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 NOVEMBER 1, 1997 [ ] 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 [ ] The number of shares issued of the Registrant's Common Stock, outstanding as of December 5, 1997 was 14,276,211 shares of Common Stock.
2 THE BUCKLE, INC. FORM 10-Q INDEX <TABLE> <CAPTION> Pages ----- <S> <C> <C> Part 1. Financial Information (unaudited) Balance Sheets - November 1, 1997 and February 1, 1997 3 Statements of Income - thirteen and thirty-nine weeks ended November 1, 1997 and November 2, 1996 4 Statements of Cash Flows - thirty-nine weeks ended November 1, 1997 and November 2, 1996 5 Notes to financial statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part 2. Other Information 11 Signatures 13 </TABLE> 2
3 THE BUCKLE, INC. BALANCE SHEETS (columnar amounts in thousands) (Unaudited) <TABLE> <CAPTION> ASSETS November 1, February 1, - ------ 1997 1997 CURRENT ASSETS: ----------- ----------- <S> <C> <C> Cash and cash equivalents $ 37,515 $ 35,486 Short-term investments 12,025 8,455 Accounts receivable, net of allowance of $444,770 and $311,795 2,902 1,387 Inventory 44,848 31,106 Prepaid expenses and other assets 2,132 1,965 ----------- ----------- Total current assets 99,422 78,399 PROPERTY AND EQUIPMENT: 56,817 49,248 Less accumulated depreciation 29,274 26,290 ----------- ----------- 27,543 22,958 OTHER ASSETS 1,329 660 ----------- ----------- $ 128,294 $ 102,017 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 16,010 $ 9,407 Accrued employee compensation 11,535 9,565 Accrued store operating expenses 2,551 1,677 Gift certificates redeemable 872 1,106 Income taxes payable 3,411 1,740 ----------- ----------- Total current liabilities 34,379 23,495 DEFERRED INCOME TAXES 479 479 STOCKHOLDERS' EQUITY: Common stock, authorized 20,000,000 shares of $.05 par value; issued 14,165,486 and 13,963,812 shares, respectively 708 698 Additional paid-in capital 26,846 25,171 Retained earnings 65,882 52,174 ----------- ----------- Total stockholders' equity 93,436 78,043 ----------- ----------- $ 128,294 $ 102,017 =========== =========== </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 Thirty-nine Weeks Ended -------------------- ----------------------- November 1, November 2, November 1, November 2, 1997 1996 1997 1996 ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> SALES, net of returns and allowances $ 79,604 $ 61,073 $ 183,149 $ 144,321 COST OF SALES (including buying, distribution and occupancy costs) 50,662 40,206 122,001 99,712 ------------- ------------- ------------- ------------- Gross profit 28,942 20,867 61,148 44,609 OPERATING EXPENSES: Selling 14,258 11,503 34,364 27,687 General and administrative 2,342 1,832 5,874 4,486 ------------- ------------- ------------- ------------- 16,600 13,335 40,238 32,173 ------------- ------------- ------------- ------------- Income from operations 12,342 7,532 20,910 12,436 OTHER INCOME 454 261 1,114 678 ------------- ------------- ------------- ------------- Income before income taxes 12,796 7,793 22,024 13,114 Income tax expense 4,824 2,986 8,316 4,983 ------------- ------------- ------------- ------------- NET INCOME $ 7,972 $ 4,807 $ 13,708 $ 8,131 ============= ============= ============= ============= Net income per share $0.52 $0.33 $0.91 $0.56 ============= ============= ============= ============= Weighted average number of shares outstanding 15,420 14,714 15,075 14,582 ============= ============= ============= ============= See notes to financial statements. </TABLE> 4
5 THE BUCKLE, INC. STATEMENTS OF CASH FLOWS (amounts in thousands) (Unaudited) <TABLE> <CAPTION> Thirty-nine Weeks Ended -------------------------------------- November 1, November 2, 1997 1996 ------------- -------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 13,708 $ 8,131 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation 3,897 3,948 Loss on disposal of assets 31 18 Changes in assets and liabilities: Accounts receivable (1,515) (995) Inventory (13,742) (4,841) Prepaid expenses and other assets (167) (5) Accounts payable 6,603 3,060 Accrued employee compensation 1,970 1,076 Accrued store operating expenses 874 617 Gift certificates redeemable (234) (180) Income taxes payable 1,671 21 ------------- -------------- Net cash flows from operating activities 13,096 10,850 