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Buckle 10-K 2010
Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended January 30, 2010

¨   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:  001-12951

THE BUCKLE, INC.
(Exact name of Registrant as specified in its charter)
Nebraska
47-0366193
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

2407 West 24th Street, Kearney, Nebraska
68845-4915
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code:  (308) 236-8491

Securities registered pursuant to Section 12(b) of the Act:
Title of class
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ

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  þ   No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files). Yes ¨  No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ¨.

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer, or smaller reporting company. (See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).  Check one.
þ Large accelerated filer;   ¨ Accelerated filer;   ¨ Non-accelerated filer; ¨ Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨No þ

The aggregate market value (based on the closing price of the New York Stock Exchange) of the common stock of the registrant held by non-affiliates of the registrant was $785,519,774 on July 31, 2009. For purposes of this response, executive officers and directors are deemed to be the affiliates of the Registrant and the holdings by non-affiliates was computed as 25,388,487 shares.

The number of shares outstanding of the Registrant's Common Stock, as of March 26, 2010, was 46,659,195.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the registrant’s 2010 Annual Meeting of Shareholders to be held June 4, 2010 are incorporated by reference in Part III.

 
 

 

The Buckle, Inc.
Form 10-K
January 30, 2010

Table of Contents

     
Page
       
Part I
       
Item 1.
Business
 
3
       
Item 1A.
Risk Factors
 
11
       
Item 1B.
Unresolved Staff Comments
 
14
       
Item 2.
Properties
 
15
       
Item 3.
Legal Proceedings
 
15
       
Item 4.
Reserved
 
15
       
Part II
       
Item 5.
Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities
 
16
       
Item 6.
Selected Financial Data
 
18
       
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
19
       
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
 
29
       
Item 8.
Financial Statements and Supplementary Data
 
30
       
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
 
50
       
Item 9A.
Controls and Procedures
 
50
       
Item 9B.
Other Information
 
52
       
Part III
       
Item 10.
Directors, Executive Officers, and Corporate Governance
 
52
       
Item 11.
Executive Compensation
 
52
       
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
52
       
Item 13.
Certain Relationships and Related Transactions and Director Independence
 
52
       
Item 14.
Principal Accountant Fees and Services
 
52
       
Part IV
       
Item 15.
Exhibits and Financial Statement Schedule
 
52

 
2

 

PART I

ITEM 1 - BUSINESS

The Buckle, Inc. (the "Company") is a retailer of medium to better-priced casual apparel, footwear, and accessories for fashion conscious young men and women. As of January 30, 2010, the Company operated 401 retail stores in 41 states throughout the continental United States under the names "Buckle" and "The Buckle."  The Company markets a wide selection of mostly brand name casual apparel including denims, other casual bottoms, tops, sportswear, outerwear, accessories, and footwear. The Company emphasizes personalized attention to its customers and provides customer services such as free hemming, free gift-wrapping, easy layaways, the Buckle private label credit card, and a frequent shopper program. Most stores are located in regional, high-traffic shopping malls and lifestyle centers, and this is the Company's strategy for future expansion. The majority of the Company's central office functions, including purchasing, pricing, accounting, advertising, and distribution, are controlled from its headquarters and distribution center in Kearney, Nebraska. The Company’s men’s buying team and a portion of its marketing team are located in Overland Park, Kansas.

Incorporated in Nebraska in 1948, the Company commenced business under the name Mills Clothing, Inc., a conventional men's clothing store with only one location. In 1967, a second store, under the trade name Brass Buckle, was purchased. In the early 1970s, the store image changed to that of a jeans store with a wide selection of denims and shirts. The first branch store was opened in Columbus, Nebraska, in 1976. In 1977, the Company began selling young women's apparel and opened its first mall store. The Company changed its corporate name to The Buckle, Inc. on April 23, 1991. The Company has experienced significant growth over the past ten years, growing from 248 stores at the start of 2000 to 401 stores at the end of fiscal 2009. All references herein to fiscal 2009 refer to the 52-week period ended January 30, 2010. Fiscal 2008 refers to the 52-week period ended January 31, 2009 and fiscal 2007 refers to the 52-week period ended February 2, 2008.

