1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended AUGUST 1, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ____________ to ____________ Commission File Number: 000-20132 THE BUCKLE, INC. (Exact name of Registrant as specified in its charter) NEBRASKA 47-0366193 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2407 WEST 24TH STREET, KEARNEY, NEBRASKA 68847 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (308) 236-8491 - ------------------------------------------------------------------- (Former name, former address and former fiscal year if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o The number of shares issued of the Registrant's Common Stock, outstanding as of August 29, 1998 was 22,001,604 shares of Common Stock.
2 THE BUCKLE, INC. FORM 10-Q INDEX <TABLE> <CAPTION> Pages ----- Part 1. Financial Information (unaudited) <S> <C> Balance Sheets - August 1, 1998 and January 31, 1998 3 Statements of Income - thirteen and twenty-six weeks ended August 1, 1998 and August 2, 1997 4 Statements of Cash Flows - twenty-six weeks ended August 1, 1998 and August 2, 1997 5 Notes to financial statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part 2. Other Information 12 Signatures 14 </TABLE> 2
3 THE BUCKLE, INC. BALANCE SHEETS (columnar amounts in thousands) (Unaudited) <TABLE> <CAPTION> ASSETS August 1, January 31, CURRENT ASSETS: 1998 1998 ---------- ----------- <S> <C> <C> Cash and cash equivalents $ 42,851 $ 53,593 Short-term investments 21,279 14,013 Accounts receivable, net of allowance of $490,567 3,218 2,149 Inventory 46,918 42,339 Prepaid expenses and other assets 2,341 2,370 --------- --------- Total current assets 116,607 114,464 PROPERTY AND EQUIPMENT: 67,469 59,100 Less accumulated depreciation 31,828 29,688 --------- --------- 35,641 29,412 OTHER ASSETS 962 961 --------- --------- $ 153,210 $ 144,837 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 17,382 $ 17,248 Accrued employee compensation 9,469 14,519 Accrued store operating expenses 2,878 2,407 Gift certificates redeemable 1,043 1,357 Income taxes payable 1,031 1,048 --------- --------- Total current liabilities 31,803 36,579 DEFERRED INCOME TAXES 377 377 STOCKHOLDERS' EQUITY: Common stock, authorized 100,000,000 shares of $.01 par value; issued 22,001,042 and 21,659,604 shares, respectively 220 217 Additional paid-in capital 35,440 33,709 Retained earnings 86,557 75,505 Unearned compensation - restricted stock (1,187) (1,550) --------- --------- Total stockholders' equity 121,030 107,881 --------- --------- $ 153,210 $ 144,837 ========= ========= </TABLE> See notes to financial statements. 3
4 THE BUCKLE, INC. STATEMENTS OF INCOME (amounts in thousands, except per share data) (Unaudited) <TABLE> <CAPTION> Thirteen Weeks Ended Twenty-six Weeks Ended -------------------- ---------------------- August 1, August 2, August 1, August 2, 1998 1997 1998 1997 ---------- ---------- --------- ---------- <S> <C> <C> <C> <C> SALES, net of returns and allowances $ 70,506 $ 55,220 $137,534 $103,545 COST OF SALES (including buying, distribution and occupancy costs) 46,240 37,779 90,527 71,339 -------- -------- -------- -------- Gross profit 24,266 17,441 47,007 32,206 OPERATING EXPENSES: Selling 12,812 10,321 25,764 20,106 General and administrative 2,141 1,934 4,366 3,532 -------- -------- -------- -------- 14,953 12,255 30,130 23,638 -------- -------- -------- -------- Income from operations 9,313 5,186 16,877 8,568 OTHER INCOME 333 401 855 660 -------- -------- -------- -------- Income before income taxes 9,646 5,587 17,732 9,228 Income tax expense 3,608 2,108 6,680 3,492 -------- -------- -------- -------- NET INCOME $ 6,038 $ 3,479 $ 11,052 $ 5,736 ======== ======== ======== ======== Basic income per share $ 0.27 $ 0.17 $ 0.50 $ 0.27 Diluted income per share $ 0.26 $ 0.16 $ 0.48 $ 0.26 Basic shares outstanding 22,001 21,062 21,965 21,006 Diluted shares outstanding 23,226 22,194 23,199 21,916 </TABLE> See notes to financial statements. 4