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (8,513) (3,629) Increase in other assets (669) (244) ------------- -------------- Net cash flows from investing activities (9,182) (3,873) CASH FLOWS FROM FINANCING ACTIVITIES: Change in short-term investments (3,570) (445) Stock options exercised 1,685 2,020 ------------- -------------- Net cash flows from financing activities (1,885) 1,575 ------------- -------------- Net increase in cash and cash equivalents 2,029 8,552 Cash and cash equivalents, Beginning of period 35,486 22,499 ------------- -------------- Cash and cash equivalents, End of period $ 37,515 $ 31,051 ============= ============== </TABLE> See notes to financial statements. 5
6 THE BUCKLE, INC. NOTES TO FINANCIAL STATEMENTS THIRTEEN AND THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1997 AND NOVEMBER 2, 1996 (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 February 1, 1997, included in The Buckle, Inc.'s 1996 Annual Report. 2. Description of the Business - The Company is a retailer of medium to better priced casual apparel for fashion conscious young men and women. The Company operated 197 stores located in 26 states throughout the central, midwest, northwest, and southwest regions of the United States as of November 1, 1997, and 178 stores in 22 states as of November 2, 1996. During the third quarter of fiscal 1997, the Company opened five new stores. The Company opened four new stores during the third quarter of fiscal 1996. 3. Net Income Per Share - Net income per share is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the periods as calculated under the treasury stock method. The earnings per share and the average weighted shares outstanding for the prior year thirteen and thirty-nine week periods have been restated to reflect the impact of the Company's 2-for-1 stock split made in the form of a 100 percent stock dividend issued on April 24, 1997. 4. Accounting Pronouncement - In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share which specifies the computation, presentation and disclosure requirements for earnings per share. The objective of the statement is to simplify the computation of earnings per share. The impact on the Company's earnings per share is not materially different than earnings per share determined in accordance with current guidance. SFAS No. 128 is applicable for fiscal years ending after December 15, 1997. 6
7 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 thirty-nine week periods ended November 1, 1997, and November 2, 1996: THE BUCKLE, INC. RESULTS OF OPERATIONS <TABLE> <CAPTION> Percentage of Net Sales Percentage of Net Sales ----------------------- ----------------------- Thirteen weeks ended Percentage Thirty-nine weeks ended Percentage Nov. 1, Nov. 2, increase Nov. 1, Nov. 2, increase 1997 1996 (decrease) 1997 1996 (decrease) ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> Net Sales 100.0% 100.0% 30.3% 100.0% 100.0% 26.9% Cost of sales(including buying, distribution and occupancy costs) 63.6% 65.8% 26.0% 66.6% 69.1% 22.4% ---------------------------------------- ---------------------------------------- Gross profit 36.4% 34.2% 38.7% 33.4% 30.9% 37.1% Selling expenses 17.9% 18.8% 24.0% 18.8% 19.2% 24.1% General and administrative expenses 3.0% 3.0% 27.8% 3.2% 3.1% 30.9% ---------------------------------------- ---------------------------------------- Income from operations 15.5% 12.4% 63.9% 11.4% 8.6% 68.1% Other income (expense) .6% .4% 73.9% .6% .5% 64.3% ---------------------------------------- ---------------------------------------- Income before provision for income taxes 16.1% 12.8% 64.2% 12.0% 9.1% 67.9% Provision for income 6.1% 4.9% 61.6% 4.5% 3.5% 66.9% taxes ---------------------------------------- ---------------------------------------- Net Income 10.0% 7.9% 65.8% 7.5% 5.6% 68.6% ======================================== ======================================== </TABLE> Net sales increased from $61.1 million in the third quarter of fiscal 1996 to $79.6 million in the third quarter of fiscal 1997, a 30.3% increase. Comparable store sales increased from the third quarter of fiscal 1996 to the third quarter of fiscal 1997 by $12.5 million or 21.1%. The comparable store sales increase resulted partially from an increase in the average price per piece of merchandise sold compared with the fiscal 1996 third quarter, as well as from strong unit growth, especially in the categories of footwear, outerwear and guy's denims. 7
