A Look at Buckle: Fundamentals Don't Matter Anymore

| About: The Buckle, (BKE)

The Buckle (NYSE:BKE) is a great example of why there is no reason to do fundamental homework or look at individual stocks anymore. The market could care less about any positive news. This is a retailer - fine; we've been among the biggest bears on retail far earlier than it was fashionable to be bearish on retail.

[Sep 7, 2007: More Retail Tells? Harley Davidson & Office Depot]

Just for data points that point to a 'reality' of a consumer who, without his main arms merchant, the house ATM, is pulling back.

[Sep 23, 2007: A Lump of Coal This Christmas? A Look at Retailers]

I remain bearish on the middle class US consumer, deprived of his/her ATM card (i.e. house equity), as housing prices in general fall and many new found homeowners (from 2005 onward) will find themselves upside down on their 0% down homes - along with the inflation the government tells us is nearly nonexistent

[Sep 24, 2007: And Here Comes the Reality Check on Retailers]

Avoid 95% of retailers; this is just the beginning of what I expect to be a steady stream of lower guidance and excuses such as "cold weather" or "warm weather" or "too sunny" or "too rainy". The American consumer is pinched by lack of easy money via home equity withdrawals and inflation that the government believes is make believe. Period.

[Oct 11, 2007: Retail Sales]

Again I think the 'analysts' underestimate the cost of food spikes and psychology of hearing daily about how bad the housing market is on people - they retrench mentally. Just like the M&A market was in a bubble due to easy credit, I contend retail sales are as well - if this country ever went to "spending" at a level they actually earn money at, retail sales would probably be cut 20-30% across the board. All we are seeing now is "less" use of credit, as people are forced to use credit cards instead of their house for an ATM.

Again, I wrote the above litany of posts during the biggest Kool Aid period we've seen in a long time - the stock market was at ALL TIME HIGHS in October 2007 while I was streaming all these warnings about retail. So I was looking like a loony back then; spitting in the wind as the "pundits" told us not to fight the Fed and it's "only a subprime issue"....

With that said, as much as retail stinks - some companies are executing.... one of our conditions for "investing" rather than trading is that WITHIN sectors the good companies should separate from the bad; individual company metrics need to matter again. That has not happened yet, and how The Buckle (BKE) has been trashed is the perfect example of "why bother" with individual stocks or doing research.

We sold this name in early October in the mid $30s. That's 6 weeks ago. It's now in the $17s; 50% haircut. Despite continuing to execute and making their peers look hopeless. This is essentially all that is wrong with the stock market summed up in 1 stock. Last earnings report...

  • Youth apparel retailer Buckle Inc. on Thursday reported a 31 percent increase in its third-quarter profit on strong sales of its merchandise. (31% gain in retail? gotta be kidding me)
  • The Kearney, Neb.-based company earned $29.1 million, or 62 cents per share, compared with $22.2 million, or 48 cents per share, in the year-ago period. The quarter included a charge of $1.8 million, or 2 cents per share after taxes, related to investment losses. Stripping out the one-time item, the company earned 64 cents per share.
  • Net sales totaled $210.6 million, up 26 percent from $167.6 million last year.
  • Buckle said same-store sales at stores open at least a year -- a key metric of performance for retailers because new stores tend to skew results positively -- was up 19.1 percent from last year.
To boot, what other retailers out there are actually buying back shares? Most are trying to conserve cash so not to go into bankruptcy.
  • Teen apparel retailer The Buckle Inc. said Friday it will buy back up to 1 million shares of common stock.
  • The company had about 30.7 million shares outstanding as of Aug. 29, according to an SEC filing.
The point is... there is no point in doing research or finding diamonds in the rough anymore. I still spend the time researching and looking at companies, but they seem to trade in a parallel universe & there is no benefit in doing extra work. The "student body right" trading is all that exists - good stocks trade with bad, good sectors with bad - only what ETF you are in matters and making sure your timing of the ETF gambling is correct.

The Buckle is a great example of why investors are being mocked in this market. If we had held onto this name we'd be down well over 50% since early October - for a company that executes in an incredibly hard environment. We own many other stocks with similar characteristics - who are pummeled - despite executing. In return we lose money for holding them. Par for the course.

As I said earlier - someone who has one day of market experience can do just as well as someone with 20 years experience in this market. Just show up at 3 PM, put your chips on an ETF and you have a 50/50 chance of "winning". Research, homework, thinking, experience - all laughed at.

Disclosure: No position