The Buckle, Inc. (BKE): A Rare Miss for This Retailer

I’m not ashamed to admit that denim retailer The Buckle, Inc. (NYSE:BKE) is one of my favorite stocks. The company has an excellent brand, fantastic management, and a solid balance sheet. That’s why it was so surprising to me that it missed earnings expectations yesterday. The company had turned in two years of hitting or exceeding market expectations before yesterday’s miss.

Overall, it wasn’t a horrible quarter. The company posted a small increase in comparable sales, but earnings per share fell slightly from the same time last year. Management admitted taking a bit too long to get some styles to stores, missing out on some spring fashion due to production issues. Aside from that small misstep, The Buckle, Inc. (NYSE:BKE) actually looks very healthy.

The first quarter at Buckle
Comparable sales inched up 1.2% from last year. That’s a minor increase, but it’s better than a lot of apparel retailers did at the beginning of the year, with many citing the long winter as a drag on sales. The slow growth in sales didn’t hurt margins, though, with gross margin rising slightly and operating margin holding firm at 22%.

The shortfall — earnings per share were $0.78 with analysts looking for $0.82 — came from a drop in “other income.” Last year, The Buckle, Inc. (NYSE:BKE) received some state-based incentives for opening or operating in certain locales, while this year that compensation fell.

That difference explains the fall from last year, when other income accounted for around $0.02 per share in earnings. It doesn’t account for the miss this year, though. What happened at The Buckle, Inc. (NYSE:BKE) in the first quarter was a failure to take advantage of all the opportunities presented.

Where Buckle can do better
On the earnings call, Buckle’s management team said that markdowns and inventories had increased, with inventory per store growing faster than comparable-store sales. That’s partially related to the early issue that The Buckle, Inc. (NYSE:BKE) had getting women’s denim in at the right time to take advantage of the early spring selling season. It’s a misstep, for sure, but as an investor, I’m not worried about it being systemic.

In fact, what I’m more concerned about is the money that Buckle is leaving on the table by not focusing on online sales more. This quarter, the company increased online by 6% without much focus. Compare that to the 28% growth that The Gap Inc. (NYSE:GPS) was able to crank out of its online store in its fourth quarter. Clearly, the desire is there, The Buckle, Inc. (NYSE:BKE) just hasn’t capitalized on it yet.