The Company's principal executive offices and distribution center are located at 2407 West 24th Street, Kearney, Nebraska 68845. The Company's telephone number is (308) 236-8491. The Company publishes its corporate web site at www.buckle.com.

Available Information

The Company’s annual reports on Form 10-K, along with all other reports and amendments filed with or furnished to the Securities and Exchange Commission, are publicly available free of charge on the Investor Information section of the Company’s website at www.buckle.com as soon as reasonably practicable after the Company files such materials with, or furnishes them to, the Securities and Exchange Commission. The Company’s corporate governance policies, ethics code, and Board of Directors’ committee charters are also posted within this section of the website. The information on the Company’s website is not part of this or any other report The Buckle, Inc. files with, or furnishes to, the Securities and Exchange Commission.

Marketing and Merchandising

The Company's marketing and merchandising strategy is designed to create customer loyalty by offering a wide selection of key brand name and private label merchandise and providing a broad range of value-added services. The Company believes it provides a unique specialty apparel store experience with merchandise designed to appeal to the fashion conscious 15 to 30-year old. The merchandise mix includes denims, casual bottoms, tops, sportswear, outerwear, accessories, and footwear. Denim is a significant contributor to total sales (42.9% of fiscal 2009 net sales) and is a key to the Company's merchandising strategy. The Company believes it attracts customers with its wide selection of branded and private label denim and a wide variety of fits, finishes, and styles. Tops are also significant contributors to total sales (36.7% of fiscal 2009 net sales). The Company strives to provide a continually changing selection of the latest casual fashions.

 
3

 

The percentage of net sales over the past three fiscal years of the Company's major product lines are set forth in the following table:

   
Percentage of Net Sales
 
   
Fiscal 2009
   
Fiscal 2008
   
Fiscal 2007
 
Denims
    42.9 %     41.4 %     43.2 %
Tops (including sweaters)
    36.7       39.0       36.1  
Accessories
    7.7       7.7       7.7  
Sportswear/fashions
    5.0       4.6       4.3  
Footwear
    4.7       4.6       5.6  
Outerwear
    2.5       2.0       2.0  
Casual bottoms
    0.4       0.6       1.0  
Other
    0.1       0.1       0.1  
      100.0 %     100.0 %     100.0 %

Brand name merchandise accounted for approximately 71% of the Company's sales during fiscal 2009. The remaining balance is comprised of private label merchandise. The Company's merchandisers continually work with manufacturers and vendors to produce brand name merchandise that they believe is unique in color, style, and fit. While the brands offered by the Company change to meet current customer preferences, the Company currently offers denims from brands such as Big Star, Big Star Vintage, Miss Me, MEK, Rock Revival, and Silver Jeans. Other key brands include Hurley, Billabong, Affliction, Sinful, Archaic, Obey, 7 Diamonds, Roar, Fox, and Fossil. The Company expects that brand name merchandise will continue to constitute the majority of sales.

Management believes the Company provides a unique store environment by maintaining a high level of personalized service and by offering a wide selection of fashionable, quality merchandise. The Company believes it is essential to create an enjoyable shopping environment and, in order to fulfill this mission, it employs highly motivated employees who provide personal attention to customers. Each salesperson is educated to help create a complete look for the customer by helping them find the best fits and showing merchandise as coordinating outfits. The Company also incorporates specialized services such as free hemming, free gift wrapping, layaways, a frequent shopper card, the Buckle private label credit card, and a special order system that allows stores to obtain specifically requested merchandise from other Company stores. Customers are encouraged to use the Company's layaway plan, which allows customers to make a partial payment on merchandise that is then held by the store until the balance is paid. For the past three fiscal years, an average of approximately 2% – 4% of net sales has been made on a layaway basis.

