The Gap Inc. (GPS), The Buckle, Inc. (BKE): Heartland Meets Hipster – A Tale of Retail Outperformance

Page 1 of 2

So The Gap Inc. (NYSE:GPS) reported some fine and dandy numbers on Feb. 28 with a 61% rise in net income   and raised its dividend by 20%. Investors will be tempted to fall into the Gap with such numbers but another retailer that may be a better idea is reporting on Mar. 8. A much smaller rival, The Buckle, Inc. (NYSE:BKE) , has a lower P/E of 13.35 and a slightly higher yield of 1.80% compared to Gap’s 14.54 P/E and 1.50% yield. A retailer of young men and women’s clothing, including some private label apparel and accessories, they carry many of the hottest brands for men, women, and kids. Buckle has been a stalwart name over the last few years with almost annual special dividends, fine execution, and a reasonable expansion plan.

The Gap Inc.Why Buckle over Gap?

The Gap Inc. (NYSE:GPS), which also owns Old Navy and Banana Republic, seems to have a lot going for it, granted, but as an investor it leaves me cold. It is omnipresent and ubiquitous and is close to being a consumer staple of clothes. Analysts expect 9.37% five year EPS growth for The Gap Inc. (NYSE:GPS), close to the 9.00% predicted for Buckle. The Buckle, however, has penetrated underserved markets for young people’s retail all over the US with its own niche jeans and much wanted name brands. They are not as edgy as an Urban Outfitters, Inc. (NASDAQ:URBN) but for those who can’t get to a big city Buckle is a very viable alternative.

Thats not to say they are located in cow pastures; for example, the one closest to me is in a higher end and very busy mall in a smaller city in Maryland, midway between Baltimore and D.C. There’s a huge young adult demographic in that area that the Buckle can serve. Three years ago 20% of their stores served geographic area of 20,000 or less in population. It is gradually growing to larger but still underserved markets. Currently, they have 433 retail operations in 43 states.

Old-Fashioned Values But New-Fangled Strategies

Buckle, founded in 1948 and headquartered in Lincoln, Nebraska, must puzzle big city analysts who are used to evaluating big city headquartered retailers that buy inventory nine months out and are fairly deaf to customer feedback. Not so at Buckle, the company gets inventory daily and customer feedback is considered crucial. They also can switch inventory from location to location rapidly.

This should be heartening to investors who shy away from teen retail as too fickle a sector because this inventory strategy keeps buyers and management in the loop as to what’s hot and what’s not. This inventory strategy is why I think analysts may be underestimating their EPS growth rate.

The customer service at Buckle, Inc. (NYSE:BKE) stores is extraordinary as a shopper, even a teenager, can arrange for a personal denim fitter and experience a level of concern and retail expertise usually available only at a Nordstrom or Saks. And did I mention free alterations?! This is a concept so old-fashioned that it’s almost as dated as doctors’ house calls and the milkman. This customer service and ability to move inventory like Nordstrom has been implementing at its stores is why gross profit margin at 44.14% is higher at Buckle than Urban Outfitters and The Gap Inc. (NYSE:GPS). Yes, another old fashioned value makes a buck.

But the company isn’t afraid of the future as they have been expanding their web and social media presence dramatically making their merchandise available to 90 countries online. Their web site and blog look as contemporary as Urban Outfitters’ but without the sullen looking models, sort of Happy Heartland meets Hipster.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

The 10 Biggest Tax Havens in the World to Stash Your Money

The 15 Most Murderous Countries in the World

10 Largest Colleges in the World: Bigger Isn’t Always Better

Comedians in Cars Getting Coffee: The 6 Comedians Seinfeld Needs to Interview

Easy Money: The 10 Most Successful Investors in the World Today

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!