Buckle(BKE) - 2020 Q1 - Quarterly Report

Part I. Financial Information This section details the company's financial statements, management's analysis, market risks, and internal controls for the period Item 1. Financial Statements Net sales and income decreased, while assets and liabilities significantly increased due to the adoption of the new lease accounting standard (Topic 842) Condensed Consolidated Balance Sheets Total assets and liabilities significantly increased due to the adoption of Topic 842, recognizing right-of-use assets and lease liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | May 4, 2019 | February 2, 2019 | | :--- | :--- | :--- | | Total Assets | $880,365 | $527,302 | | Cash and cash equivalents | $183,939 | $168,471 | | Inventory | $120,814 | $125,190 | | Operating Lease Right-of-Use Assets | $345,473 | $— | | Total Liabilities | $482,407 | $133,425 | | Current portion of operating lease liabilities | $72,857 | $— | | Non-current operating lease liabilities | $300,430 | $— | | Total Stockholders' Equity | $397,958 | $393,877 | - The adoption of the new lease accounting standard (Topic 842) resulted in the recognition of approximately $362.6 million in Right-of-Use (ROU) assets and $389.8 million in operating lease liabilities as of February 3, 2019[28] Condensed Consolidated Statements of Income Net sales decreased by 1.7% and net income declined by 17.7% for the thirteen weeks ended May 4, 2019 Q1 2019 vs Q1 2018 Income Statement (in thousands, except per share data) | Metric | Thirteen Weeks Ended May 4, 2019 | Thirteen Weeks Ended May 5, 2018 | | :--- | :--- | :--- | | Net Sales | $201,313 | $204,897 | | Gross Profit | $76,653 | $79,691 | | Income from Operations | $18,734 | $23,260 | | Net Income | $15,092 | $18,338 | | Diluted EPS | $0.31 | $0.38 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased to $29.3 million, contributing to a $15.5 million net increase in cash and cash equivalents Cash Flow Summary (in thousands) | Cash Flow Activity | Thirteen Weeks Ended May 4, 2019 | Thirteen Weeks Ended May 5, 2018 | | :--- | :--- | :--- | | Net cash flows from operating activities | $29,274 | $19,331 | | Net cash flows from investing activities | $(1,497) | $(3,769) | | Net cash flows from financing activities | $(12,309) | $(12,261) | | Net increase in cash | $15,468 | $3,301 | | Cash and cash equivalents, End of period | $183,939 | $168,387 | Notes to Condensed Consolidated Financial Statements Key notes detail the adoption of Topic 842, online sales growth to 12.1%, and a non-material data security incident - The Company adopted lease accounting standard Topic 842 on February 3, 2019, using the modified retrospective transition method, which did not require adjusting prior period information[27] - Online revenues increased to 12.1% of net sales for the thirteen weeks ended May 4, 2019, up from 11.3% in the same period of 2018[31] - Management does not expect any potential assessments or fines from the 2016-2017 data security incident to have a material effect on the company's financial position[62][63] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 1.7% net sales decrease, gross margin contraction, and the company's strong liquidity position Results of Operations Net sales decreased by 1.7% due to lower comparable store sales and average retail price, leading to a 19.5% drop in operating income Results of Operations as a Percentage of Net Sales | Line Item | Q1 2019 (% of Net Sales) | Q1 2018 (% of Net Sales) | % Change in Dollar Amount | | :--- | :--- | :--- | :--- | | Net sales | 100.0% | 100.0% | (1.7)% | | Gross profit | 38.1% | 38.9% | (3.8)% | | Income from operations | 9.3% | 11.4% | (19.5)% | | Net income | 7.5% | 9.0% | (17.7)% | - Comparable store net sales for the quarter decreased by 1.3% compared to the prior year period[74] - Online sales grew 5.6% to $24.4 million for the quarter[74] Liquidity and Capital Resources The company maintains strong liquidity with $217.5 million in working capital and projects $8.0 to $12.0 million in fiscal 2019 capital expenditures - As of May 4, 2019, the Company had working capital of $217.5 million, including $183.9 million of cash and cash equivalents and $53.7 million of short-term investments[83] - Management estimates total capital expenditures for fiscal 2019 will be approximately $8.0 to $12.0 million, primarily for store projects and technology investments[86] - The Company has an available $25.0 million unsecured line of credit, with no borrowings during the first quarter of fiscal 2019 or 2018[88] Critical Accounting Policies and Estimates Critical policies include revenue recognition, inventory valuation, and income taxes, with Topic 842 adoption being a key change in Q1 2019 - The liability for unredeemed gift cards and certificates was $14.3 million as of May 4, 2019[91] - The adjustment to inventory for markdowns and/or obsolescence was $11.3 million as of May 4, 2019[96] - The adoption of lease standard ASU 2016-02 (Topic 842) in Q1 2019 resulted in the recognition of net ROU assets of approximately $362.6 million and lease liabilities of $389.8 million[98] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on cash and investments, with a 0.25% rate decline impacting net income by $0.5 million - The primary market risk is interest rate risk on cash and investments; a 0.25% decline in interest rates would reduce net income by about $0.5 million[106] Item 4. Controls and Procedures Disclosure controls were effective, and new internal controls were implemented to support the adoption of the new lease accounting standard (Topic 842) - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report[108] - New internal controls were implemented in Q1 2019 to support the adoption of the new lease accounting standard, ASU No 2016-02, Leases (Topic 842)[109] Part II. Other Information This section covers legal proceedings, risk factors, equity security sales, and a list of filed exhibits Item 1. Legal Proceedings No legal proceedings were reported during the period - None[112] Item 1A. Risk Factors No material changes were reported from the risk factors previously disclosed in the 2018 Annual Report on Form 10-K - No material changes from the risk factors disclosed in the 2018 Form 10-K[112] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No common stock was repurchased during the quarter, with 440,207 shares remaining available under the existing authorization - No shares of common stock were repurchased during the quarter[113] - There are 440,207 shares remaining for repurchase under the existing authorization[113] Item 6. Exhibits The report includes required certifications from the CEO and CFO, along with financial data presented in XBRL format - Exhibits filed include certifications from the CEO and CFO as required by the Sarbanes-Oxley Act, and financial data in XBRL format[114]