Merchandising and pricing decisions are made centrally; however, the Company's distribution system allows for variation in the mix of merchandise distributed to each store. This allows individual store inventories to be tailored to reflect differences in customer buying patterns at various locations. In addition, to assure a continually fresh look in its stores, the Company ships new merchandise daily to most stores. The Company also has a transfer program that shifts certain merchandise to locations where it is selling best. This distribution and transfer system helps to maintain customer satisfaction by providing in-stock popular items and reducing the need to mark down slow-moving merchandise at a particular location. The Company believes the reduced markdowns justify the incremental distribution costs associated with the transfer system. The Company does not hold storewide off-price sales at anytime.

The Company continually evaluates its store design as part of the overall shopping experience and feels the fiscal 2002 re-design continues to be well received by both guests and developers. This store design contains warm wood fixtures and floors, real brick finishes, and an appealing ceiling and lighting layout that creates a comfortable environment for the guest to shop. The Company has been able to modify the store design for specialized venues including lifestyle centers and larger mall fronts. The signature Buckle-B icon and red color are used throughout the store on fixtures, graphic images, and print materials to reinforce the brand identity. To enhance selling and product presentation, new tables and fixtures have been added to the Company’s signature store design in each of the last five fiscal years. The new tables and fixtures were also rolled out to select existing stores to update their looks as well.

 
4

 

Marketing and Advertising

In fiscal 2009, the Company spent $8.5 million, or 1.0% of net sales, on seasonal marketing campaigns, advertising, promotions, online marketing, and in-store point of sale materials. Seasonal image and promotional signage is presented in store window displays and on merchandising presentations throughout the store to complement the product and reinforce the brand's image. Promotions such as sweepstakes, gift with purchase offers, and special events are offered to enhance the guest’s shopping experience. Seasonal image guides, featuring current fashion trends and product selection, are distributed in the stores, at special events, and in new markets. The Buckle partners with key merchandise vendors on joint advertising and promotional opportunities that expand the marketing reach and position the Buckle as the destination store for these specialty branded fashions.

The Company also offers programs to strengthen its relationships with loyal guests. The Company continues to support a frequent shopper program (the Buckle Primo Card), a rewards program designed to build customer loyalty. Private label credit card marketing is another avenue for reaching loyal guests. The Company extends exclusive benefits to active Buckle Cardholders such as bonus rewards and special targeted mailings. The Buckle continues to build on its B-Rewards incentive program, which is offered exclusively to Buckle Cardholders. Qualifying Cardholders are mailed B-Rewards gift cards at the end of each Rewards period inviting them back into the store at the start of the next season. In October 2007, the Company launched the Buckle Black credit card program. The Buckle Black program is an exclusive account for the Company's most loyal cardholders. To qualify for the Buckle Black program, existing cardholders must make at least $500 in purchases during a 12 month period using their account. These guests receive special benefits including free ground shipping on special orders and online purchases. The Buckle Card marketing program is partially funded by WFNNB, a third-party bank that owns the Buckle Card accounts.

The Company publishes a corporate web site at www.buckle.com. The Company’s web site serves as a second retail touch-point for cross-channel marketing, reaching a growing online audience. Buckle.com is an eCommerce enabled channel with an interactive, entertaining, informative, and brand building environment where guests can shop, enter sweepstakes, fill out a wish list, find out about career opportunities, and read the Company’s latest financial news. The Company maintains an opt-in email database. National email campaigns are sent bi-monthly and targeted weekly messages are sent notifying guests of the latest store promotions and product offerings. Search engine and affiliate marketing programs are managed to increase online and in-store traffic as well as conversion rates. Buckle’s online store was launched April 26, 1999 as a marketing tool, to extend the Company’s brand beyond the physical locations. On October 19, 2006, the Company launched a redesigned Buckle.com on the Escalate E-Commerce platform. The new Buckle.com includes enhanced search features, which allow guests to shop by special attributes, including brand and size.

