The Buckle Q3 Earnings: Strong Specialty Retailer (NYSE:BKE)

The Buckle (NYSE:BKE) remains a specialty retailer that we have liked and traded in the past, but it has been a horrible market and a horrible time for retail stocks. However, BKE stock bottomed out in the summer, and has since been on a rally since, returning some solid gains to traders. In the specialty retail space, it is those who are best managing their inventory, using tactical promotion, and watching costs that are doing well in this environment. Inflation has been a bit of a retail killer. Rising input costs coupled with a consumer whose dollar does not go as far is a bad mix for retailers. But the Street has bid this stock up, and we think the most recent earnings. While specialty retail is a very competitive sector, Buckle has continued its strong recovery since the COVID-19 pandemic. Buckle struggled during COVID as there was next to no demand for fashion but with the world essentially fully reopened two years later, people want to look good again as they are back in school, back to work, and socializing again. The stock has had a run, but we think you leverage the next pullback and do some buying if you missed out on getting long in the summer.

The play

Target entry 1: $40 (35% of position)

Target entry 2: $36 (65% of position)

Stop loss: $32

Target exit: $45

Performance discussion

So Buckle has been a winner the last few months and we think momentum can continue despite a tough macro environment. The just reported earnings were quite strong. The company matched consensus estimates on the top line, while surpassing expectations on the bottom line. In fact, the company absolutely crushed estimates. Earnings were significantly higher than expected overall.

The top line revenue figure in the Q3 report was good, and built on gains last year. It has been a struggle for many in the retail space this year as inflation has run rampant, but fashion is back. It is our belief that based on the trends we are seeing for the company, the stock will perform well as we head into the holiday shopping season. Sales came in at $332.3 million and rose 4.0%. This was strong performance.

The one key metric that we focus on with retailers is comparable sales. Comparable store net sales increased 3.0% from comparable store net sales for the prior year’s Q3. Online sales remain strong. Online sales increased 8.8% to $55.0 million compared to net sales of $50.5 million last year. Year-to-date performance is also up from the prior year’s first three quarters. Net sales are up 3.3% to $943.4 million from net sales of $913.7 through the first three quarters of 2021. Comparable store net sales are up 2.8% year-to-date, while online sales are up 5.3% so far. This is strong.

It is very positive to see the online sales growth. Not only are sales growing but the company is managing expenses quite well. Profit is what matters. Gross profit remains strong, rising to $165.4 million, rising from $161.1 million a year ago, though margin declined to 49.8% from 50.4%. General expenses were up marginally, while selling expenses were up commensurate with sales. Net income was $61.4 million, or $1.25 per share. This was a decline from a year ago’s $1.26, but it surpassed estimates by $0.05.

While the stock has run from lows in the summer, we think there is more left in the tank if performance can remain strong. The valuation of the stock is quite attractive even after the run. The growth of the stock is also respectable on both the revenue and EBITDA fronts.

As we look ahead for the rest of 2022, we think the cash position is strong. At the end of the quarter, cash and equivalents totaled $302.1 million. Liabilities remain quite reasonable as well. Sales are growing nicely, margins remain strong, and the online sales remain very strong.

With the incredible beat we saw here, we are looking for $5.00 in EPS at minimum, putting shares at 8X FWD earnings. Very reasonable. It would need to be a horrendous quarter to miss these earnings.

Take home

This was a solid quarter from a retailer that has regained its footing. The dividend remains comfortably covered and yields 3.4%. Inventory remains clean, and the cash position is strong. We see upside momentum continuing despite an inflationary environment, or possible recession. The consumer has proved resilient.