8 THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales increased from $144.3 million in the first nine months of fiscal 1996 to $183.1 million for the first nine months of fiscal 1997, a 26.9% increase. Comparable store sales for the thirty-nine weeks ended November 1, 1997 compared to the thirty-nine weeks ended November 2, 1996 increased $21.8 million or 15.9%. Sales growth of 11% for this thirty-nine week period was attributable to the inclusion of a full nine months of operating results for the 17 stores opened in 1996 and the opening of 16 new stores in the first thirty-nine weeks of fiscal 1997. Average sales per square foot increased 15.1% from $179.01 to $205.97. Gross profit after buying, occupancy, and distribution expenses increased $8.1 million in the third quarter of fiscal 1997 to $28.9 million, a 38.7% increase. As a percentage of net sales, gross profit increased from 34.2% in the third quarter of fiscal 1996 to 36.4% in the third quarter of fiscal 1997. Gross profit increased $16.5 million for the first thirty-nine weeks of fiscal 1997 to $61.1 million, a 37.1% increase. As a percentage of net sales, gross profit in the first nine months increased from 30.9% for fiscal 1996, to 33.4% for fiscal 1997. This increase was attributable to a decrease in occupancy costs as a percentage of net sales due to leverage provided by the increase in comparable store sales and by improvement in the merchandise margins. Gross profit also increased due to an improvement in the actual merchandise margins for the three quarters of fiscal 1997 compared to the first three quarters of fiscal 1996. Selling expenses increased from $11.5 million for the third quarter of fiscal 1996 to $14.3 million for the third quarter of fiscal 1997, a 24.0% increase. Selling expenses as a percentage of net sales decreased from 18.8% for the third quarter fiscal 1996, to 17.9% for the third quarter of fiscal 1997. Year-to-date selling expense rose 24.1% from $27.7 million through the first nine months of fiscal 1996 to $34.4 million for the first nine months of fiscal 1997. As a percentage of net sales, selling expense decreased from 19.2% in fiscal 1996, to 18.8% in fiscal 1997. 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 $1.8 million in the third quarter of fiscal 1996 to $2.3 million in the third quarter of fiscal 1997, a 27.8% increase. As a percentage of net sales, general and administrative expenses remained consistent with the prior year third quarter at 3.0%. For the first nine months of fiscal 1997, general and administrative expense rose 30.9% from $4.5 million for the three quarters ended November 2, 1996, to $5.9 million for the three quarters ended November 1, 1997. As a percentage of net sales, general and administrative expense increased to 3.2% for the first nine months of fiscal 1997 compared to 3.1% for the first nine months of fiscal 1996. Increases in general and administrative expenses, as a percentage of net sales, resulted primarily from higher bonus accruals for incentives based upon net profits. General and administrative expenses also increased due to the costs associated with filing to trade on the New York Stock Exchange. As a result of the above changes, the Company's income from operations increased $4.8 million to $12.3 million for the third quarter of fiscal 1997 compared to $7.5 million for the third quarter of fiscal 1996, a 63.9% increase. Income from operations was 15.5% of net sales in the third quarter of fiscal 1997 compared to 12.4% in the third quarter of fiscal 1996. 8
9 THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Income from operations, year-to-date through November 1, 1997, was $20.9 million, up $8.5 million or 68.1% from the prior year first nine months. Income from operations was 11.4% of net sales for the first nine months of fiscal 1997 compared to 8.6% for the first nine months of fiscal 1996. For the quarter ended November 1, 1997, other income increased 73.9%. For the nine months ended November 1, 1997, other income increased 64.3%. These increases are primarily due to additional interest income, as the levels of cash and short term investments is greater than in the same periods of fiscal 1996. Income tax expense as a percentage of pre-tax income was 37.8% in the first nine months of fiscal 1997 compared to 38.0% in the first nine months of fiscal 1996. The primary reason for the lower effective income tax rate is the growth in the amount of federal and/or state tax-exempt interest income. 