Buckle Up for a SWOT check

AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The Buckle (NYSE: BKE) is a company not mentioned nearly enough. The retailer of casual and denim apparel to older teens and young adults has been executing very well. It is pushing back up to its 52-week high of $50.00 and why not when they are offering a $4.50 special cash dividend per share for shareholders of record on Dec. 7. This is in addition to the $0.20 quarterly dividend.

Buckle reported Q3 earnings on Nov. 15 and beat the street's expectations but their good news was drowned out by the noise over competitor Abercrombie & Fitch (NYSE: ANF) which rose over 20% on the same day after beating estimates as well. Buckle reported earnings of $0.88 a share and net income rose 9%. Buckle attributed some of the gain to good online sales numbers and favorable reception of its own Buckle denim brand.

This is all very good news and since it's still flying under the radar after beats by Abercrombie and Hot Topic let's go a little deeper with a SWOT check of Strengths, Weaknesses, Opportunities, and Threats.

Strengths

  • Buckle is very shareholder friendly. It's been paying these special dividends for several years on top of its 1.70% yield.
  • All corporate governance risks are low. This is to be expected from a company based in Kearney, Nebraska that's been in business since 1948.
  • Some of the older stores have recently been refurbished to a new format. Buckle has 441 stores in 43 states.
  • They are ramping up their online sites and social media presence, witness the recent earnings with online sales increasing by 3.8% in the quarter and in 2011 online grew 25% to comprise 7.3% of total sales.
  • Margins expanded across the board as reported on the latest earnings report.
  • The company has no debt and $244.74 million in cash, much of that earmarked for the special dividend.
  • The company has a 42.94% hold by insiders.
  • The P/E is a reasonable 14.68 with a forward P/E of 14. Abercrombie's is 33.90.
  • The company has a great promote from within sales associate program and also in-store personal shopper service is available.

Weaknesses

  • Abercrombie reported earnings growth of 52% mainly attributable to international sales. Buckle is solely domestic. 
  • The company is not nearly as well known as competitors Abercrombie, Aeropostale (NYSE: ARO), American Eagle Outfitters (NYSE: AEO) and Guess (NYSE: GES).
  • The payout ratio of 93% is a worry. Meanwhile, Guess has a 3.50% yield but it's near 52 week lows.
  • Despite their dividends this company still has a huge 31.60% short interest.

Opportunities

  • Although the company seems uninterested in expanding overseas an expansion into Canada seems reasonable. Many of their competitors are already in Canada.
  • Although they have already increased sales per square foot to $462 and average sales per store to $2.3 million they can continue the remodeling program already in progress.
  • Continue with the daily deliveries of new merchandise to keep shoppers coming in.
  • Take some of that free cash and advertise. The company only spends 0.8% of net sales for ad spending. It worked for upstart Under Armour with their Protect This House campaign a few years ago..

Threats

  • Buckle is in a very competitive arena: denim and other fashionable casual wear in which tastes can be fickle. They believe their competitive advantage is the level of customer service and the variety of merchandise as they partner with popular clothiers like Hurley, Billabong, etc. and produce their own denim and apparel line to hedge each other.
  • In their annual report they admit a risk is the number of competitors as well as the greater size of their competitors. Abercrombie has a $3.48 billion market cap to Buckle's $2.32 billion with 1,045 stores. However, Aeropostale is smaller at a $1.10 billion market cap, but it has twice as many stores at 916 and 70 more in Canada. American Eagle owns over 1,000 stores in the US and Canada and also has franchise partners in 10 other countries. American Eagle is even larger than Abercrombie with a market cap of $3.70 billion. Guess has almost 2,000 stores in the US, Canada, Europe and Asia.
  • These competiors vie fiercely for prime mall spots.
  • As stated in the annual report losing key management personnel like CEO Dennis Nelson who has spent decades with the company would be a significant threat to the business.

Time to Buckle Up?

You may have noticed there are many more pros than cons to Buckle. It is that oxymoron, a dependable teen retailer. It also trades at a lower P/E than many of its competitors with a 22.89 P/E for American Eagle and Aeropostale at 17.96 (except for Guess at 8.79).

The company executes well, it motivates employees with stock incentives and, while designing and manufacturing their own product they have many popular partners' brands they carry.

I have liked this stock for some time. It is just a very solid performer in that most difficult of businesses, teen fashion. This name is well worth a look.




leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Aeropostale, The Buckle, and Guess?. Motley Fool newsletter services recommend American Eagle Outfitters, The Buckle, and Guess?. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus