The Buckle's Shareholders Should Not Expect A Christmas Bonus This Year

Oct.11.13 | About: The Buckle, (BKE)

September Sales

The Buckle, Inc. (NYSE:BKE) released its September 2013 net sales figures Thursday(October 10, 2013), and they are not pretty. For the 5-week period ending October 5, it reported a decline in net sales of 4.5% (year over year) for comparable stores opened at least one year. Total net sales for the 5-week period ending September 29, was $99.1 million, the same as the comparable period in 2012.

On a higher note, comparable-store net sales for the 35-week period ending October 5, were up 1.1% (yoy), and total net sales were up 3.4% for the same period. As is its policy, BKE gave no guidance or projections on current and next quarter earnings.

The decrease in the comparable-store sales and weak total sales was enough to hammer BKE's share price that (as of this writing), was down 4.43% in an otherwise up market. It probably also foretells that BKE will not be giving its customary big special dividend this year, which was already in doubt due to the extraordinarily large dividend it paid last year.

The Business

For those of you who are unfamiliar with BKE, it is an apparel retailer that caters to young adults. It is an American success story that began in 1948 when David Hirschfeld opened a men's store named Mills Clothing, in the small college town of Kearny, Nebraska. In 1965, Dave's son Dan took over the business. Dan changed its name to the Brass Buckle, and it became a denim store. In 1977, it started selling women's apparel, and in 1991 it went public as The Buckle, Inc.

Dividend Policy

BKE currently pays a regular per share dividend of $.20 per quarter (annual yield 1.5%). Since 2006 it has also consistently paid a large special dividend in its fourth quarter. In 2010 the special dividend was $2.50, in 2011 it was $2.25. In 2012, the special dividend was an especially large $4.50, because of the directors' fear of losing a favorable dividend tax treatment. It therefore appears that the company was paying at least a part of its anticipated 2013 special dividend in 2012.

In the last five years, BKE's dividends have an average payout-to-earnings ratio of 154%. If you leave out the extra large dividend paid in 2012, the payout-to-earnings ratio is 106%, which is still extremely high; however, the five-year payout-to-operating-cash-flow ratio is only 86%, and 79% if you don't include 2012.

Conclusion

2013 does not look to be a particularly good year for BKE. Even before the recent news release on its September sales, BKE's 2013 estimates were anemic. Analysts at Yahoo Finance estimate revenue growth of only 3.4%, and earnings growth of 2.3%, and the recent report indicates that even those numbers may be difficult to make, unless BKE has a strong Christmas.

BKE does have a strong balance sheet with no long-term debt, so it is unlikely that it will cut its regular dividend, but the special dividend is another matter. BKE's directors could very well forgo a special dividend this year or reduce it substantially from years past under the justification that they already paid it in 2012.

Disclosure: I am long BKE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.