Store Operations

The Company has a Vice President of Sales, a Regional Manager, 20 district managers, and 71 area managers. The majority of the district managers and each of the area managers also serve as manager of their home base store. In general, each store has one manager, one or two assistant managers, one to three additional full-time salespeople, and up to 20 part-time salespeople. Most stores have peak levels of staff during the back-to-school and Christmas seasons. Almost every location also employs an alterations person.

The Company places great importance on educating quality personnel. In addition to sharing career opportunities with current Buckle employees, the Company also recruits interns and management trainees from college campuses. A majority of the Company’s store managers, all of its area and district managers, and most of its executive management team are former salespeople, including President and CEO, Dennis H. Nelson, and Chairman, Daniel J. Hirschfeld. Recognizing talent and promoting managers from within allows the Company to build a strong foundation for management.

Store managers receive compensation in the form of a base salary and incentive bonuses. District and area managers also receive added incentives based upon the performance of stores in their district/area. Store managers perform sales training for new employees at the store level.

 
5

 

The Company has established a comprehensive program stressing the prevention and control of shrinkage losses. Steps taken to reduce shrinkage include monitoring cash refunds, voids, inappropriate discounts, employee sales, and returns-to-vendor. The Company also has electronic article surveillance systems in all of the Company’s stores as well as surveillance camera systems in approximately 99% of the stores. As a result, the Company achieved a merchandise shrinkage rate of 0.5% of net sales in each of the last three fiscal years.

The average store is approximately 5,000 square feet (of which the Company estimates an average of approximately 80% is selling space), and stores range in size from 2,900 square feet to 8,475 square feet.

Purchasing and Distribution

The Company has an experienced buying team. The buying team includes the President, Vice President of Women’s Merchandising, Vice President of Men’s Merchandising, nine women’s buyers, and nine men’s buyers. The two Vice Presidents of Merchandising have over 59 years of combined experience with the Company. The experience and leadership within the buying team contributes significantly to the Company’s success by enabling the buying team to react quickly to changes in fashion and by providing extensive knowledge of sources for both branded and private label goods.

The Company purchases products from manufacturers within the United States as well as from agents who source goods from foreign manufacturers. The Company's merchandising team shops and monitors U.S. fashion centers (in New York and on the West Coast) to stay abreast of the latest trends. The Company continually monitors fabric selection, quality, and delivery schedules. The Company has not experienced any material difficulties with merchandise manufactured in foreign countries. The Company does not have long-term or exclusive contracts with any brand name manufacturer, private label manufacturer, or supplier. The Company plans its private label production with private label vendors three to six months in advance of product delivery. The Company requires its vendors to sign and adhere to its Code of Conduct and Standards of Engagement, which addresses adherence to legal requirements regarding employment practices and health, safety, and environmental regulations.

In fiscal 2009, Koos Manufacturing, Inc. (the Company that produces the majority of the Company’s private label denim as well as the Big Star and Big Star Vintage branded merchandise) made up 29.3% of the Company’s net sales. No other vendor accounted for more than 10% of the Company’s net sales. Other current significant vendors include Miss Me, MEK, Rock Revival, Silver Jeans, Hurley, Billabong, Affliction, Sinful, Archaic, Obey, 7 Diamonds, Roar, Fox, and Fossil. The Company continually strives to offer brands that are currently popular with its customers and, therefore, the Company's suppliers and purchases from specific vendors may vary significantly from year to year.

Buckle stores generally carry the same merchandise, with quantity and seasonal variations based upon historical sales data, climate, and perceived local customer demand. The Company uses a centralized receiving and distribution center located within the corporate headquarters building in Kearney, Nebraska. Merchandise is received daily in Kearney where it is sorted, tagged with bar-coded tickets (unless the vendor UPC code is used or the merchandise is pre-ticketed), and packaged for distribution to individual stores primarily via United Parcel Service. The Company's goal is to ship the majority of its merchandise out to the stores within one to two business days of receipt. This system allows stores to receive new merchandise almost daily, creating excitement within the store and providing customers with a reason to shop often.