5 THE BUCKLE, INC. STATEMENTS OF CASH FLOWS (amounts in thousands) (Unaudited) <TABLE> <CAPTION> Twenty-six Weeks Ended ---------------------- August 1, 1998 August 2, 1997 ----------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: <S> <C> <C> Net income $ 11,052 $ 5,736 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation 3,001 2,570 Loss on disposal of assets 207 23 Changes in assets and liabilities: Accounts receivable (1,069) (2,421) Inventory (4,579) (11,896) Prepaid expenses and other assets 29 (237) Accounts payable 134 7,666 Accrued employee compensation (5,050) (2,569) Accrued store operating expenses 471 485 Gift certificates redeemable (314) (254) Income taxes payable (17) (662) -------- -------- Net cash flows from operating activities 3,865 (1,559) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (9,437) (2,935) Increase in other assets (1) (8) -------- -------- Net cash flows from investing activities (9,438) (2,943) CASH FLOWS FROM FINANCING ACTIVITIES: Change in short-term investments (7,266) (2,284) Stock options exercised 2,097 677 -------- -------- Net cash flows from financing activities (5,169) (1,607) -------- -------- Net decrease in cash and cash equivalents (10,742) (6,109) Cash and cash equivalents, Beginning of period 53,593 35,486 -------- -------- Cash and cash equivalents, End of period $ 42,851 $ 29,377 ======== ======== </TABLE> See notes to financial statements. 5
6 THE BUCKLE, INC. NOTES TO FINANCIAL STATEMENTS THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 1, 1998 AND AUGUST 2, 1997 (Unaudited) 1. Management Representation - The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the interim periods have been included. All such adjustments are of a normal recurring nature. Because of the seasonal nature of the business, results for interim periods are not necessarily indicative of a full year's operations. The accounting policies followed by the Company and additional footnotes are reflected in the financial statements for the fiscal year ended January 31, 1998, included in The Buckle, Inc.'s 1997 Annual Report. 2. Description of the Business - The Company is a retailer of medium to better priced casual apparel and footwear for fashion conscious young men and women. The Company operated 209 stores located in 28 states throughout the central, northwestern, and southern regions of the United States as of August 1, 1998, and 192 stores in 25 states as of August 2, 1997. During the second quarter of fiscal 1998, the Company opened five new stores and substantially renovated two stores. During the second quarter of fiscal 1997, the Company opened six new stores and substantially renovated one store. 3. Net Income Per Share - The Financial Accounting Standards Board (FASB) issued Statement No. 128, "Earnings Per Share", which is applicable for fiscal years ending after December 15, 1997. FASB No. 128 requires dual presentation of Basic and Diluted earnings per share for all periods for which an income statement is presented. Basic earnings per share data are based on the weighted average outstanding common shares during the period. Diluted earnings per share data are based on the weighted average outstanding common shares and the effect of all dilutive potential common shares, including stock options and warrants. 4. Accounting Pronouncements - In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The adoption of this standard in the first quarter of fiscal 1998 had no impact on the Company's financial statement. Also in June 1997, the FASB issued Statement No. 131, "Disclosure About Segments of an Enterprise and Related Information", which is effective in 1998. FASB No. 131 establishes standards for the way public enterprises report information about operating segments. The Company currently complies with most provisions of this statement and any incremental disclosure required by that statement is expected to be minimal. 6
7 5. Stock Split and Authorized Shares - On June 8, 1998 the Company completed a 3 for 2 stock split for shareholders of record as of May 28, 1998. Also, on May 28, 1998 the Company's shareholders approved an amendment to the Articles of Incorporation increasing the number of shares of common stock authorized to 100,000,000 and changing the par value per share to $0.01. All applicable amounts reflected in this Form 10-Q have been retroactively adjusted to report the affects of the stock split and the change in par value. 7
8 THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Company's financial condition and results of operations during the periods included in the accompanying financial statements. RESULTS OF OPERATIONS The table below sets forth the percentage relationships of sales and various expense categories in the Statements of Income for each of the thirteen and twenty-six week periods ended August 1, 1998, and August 2, 1997: THE BUCKLE, INC. RESULTS OF OPERATIONS <TABLE> <CAPTION> Percentage of Net Sales Percentage of Net Sales ----------------------- ----------------------- Thirteen weeks ended Percentage Twenty-six weeks ended Percentage August 1, August 2, increase August 1, August 2, increase 1998 1997 (decrease) 1998 1997 (decrease) -------------------------- ------------- ------------------------- -------------- <S> <C> <C> <C> <C> <C> <C> Net Sales 