Buckle's FY14 Performance Was Underwhelming
Summary
- Buckle’s profitability was even in FY 2014.
- Buckle had trouble bringing customers through the door in FY 2014.
- Buckle is struggling under changing industry dynamics.
On March 13 apparel retailer Buckle (NYSE: NYSE:BKE) came out with its 2014 earnings announcement. Buckle's fundamentals in 2014 were very discouraging to say the least. Let's take a look to see how it performed.
Buckle's revenue clocked in a small 2% expansion in revenue. Its operating income and net income were even. Buckle still sits on a rock balance sheet and it's going to need it for rough times. At the end of 2014, Buckle had $160 million in cash and short term investments equating to a whopping 45% of stockholder's equity and well past my personal threshold of 20%. The company possesses no long-term debt that generates profit choking interest cost.
Changing consumer dynamic
Retailing is a tough, competitive business. Not only does any given retailer have to compete with other brick and mortar retailers, they have to contend with a slow shift in consumer preference to shop online (see chart below). In fact Buckle's online sales comprised 21% of Buckle's overall gain in revenue. The opening of 10 new locations in 2014 also contributed to Buckle's revenue expansion.
US E-Commerce Sales as Percent of Retail Sales data by YCharts
Buckle is certainly demonstrating its struggles with these dynamics. Buckle's comparable store sales were flat in FY 2014 giving indication that new customers are thinking twice before shopping at its established stores. Staying on top of consumer fashion tastes can be challenging even for well managed retailers.
No longer a proud owner
I used to be a proud owner of Buckle shares operating under the thesis of huge inside ownership by management, a strong balance sheet, dividend generosity and the ability to grow in a competitive environment. I recently sold my shares due to the belief that these factors may not be enough to overcome the headwinds facing retailers. Regardless of Buckle's rock solid balance sheet it has yet to demonstrate that it can adapt to shifting dynamics going on in the industry. Strong enough headwinds can cripple even the most financially sound company.
Neutral on retailing
Currently I am neutral on the entire retailing sector. E-commerce is walloping brick and mortar retailing. Moreover, consumers with the great recession in their memories are less inclined to open their wallets. I also don't like investing in companies with a great deal of competition. Despite popular opinion too much competition is not good for a business's health. I like companies that sell needed and unique products and sit behind high barriers to entry. Apparel retailers don't fall into this category.
Looking ahead
I believe in the future Buckle will continue to struggle under competitive pressures and the shift in consumer consumption patterns to e-commerce. This means that it's top and bottom lines will remain even, or contract, threatening its dividend and translating into sub-par capital gains and dividend cuts. According to Yahoo! Finance analysts have Buckle's EPS pegged at $3.50 per share for FY 2016, representing a small 4% growth rate. I would be surprised if Buckle meets this estimate. Your investing dollars are best served elsewhere.
This article was written by
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