The Company has developed an effective computerized system for tracking merchandise from the time it is checked in at the Company's distribution center until it arrives at the stores and is sold to a customer. The system's function is to insure that store shipments are delivered accurately and promptly, to account for inventory, and to assist in allocating merchandise among stores. Management can track, on a daily basis, which merchandise is selling at specific locations and direct transfers of merchandise from one store to another as necessary. This allows stores to carry a reduced inventory while at the same time satisfying customer demand.

 
6

 

To reduce inter-store shipping costs and provide timely restocking of in-season merchandise, the Company warehouses a portion of initial shipments for later distribution. Sales reports are then used to replenish, on a basis of one to three times each week, those stores that are experiencing the greatest success selling specific styles, colors, and sizes of merchandise. This system is also designed to prevent an over-crowded look in the stores at the beginning of a season.

The Company completed an 82,200 square foot expansion to its corporate headquarters facility during fiscal 2005, which housed its online fulfillment and customer service center as well as its supplies and returns-to-vendor departments. In March 2009, the Company relocated its supplies and returns-to-vendor departments to begin an expansion of the current online fulfillment infrastructure. The newly expanded online fulfillment center went live in June 2009 and the expansion approximately doubled the size of the previous infrastructure – which now occupies approximately 200,000 square feet of space on three levels.

In September 2009, the Company broke ground on a new 240,000 square foot distribution center in Kearney, Nebraska. The Company is targeting a completion date of July 2010 for the facility, at which at which point the new distribution center will replace the Company’s current distribution center.

Store Locations and Expansion Strategies

As of March 12, 2010, the Company operated 407 stores in 41 states, including 6 stores opened during fiscal 2010. The existing stores are in 4 downtown locations, 9 strip centers, 35 lifestyle centers, and 359 shopping malls. The Company anticipates opening approximately 20 new stores in fiscal 2010. For fiscal 2010, 17 of the new stores are expected to be located in higher traffic shopping malls and 3 of the new stores are expected to be located in lifestyle centers. The following table lists the location of existing stores as of March 12, 2010:

Location of Stores
State
 
Number of
Stores
 
State
 
Number of
Stores
 
State
 
Number of
Stores
Alabama
 
6    
 
Maryland
 
3    
 
Oklahoma
 
13    
Arizona
 
11    
 
Michigan
 
18    
 
Oregon
 
4    
Arkansas
 
    6    
 
Minnesota
 
12    
 
Pennsylvania
 
9    
California
 
18    
 
Mississippi
 
5    
 
South Carolina
 
3    
Colorado
 
13    
 
Missouri
 
13    
 
South Dakota
 
3    
Florida
 
20    
 
Montana
 
5    
 
Tennessee
 
11    
Georgia
 
6    
 
Nebraska
 
13    
 
Texas
 
47    
Idaho
 
6    
 
Nevada
 
3    
 
Utah
 
10    
Illinois
 
16    
 
New Jersey
 
2    
 
Virginia
 
4    
Indiana
 
14    
 
New Mexico
 
4    
 
Washington
 
13    
Iowa
 
17    
 
New York
 
1    
 
West Virginia
 
3    
Kansas
 
17    
 
North Carolina
 
9    
 
Wisconsin
 
13    
Kentucky
 
5    
 
North Dakota
 
3    
 
Wyoming
 
1    
Louisiana
 
9    
 
Ohio
 
18    
 
Total
 
407    
                     
The Buckle has grown significantly over the past ten years, with the number of stores increasing from 248 at the beginning of 2000 to 401 at the end of fiscal 2009. The Company's plan is to continue expansion by developing the geographic regions it currently serves and by expanding into contiguous markets. The Company intends to open new stores only when management believes there is a reasonable expectation of satisfactory results.