100.0% 100.0% 27.7% 100.0% 100.0% 32.8% Cost of sales (including buying, distribution and occupancy costs) 65.6% 68.4% 22.4% 65.8% 68.9% 26.9% ---------------------------------------- ---------------------------------------- Gross profit 34.4% 31.6% 39.1% 34.2% 31.1% 46.0% Selling expenses 18.2% 18.7% 24.1% 18.7% 19.4% 28.1% General and Administrative expenses 3.0% 3.5% 10.7% 3.2% 3.4% 23.6% ---------------------------------------- ---------------------------------------- Income from operations 13.2% 9.4% 79.6% 12.3% 8.3% 97.0% Other income .5% .7% -17.0% .6% .6% 29.7% ---------------------------------------- ---------------------------------------- Income before income Taxes 13.7% 10.1% 72.6% 12.9% 8.9% 92.2% Income tax expense 5.1% 3.8% 71.2% 4.9% 3.4% 91.4% ---------------------------------------- ---------------------------------------- Net Income 8.6% 6.3% 73.6% 8.0% 5.5% 92.7% ======================================== ======================================== </TABLE> Net sales increased from $55.2 million in the second quarter of fiscal 1997 to $70.5 million in the second quarter of fiscal 1998, a 27.7% increase. Comparable store sales increased from the second quarter of fiscal 1997 to the second quarter of fiscal 1998 by $9.6 million or 17.6%. The comparable store sales increase resulted partially from an increase in the average price per piece of merchandise sold compared with the fiscal 1997 second quarter and partially from strong sales in the accessory categories and gal's footwear. 8
9 THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales increased from $103.5 million in the first six months of fiscal 1997 to $137.5 million for the first six months of fiscal 1998, a 32.8% increase. Comparable store sales for the twenty-six weeks ended August 1, 1998 compared to the twenty-six weeks ended August 2, 1997 increased $22.4 million or 22.3%. Sales growth of 10.5% for this twenty-six week period was attributable to the inclusion of a full six months of operating results for the 19 stores opened in 1997 and the opening of 11 new stores in the first twenty-six weeks of fiscal 1998. Average sales per square foot increased 21.3% from $117.62 to $142.70. Gross profit after buying, occupancy, and distribution expenses increased $6.8 million in the second quarter of fiscal 1998 to $24.3 million, a 39.1% increase. As a percentage of net sales, gross profit increased from 31.6% in the second quarter of fiscal 1997 to 34.4% in the second quarter of fiscal 1998. Gross profit increased $14.8 million for the first twenty-six weeks of fiscal 1998 to $47.0 million, a 46.0% increase. As a percentage of net sales, gross profit in the first six months increased from 31.1% for fiscal 1997, to 34.2% for fiscal 1998. The increase for both the three and six month periods was attributable to a decrease in occupancy costs as a percentage of net sales due to leverage provided by the strong increase in comparable store sales. Gross profit also increased due to an improvement in the actual merchandise margins for the three and six months of fiscal 1998 compared to the same periods of fiscal 1997. Selling expenses increased from $10.3 million for the second quarter of fiscal 1997 to $12.8 million for the second quarter of fiscal 1998, a 24.1% increase. Selling expenses as a percentage of net sales decreased from 18.7% for fiscal 1997 to 18.2% for fiscal 1998. Year-to-date selling expense rose 28.1% from $20.1 million through the first half of fiscal 1997 to $25.8 million for the first half of fiscal 1998. As a percentage of net sales, selling expense in the first six months decreased from 19.4% for fiscal 1997, to 18.7% for fiscal 1998. The primary reason for the improvement in selling expenses as a percentage of net sales is leverage provided by strong sales to the areas of salaries and advertising expense. General and administrative expenses increased from $1.9 million in the second quarter of fiscal 1997 to $2.1 million in the second quarter of fiscal 1998, a 10.7% increase. As a percentage of net sales, general and administrative expenses decreased to 3.0% for the second quarter of fiscal 1998 compared to 3.5% for the second quarter of fiscal 1997. For the first half of fiscal 1998, general and administrative expense rose 23.6% from $3.5 million for the six months ended August 2, 1997, to $4.4 million for the six months ended August 1, 1998. As a percentage of net sales, general and administrative expense decreased to 3.2% for the first half of fiscal 1998 compared to 3.4% for the first half of fiscal 1997. Decreases in general and administrative expenses for the first six months, as a percentage of net sales, resulted primarily from leverage of fixed costs based upon strong comparable store sales, partially offset by higher bonus accruals for incentives based upon higher net profits. As a result of the above changes, the Company's income from operations increased $4.1 million to $9.3 million for the second quarter of fiscal 1998 compared to $5.2 million for the second quarter of fiscal 1997, a 79.6% increase. Income from operations was 13.2% of net sales in the second quarter of fiscal 1998 compared to 9.4% in the second quarter of fiscal 1997. Income from operations, year-to-date through August 1, 1998, was $16.9 million, up $8.3 million from the prior 9
