lease terms or for rental
payments commencing at a date other than the date of initial occupancy, the
Company records minimum rental expenses on a straight-line basis over the
terms of the leases on the statements of income. Certain leases provide for
contingent rents, which are determined as a percentage of gross sales in
excess of specified levels. The Company records a contingent rent liability
on the balance sheets and the corresponding rent expense when specified
levels have been achieved. If the Company subsequently determined the lease
term to vary from that used in calculations of straight-line rent expense,
there could be additional expense to be recorded, thus reducing the
Company's earnings for the period of correction.
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
April 30, 2005:
- ---------------------------------------------------------------------------------------------------
Payments Due by Period
- ---------------------------------------------------------------------------------------------------
Contractual obligations Total Less than 1-3 years 4-5 years After 5 years
(dollar amounts in 1 year
thousands)
- ---------------------------------------------------------------------------------------------------
Long term debt and
purchase obligations $ _ $ $ - $ - $ -
- ---------------------------------------------------------------------------------------------------
Deferred compensation $ 2,164 $ - $ - $ 2,164
- ---------------------------------------------------------------------------------------------------
Operating leases $185,726 $ 31,866 $ 56,261 $ 47,684 $ 49,915
- ---------------------------------------------------------------------------------------------------
Total contractual obligations $187,890 $ 31,866 $ 56,261 $ 47,684 $ 52,079
- ---------------------------------------------------------------------------------------------------
14
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Amount of Commitment Expiration Per Period
- -------------------------------------------------------------------------------------------------------------
Other Commercial Total Amounts Less than 1-3 years 4-5 years After 5 years
Commitments (dollar amounts Committed 1 year
in thousands)
- -------------------------------------------------------------------------------------------------------------
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
April 30, 2005. 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 2004 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.
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 2002, 2003, and 2004, 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 thirteen-week periods
ended April 30, 2005, and May 1, 2004.
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.
15
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 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 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.
In connection with the preparation of the Company's Annual Report on Form 10-K
as of January 29, 2005, the Company's management assessed the effectiveness of
the Company's internal control over financial reporting. In performing this
assessment, management reviewed the Company's lease accounting policies in light
of a February 7, 2005 letter from the Office of the Chief Accountant of the
Securities and Exchange Commission to the American Institute of Certified Public
Accountants expressing views regarding lease-related accounting issues and their
application under GAAP. The Company determined that its historical accounting
for rent holidays, tenant allowances and certain other lease accounting
policies, when reviewed against the guidance as set forth in the SEC letter,
were not in accordance with GAAP. As a result, the Company changed its
accounting policies and procedures to conform to GAAP as set forth in the SEC
letter. Management concluded that it had a material weakness in the
effectiveness of internal controls over the selection and monitoring of the
policies used in accounting for leases and tenant allowances as of January 29,
2005. During the fiscal quarter ended April 30, 2005 and prior to filing the
Company's Annual Report on Form 10-K for fiscal 2004, the Company corrected its
accounting for leases and tenant allowances and restated its financial
statements for each of the fiscal years ended January 31, 2004, February 1, 2003
and February 2, 2002, thus remediating that material weakness.
Other than the changes to the Company's lease accounting policies and
procedures, there were no significant changes in the Company's internal control
over financial reporting that occurred during the fiscal quarter ended April 30,
2005, that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
16
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
Total Number of Dollar Value of
Total Shares Purchased Shares that May
Number Average as Part of Yet Be Purchased
of Shares Price Paid Publicly Under Publicly
Purchased Per Share Announced Plans Announced Plans
January 30, to Feb.26, 2005 -0- $ 485,550
Feb. 27, to April 2, 2005 3,000,000 28.00 3,000,000 485,550
April 3, to April 30, 2005 -0- -0- 485,550
-----------------------------------------
3,000,000 $28.00 3,000,000
=========================================
The shares purchased during the quarter ended April 30, 2005 were pursuant
to an agreement entered into with founder and chairman, Daniel J.
Hirschfeld, on March 24, 2005 and announced on March 25, 2005 to purchase
3,000,000 shares. Subsequent to April 30, 2005, the Company has not
repurchased any shares of its common stock. The shares yet to be purchased
are remaining from a 500,000 share repurchase plan, announced by the
Company on December 27, 2000.
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
(a) None
(b) None
(c) None
(d) 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.
17
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: June 8, 2005 /s/ DENNIS H. NELSON
------------ -----------------------------------
DENNIS H. NELSON, President and CEO
Dated: June 8, 2005 /s/ KAREN B. RHOADS
------------ -----------------------------------
KAREN B. RHOADS, Vice President
of Finance and CFO
18