 
7

 

The following table sets forth information regarding store openings and closings from the beginning of fiscal 2000 through the end of fiscal 2009:

Total Number of Stores Per Year
 
Fiscal 
Year 
 
Open at start
 of year
   
Opened in
Current Year
   
Closed in
Current Year
   
Open at end
 of year
 
2000
    248       28       2       274  
2001
    274       24       3       295  
2002
    295       11       2       304  
2003
    304       16       4       316  
2004
    316       13       2       327  
2005
    327       15       4       338  
2006
    338       17       5       350  
2007
    350       20       2       368  
2008
    368       21       2       387  
2009
    387       20       6       401  

The Company's criteria used when considering a particular location for expansion include:

 
1.
Market area, including proximity to existing markets to capitalize on name recognition;
 
2.
Trade area population (number, average age, and college population);
 
3.
Economic vitality of market area;
 
4.
Mall location, anchor tenants, tenant mix, and average sales per square foot;
 
5.
Available location within a mall, square footage, storefront width, and facility of using the current store design;
 
6.
Availability of experienced management personnel for the market;
 
7.
Cost of rent, including minimum rent, common area, and extra charges;
 
8.
Estimated construction costs, including landlord charge backs and tenant allowances.

The Company generally seeks sites of 4,250 to 5,000 square feet for its stores. The projected cost of opening a store is approximately $0.9 million, including construction costs of approximately $0.7 million (prior to any construction allowance received) and inventory costs of approximately $0.2 million, net of accounts payable.

The Company anticipates opening approximately 20 new stores during fiscal 2010 and completing approximately 25 remodels. Remodels range from partial to full, with construction costs for a full remodel being comparable to those of a new store. Of the stores scheduled for remodeling during fiscal 2010, it is estimated that all stores will receive full remodeling. The Company anticipates capital spending of approximately $65 to $70 million during fiscal 2010 for new store construction, store remodeling, technology updates, completion of the Company’s new distribution center, and other improvements at the corporate headquarters.

The Company plans to expand in 2010 by opening stores in existing markets. The Company believes that, given the time required for training personnel, staffing a store, and developing adequate district and regional managers, its current management infrastructure is sufficient to support its currently planned rate of growth.

The Company's ability to expand in the future will depend, in part, on general business conditions, the ability to find suitable malls with acceptable sites on satisfactory terms, the availability of financing, and the readiness of trained store managers. There can be no assurance that the Company's expansion plans will be fulfilled in whole or in part, or that leases under negotiation for planned new sites will be obtained on terms favorable to the Company.

Management Information Systems

The Company's management information systems (MIS) and electronic data processing systems (EDP) consist of a full range of retail, financial, and merchandising systems, including purchasing, inventory distribution and control, sales reporting, accounts payable, and merchandise management.

 
8

 

The system includes PC based point-of-sale (POS) registers in each store. These registers are polled nightly by the central computer (IBM iSeries) using a virtual private network for collection of comprehensive data, including complete item-level sales information, employee time clocking, merchandise transfers and receipts, special orders, supply orders, and returns-to-vendor. In conjunction with the nightly polling, the central computer sends the PC server messages from various departments at the Company headquarters and price changes for the price lookup (“PLU”) file maintained within the POS registers.

Each weekday morning, the Company initiates an electronic "sweep" of the individual store bank accounts to the Company's primary concentration account. This allows the Company to meet its obligations with a minimum of borrowing and invest cash on a timely basis.

Management monitors the performance of each of its stores on a continual basis. Daily information is used to evaluate inventory, determine markdowns, analyze profitability, and assist management in the scheduling and compensation of employees.

The PLU system allows management to control merchandise pricing centrally, permitting faster and more accurate processing of sales at the store and the monitoring of specific inventory items to confirm that centralized pricing decisions are carried out in each of the stores. Management is able to direct all price changes, including promotional, clearance, and markdowns on a central basis and estimate the financial impact of such changes.