10 THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS year first half. Income from operations was 12.3% of net sales for the first six months of fiscal 1998 compared to 8.3% for the first six months of fiscal 1997. For the quarter ended August 1, 1998, other income decreased 17.0%. For the six months ended August 1, 1998, other income increased 29.7%. The decrease in the second quarter was due to abandonment losses on disposal of fixed assets. The increase year-to-date is primarily due to additional interest income, as the level of cash and short-term investments was greater than in the same period of fiscal 1997. Income tax expense as a percentage of pre-tax income was 37.7% in the first half of fiscal 1998 compared to 37.8% in the first half of fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's primary ongoing cash requirements are for inventory, payroll, new store expansion, and remodeling. Historically, the Company's primary source of working capital has been cash flow from operations. However, the first half of each fiscal year is typically a period of decreasing cash flows created by various operating, investing, and financing activities. During the first half of fiscal 1998, the Company's had positive cash flow from operating activities of $3.9 million. During the first half of fiscal 1997, the Company's cash flow used by operating activities was $1.6 million. The uses of cash for both twenty-six week periods include payment of annual bonuses accrued at fiscal year end, changes in inventory and accounts payable for build up of inventory levels, and construction costs for opening new stores. The primary differences creating less cash flow this year versus last year are a higher level of capital expenditures, including the corporate headquarters expansion, and a greater increase in short-term investments. The Company has available an unsecured line of credit of $5.0 million and a $5.0 million line of credit for foreign and domestic letters of credit, with First National Bank and Trust Company of Kearney, Nebraska. Borrowings under the lending arrangements provide for interest to be paid at a rate equal to the prime rate published in the Wall Street Journal on the date of the borrowings. As of August 1, 1998, the Company had working capital of $84.8 million, including $42.9 million of cash and cash equivalents and short term investments of $21.3 million. The Company has, from time to time, borrowed against these lines during periods of peak inventory build-up. There were no bank borrowings during the first half of fiscal 1998 and 1997. During the first half of fiscal 1998 and 1997 the Company invested $4.6 million and $2.7 million, respectively, in new store construction, store renovation and upgrading store technology, net of any construction allowances received from landlords. The Company also spent approximately $4.8 million and $200,000 in the first half of fiscal 1998 and 1997, respectively, in capital expenditures for the corporate headquarters and distribution center. During the fiscal 1997 third quarter, the Company began an expansion to the corporate headquarters and distribution facility. The addition 10
11 THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS is approximately 134,000 square feet, added to the current 55,000 square foot building. The majority of the space will be used for the distribution center, with approximately 7,000 square feet of new office space. The total cost of this project is estimated to be $7.5 million. The distribution system was completed in July 1998 and work will continue on the new office space. Remodeling will then begin on the existing office space and the former distribution area to add additional space for offices, supply department, returns-to-vendor and storage. This project is estimated to start later this year and be completed during fiscal 1999. The Company believes that existing cash and cash flow from operations will be sufficient to fund current and long-term