Buckle(BKE) - 2020 Q2 - Quarterly Report

Part I. Financial Information Financial Statements Financial statements show significant balance sheet changes from ASC 842 adoption, with Q2 net income rising and operating cash flow improving Condensed Consolidated Balance Sheets Total assets increased to $872.4 million due to new operating lease right-of-use assets, significantly raising liabilities Condensed Consolidated Balance Sheets (in thousands) | | August 3, 2019 | February 2, 2019 | | :--- | :--- | :--- | | Total Current Assets | $391,425 | $370,432 | | Operating Lease Right-of-Use Assets | $335,448 | $— | | Total Assets | $872,433 | $527,302 | | Total Current Liabilities | $166,608 | $90,218 | | Non-Current Operating Lease Liabilities | $287,648 | $— | | Total Liabilities | $469,240 | $133,425 | | Total Stockholders' Equity | $403,193 | $393,877 | - The significant increase in total assets and liabilities is a direct result of adopting the new lease accounting standard, ASC Topic 842, which required the company to record right-of-use assets and lease liabilities on the balance sheet for the first time[32] Condensed Consolidated Statements of Income Q2 net sales slightly increased to $203.8 million with net income rising, while twenty-six-week net income declined Income Statement Highlights - Thirteen Weeks Ended (in thousands) | Metric | August 3, 2019 | August 4, 2018 | | :--- | :--- | :--- | | Net Sales | $203,817 | $201,080 | | Gross Profit | $78,697 | $78,931 | | Income from Operations | $19,602 | $20,161 | | Net Income | $16,374 | $15,659 | | Diluted EPS | $0.34 | $0.32 | Income Statement Highlights - Twenty-Six Weeks Ended (in thousands) | Metric | August 3, 2019 | August 4, 2018 | | :--- | :--- | :--- | | Net Sales | $405,130 | $405,977 | | Income from Operations | $38,336 | $43,421 | | Net Income | $31,466 | $33,997 | | Diluted EPS | $0.65 | $0.70 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased to $35.5 million, with cash and cash equivalents rising to $178.0 million Cash Flow Summary - Twenty-Six Weeks Ended (in thousands) | Cash Flow Activity | August 3, 2019 | August 4, 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $35,543 | $30,872 | | Net Cash from Investing Activities | ($1,290) | ($2,497) | | Net Cash from Financing Activities | ($24,683) | ($24,512) | | Net Increase in Cash | $9,570 | $3,863 | | Cash and Cash Equivalents, End of Period | $178,041 | $168,949 | Notes to Condensed Consolidated Financial Statements Notes highlight ASC 842 adoption, revenue disaggregation, 11.7% online sales growth, and a non-material data security incident - The company adopted ASC Topic 842 (Leases) on February 3, 2019, recognizing net right-of-use assets of approximately $362.6 million and operating lease liabilities of $389.8 million[32][108] - For the first half of 2019, online revenues accounted for 11.7% of net sales, an increase from 10.9% in the same period of 2018[35] Net Sales by Merchandise Group (Twenty-Six Weeks Ended) | Merchandise Group | % of Net Sales (2019) | % of Net Sales (2018) | | :--- | :--- | :--- | | Denims | 37.7% | 37.6% | | Tops (including sweaters) | 31.8% | 32.4% | | Sportswear/Fashions | 10.8% | 11.4% | | Accessories | 9.1% | 9.0% | | Footwear | 7.5% | 6.6% | - The company was the victim of a data security incident between October 2016 and April 2017 but does not expect any potential assessments or fines to have a material effect on its financial position[64][65] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a 1.4% increase in Q2 net sales, despite declining margins, while maintaining strong liquidity Results of Operations Q2 2019 net sales rose 1.4% with comparable store sales up 1.8%, leading to a gross profit margin decline - Comparable store net sales for Q2 2019 increased 1.8% compared to Q2 2018[76] - The comparable sales increase was driven by a 3.1% increase in the number of transactions and a 2.8% increase in units per transaction, which was partially offset by a 4.1% decrease in the average unit retail price[76] - Gross profit margin for Q2 2019 declined to 38.6% from 39.2% in Q2 2018, mainly due to a 0.70% reduction in merchandise margins[81] - Online sales for Q2 2019 increased 9.2% to $23.1 million[76] Liquidity and Capital Resources The company maintains strong, debt-free liquidity with $224.8 million working capital and an unused $25.0 million line of credit - As of August 3, 2019, the company had working capital of $224.8 million, including $178.0 million in cash and cash equivalents and $52.1 million in short-term investments[93] - Management estimates total capital expenditures for fiscal 2019 will be approximately $8.0 million to $12.0 million[96] - The company has an available $25.0 million unsecured line of credit, with no borrowings outstanding as of August 3, 2019[98] Critical Accounting Policies and Estimates Key accounting policies include revenue recognition, inventory valuation, income taxes, and the new lease accounting standard - Revenue recognition involves estimates for merchandise returns, gift card breakage, and accruals for the Guest Loyalty and B-Rewards programs[101][102][103] - Inventory is valued at the lower of cost or net realizable value, with an adjustment for markdowns and obsolescence totaling $11.3 million as of August 3, 2019[106] Off-Balance Sheet Arrangements, Contractual Obligations, and Commercial Commitments The company reported no off-balance sheet arrangements, with total contractual obligations of $29.9 million Contractual Obligations (in thousands) | Obligation Type | Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Purchase obligations | $14,918 | $5,078 | $6,549 | $2,550 | $741 | | Deferred compensation | $14,984 | $— | $— | $— | $14,984 | | Total | $29,902 | $5,078 | $6,549 | $2,550 | $15,725 | - The company has no off-balance sheet arrangements[112] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations, potentially decreasing annual net income by $0.5 million - The company is exposed to interest rate risk on its cash and investments. A one-quarter percent (0.25%) decline in the interest rate earned would decrease net income by approximately $0.5 million[116] Controls and Procedures Management deemed disclosure controls and procedures effective, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[118] - No changes occurred in the company's internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[119] Part II. Other Information Legal Proceedings The company reported no legal proceedings during the period - Item 1. Legal Proceedings: None[122] Risk Factors No material changes occurred from the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes from the risk factors disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2019[122] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 4,552 shares at $14.92 per share, with 435,655 shares remaining authorized for repurchase Common Stock Purchases - Quarter Ended August 3, 2019 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | May 5, 2019 to June 1, 2019 | 4,552 | $14.92 | | Total | 4,552 | $14.92 | - As of the end of the quarter, 435,655 shares may yet be purchased under the publicly announced repurchase plan[123] Other Disclosures and Exhibits The company reported no defaults, no mine safety disclosures, and no other material information, with Item 6 listing filed exhibits - The company reported "None" for Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information)[124] - Item 6 lists exhibits filed with the report, including a Revolving Line of Credit Note, CEO/CFO certifications (Sections 302 and 906), and XBRL data files[124]