The virtual private network for communication with the stores also supports the Company’s intranet site. The intranet allows stores to view various types of information from the corporate office. Stores also have access to a variety of tools such as a product search with pictures, product availability, special order functions, printable forms, links to transmit various requests and information to the corporate office, training videos, email, and information/guidelines from each of the departments at the corporate office. The Company’s network is also structured so that it can support additional functionality such as digital video monitoring and digital music content programming at each store location.

The Company is committed to the ongoing review of its MIS and EDP systems to maintain productive, timely information and effective controls. This review includes testing of new products and systems to assure that the Company is aware of technological developments. Most important, continual feedback is sought from every level of the Company to assure that information provided is pertinent to all aspects of the Company's operations. During fiscal 2010, the company anticipates the replacement of its current point-of-sale software and hardware upon completion of successful store testing.

Employees

As of January 30, 2010, the Company had approximately 7,000 employees - approximately 1,955 of whom were full-time. The Company has an experienced management team and substantially all of the management team, from store managers through senior management, began work for the Company on the sales floor. The Company experiences high turnover of store and distribution center employees, primarily due to the number of part-time employees. However, the Company has not experienced significant difficulty in hiring qualified personnel. Of the total employees, approximately 560 are employed at the corporate headquarters and in the distribution center. None of the Company's employees are represented by a union. Management believes that employee relations are good.

The Company provides medical, dental, life insurance, and long-term disability plans, as well as a 401(k) and a section 125 cafeteria plan for eligible employees. An employee must be at least 20 years of age and work a minimum of 1,000 hours during the plan year to be eligible for the 401(k) plan. To be eligible for the plans, other than the 401(k) Plan, an employee must have worked for the Company for 98 days or more, and his or her normal workweek must be 35 hours or more. As of January 30, 2010, 1,595 employees participated in the medical plan, 1,599 in the dental plan, 1,955 in the life insurance plan, 425 in the supplemental life insurance plan, 1,263 in the long-term disability plan, and 1,161 in the cafeteria plan. With respect to the medical, dental, and life insurance plans, the Company pays 80% to 100% of the employee's expected premium cost plus 20% to 100% of the expected cost of dependent coverage under the health plan. The exact percentage is based upon the employee's term of employment and job classification within the Company. In addition, all employees receive discounts on Company merchandise.

 
9

 

Competition

The men's and women's apparel industries are highly competitive with fashion, selection, quality, price, location, store environment, and service being the principal competitive factors. While the Company believes it is able to compete favorably with other merchandisers, including department stores and specialty retailers, with respect to each of these factors, the Company believes it competes mainly on the basis of customer service and merchandise selection.

In the men's merchandise area, the Company competes primarily with specialty retailers such as Abercrombie & Fitch, American Eagle Outfitters, Aeropostale, Hollister, Gap, Pacific Sunwear, and Metropark. The men's market also competes with certain department stores, such as Dillards, Macy’s, Bon-Ton stores, Nordstrom, and other local or regional department stores and specialty retailers, as well as with mail order and internet retailers.

In the women's merchandise area, the Company competes primarily with specialty retailers such as Abercrombie & Fitch, American Eagle Outfitters, Express, Aeropostale, Hollister, Gap, Maurices, Pacific Sunwear, Wet Seal, Forever 21, Vanity, and Metropark. The women's market also competes with department stores, such as Dillards, Macy’s, Bon-Ton stores, Nordstrom, and certain local or regional department stores and specialty retailers, as well as with mail order and internet retailers.

Many of the Company's competitors are considerably larger and have substantially greater financial, marketing, and other resources than the Company, and there is no assurance that the Company will be able to compete successfully with them in the future. Furthermore, while the Company believes it competes effectively for favorable site locations and lease terms, competition for prime locations within a mall is intense.

Trademarks

"BUCKLE”, “RECLAIM”, “BKE”, and "THE BUCKLE" are federally registered trademarks of the Company. The Company believes the strength of its trademarks is of considerable value to its business, and its trademarks are important to its marketing efforts. The Company intends to protect and promote its trademarks as management deems appropriate.