anticipated capital expenditures and working capital requirements for the next several years. During the remainder of fiscal 1998, the Company anticipates completing approximately sixteen additional store construction projects, including approximately fifteen new stores and approximately one store to be remodeled and/or relocated. As of August 1, 1998, twelve additional lease contracts have been signed, and additional leases are in various stages of negotiation. Management now estimates that total capital expenditures during fiscal 1998 will be approximately $13.0 million before any landlord allowances, estimated to be at approximately $1.5 million. SEASONALITY AND INFLATION The Company's business is seasonal, with the Christmas season (from approximately November 15 to December 30) and the back-to-school season (from approximately July 15 to September 1) historically contributing the greatest volume of net sales. For fiscal years 1995, 1996, and 1997, the Christmas and back-to-school seasons accounted for an average of approximately 40% of the Company's fiscal year net sales. Although the operations of the Company are influenced by general economic conditions, the Company does not believe that inflation has had a material effect on the results of operations during the twenty-six week periods ended August 1, 1998, and August 2, 1997. FORWARD LOOKING STATEMENTS Information in this report, other than historical information, may be considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "1995 Act"). Such statements are made in good faith by the Company pursuant to the safe-harbor provisions of the 1995 Act. In connection with these safe-harbor provisions, this management's discussion and analysis contains certain forward-looking statements, which reflect management's current views and estimates of future economic conditions, company performance and financial results. The statements are based on many assumptions and factors that could cause future results to differ materially. Such factors include, but are not limited to, changes in product mix, changes in fashion trends, competitive factors and general economic conditions, economic conditions in the retail apparel industry, as well as other risks and uncertainties inherent in the Company's business and the retail industry in general. Any changes in these factors could result in significantly different results for the Company. The Company further cautions that the forward-looking information contained herein is not exhaustive or exclusive. The Company does not undertake to update any forward-looking statements, which may be made from time to time by or on behalf of the Company. 11
12 THE BUCKLE, INC. PART II -- OTHER INFORMATION Item 1. Legal Proceedings: None Item 2. Changes in Securities: None Item 3. Defaults Upon Senior Securities: None Item 4. Submission of Matters to a Vote of Security Holders: (a) May 28, 1998, Annual Meeting (b) Board of Directors: Daniel J. Hirschfeld Robert E. Campbell Dennis H. Nelson William D. Orr Karen B. Rhoads Ralph M. Tysdal Bill L. Fairfield <TABLE> <CAPTION> NUMBER OF SHARES* ----------------- For Against Abstain --- ------- ------- <S> <C> <C> <C> (c) 1. Election of Board of Directors: Daniel J. Hirschfeld 13,645,380 0 176,516 Dennis H. Nelson 13,645,380 0 176,516 Karen B. Rhoads 13,645,387 0 176,516 Bill L. Fairfield 13,612,720 0 176,516 Robert E. Campbell 13,612,724 0 176,516 William D. Orr 13,619,650 0 176,516 Ralph M. Tysdal 13,611,091 0 176,516 2. Appoint Deloitte & Touche LLP as independent accountants. 13,798,500 2,233 3,259 3. Approval to increase authorized stock and decrease par value 11,399,602 2,400,021 4,369 4. Approval of the Company's 1998 Management Incentive Plan 12,688,194 283,517 7,298 5. Approval of the Company's 1997 Executive Stock Option Plan 10,195,721 2,750,686 32,602 6. Approval of the Company's 1998 Restricted Stock Plan 10,311,722 2,654,868 12,419 7. Approval of amendment to the Company's 1993 Director Stock Option Plan 10,475 089 2,489,475 14,445 *includes only shares represented in person or by proxy at the annual meeting (d) None Item 5. Other Information: None Item 6. Exhibits and Reports on Form 8-K: (a) See Exhibit 11, statement regarding computation of earnings per share. (b) No reports on Form 8-K were filed by the Company during the quarter ended August 1, 1998. </TABLE> 12
13 THE BUCKLE, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE BUCKLE, INC. Dated: ______________, 1998 ________________________________ DENNIS H. NELSON, President and CEO Dated: ______________, 1998 ________________________________ KAREN B. RHOADS, Vice President of Finance and CFO 13