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. During the first three quarters of fiscal 1997 and 1996, the Company's cash flow provided by operating activities was $13.1 million and $10.9 million, respectively. The uses of cash for both thirty-nine 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. Uses of cash in the third quarter of fiscal 1997 also included the purchase of a corporate aircraft. The primary differences creating less cash flow this year versus last year are a greater build up in inventory and a higher level of capital expenditures for the first three quarters of fiscal 1997 compared to fiscal 1996. 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 November 1, 1997, the Company had working capital of $65.0 million, including $37.5 million of cash and cash equivalents and short-term investments of $12.0 million. There were no bank borrowings during the first three quarters of fiscal 1997 and 1996. During the first three quarters of fiscal 1997 and 1996 the Company invested $4.2 million and $3.5 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 $1.3 million and $150,000 in the first three quarters of fiscal 1997 and 1996, respectively, in capital expenditures for the corporate headquarters. During the fiscal 1997 9
10 THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS third quarter, the Company began an expansion to the corporate headquarters and distribution facility. The addition will be approximately 122,000 square feet, added to the current 55,000 square foot building. The majority of the space will be used for the distribution center. The total cost of the project is currently estimated to be $7.5 million, with completion of the distribution system in the second quarter of fiscal 1998 and completion of the office expansion by the end of fiscal 1998. Also in the third quarter of fiscal 1997, the Company upgraded its corporate aircraft at a cost of $3.0 million, net of trade-in. 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 1997, the Company anticipates completing three additional new store construction projects. As of November 1, 1997, seven additional lease contracts have been signed, and additional leases are in various stages of negotiation. Management now estimates that total capital expenditures during fiscal 1997 will be approximately $13.5 million before any landlord allowances, estimated to be at approximately $2.4 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 1994, 1995, and 1996, 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 thirty-nine week periods ended November 1, 1997, and November 2, 1996. 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. 10
11 THE BUCKLE, INC. PART II -- OTHER INFORMATION <TABLE> <S> <C> <C> 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: 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 November 1, 1997. </TABLE> 11
12 EXHIBIT 11 THE BUCKLE, INC. COMPUTATIONS OF EARNINGS PER SHARE (Amounts in thousands, except per share data) (Unaudited) <TABLE> <CAPTION> Thirteen Weeks Ended Thirty-nine Weeks Ended ------------------------------ ------------------------------ November 1, November 2, November 1, November 2, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> FINANCIAL STATEMENT COMPUTATIONS: Net Income $ 7,972 $ 4,807 $ 13,708 $ 8,131 ----------- ----------- ----------- ----------- NET INCOME PER SHARE: Shares used in this computation: Weighted average shares outstanding 14,166 13,960 14,058 13,886 Dilutive effect of stock options 1,254 754 1,017 696 ----------- ----------- ----------- ----------- Common and common equivalent shares 15,420 14,714 15,075 14,582 =========== =========== =========== =========== Net income per share $0.52 $0.33 $0.91 $0.56 =========== =========== =========== =========== </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: ______________, 1997 ________________________________ DENNIS H. NELSON, President and CEO Dated: ______________, 1997 ________________________________ KAREN B. RHOADS, Vice President of Finance and CFO 13