Executive Officers of the Company

The Executive Officers of the Company are listed below, together with brief accounts of their experience and certain other information.


Dennis H. Nelson, age 60. >Mr. Nelson is President and Chief Executive Officer and a Director of the Company. He has held the titles of President and Director since April 19, 1991. Mr. Nelson was elected Chief Executive Officer on March 17, 1997. Mr. Nelson began his career with the Company in 1970 as a part-time salesman while he was attending Kearney State College (now the University of Nebraska - Kearney). While attending college, he became involved in merchandising and sales supervision for the Company. Upon graduation from college in 1973, Mr. Nelson became a full-time employee of the Company and he has worked in all phases of the Company's operations since that date. Prior to his election as President and Chief Operating Officer on April 19, 1991, Mr. Nelson performed all of the functions normally associated with those positions.


 
10

 






ITEM 1A – RISK FACTORS

Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995 and Risk Factors

Certain statements herein, including anticipated store openings, trends in or expectations regarding The Buckle, Inc.’s revenue and net earnings growth, comparable store sales growth, cash flow requirements, and capital expenditures, all constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial, and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, changes in product mix, changes in fashion trends and/or pricing, competitive factors, general economic conditions, economic conditions in the retail apparel industry, successful execution of internal performance and expansion plans, and other risks detailed herein and in The Buckle, Inc.’s other filings with the Securities and Exchange Commission.

A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Users should not place undue reliance on the forward-looking statements, which are accurate only as of the date of this report. The Company is under no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In management’s judgment, the following are material risk factors:


 
11

 



Ability to Continue Expansion and Management of Growth>. The Buckle, Inc.’s continued growth depends on its ability to open and operate stores on a profitable basis and management’s ability to manage planned expansion. During fiscal 2010, the Company plans to open 20 new stores. This expansion is dependent upon factors such as the ability to locate and obtain favorable store sites, negotiate acceptable lease terms, obtain necessary merchandise, and hire and train qualified management and other employees. There may be factors outside of the Company’s control that affect the ability to expand, including general economic conditions. There is no assurance that the Company will be able to achieve its planned expansion or that such expansion will be profitable. If the Company fails to manage its store growth, there would be less growth in the Company’s net sales from new stores and less growth in profitability. If the Company opens unprofitable store locations, there could be a reduction in net earnings, even with the resulting growth in the Company’s net sales.



Reliance on Foreign Sources of Production. >The Company purchases a portion of its private label merchandise through sourcing agents in foreign markets. In addition, some of the Company’s domestic vendors manufacture goods overseas. The Company does not have any long-term merchandise supply contracts and its imports are subject to existing or potential duties, tariffs, and quotas. The Company faces a variety of risks associated with doing business overseas including competition for facilities and quotas, political instability, possible new legislation relating to imports that could limit the quantity of merchandise that may be imported, imposition of duties, taxes, and other charges on imports, and local business practice and political issues which may result in adverse publicity. The Company’s inability to rely on foreign sources of production due to these or other causes could reduce the amount of inventory the Company is able to purchase, hold up the timing on the receipt of new merchandise, and reduce merchandise margins if comparable inventory is purchased from branded sources. Any or all of these changes would cause a decrease in the Company’s net sales and net earnings.

 
12

 


·      anticipating and responding timely to changing customer demands and preferences;
 
·
effectively marketing both branded and private label merchandise to consumers in several diverse market segments and maintaining favorable brand recognition;
 
·
providing unique, high-quality merchandise in styles, colors, and sizes that appeal to consumers;
·      sourcing merchandise efficiently;
·      competitively pricing merchandise and creating customer perception of value;
 
·
monitoring increased labor costs, including increases in health care benefits and worker’s compensation costs.

There is no assurance that the Company will be able to compete successfully in the future.



Market/Liquidity Risk Related to the Company’s Investments. >In prior years, the Company invested a portion of its investments in auction-rate securities (“ARS”), including five auction-rate preferred securities (“ARPS”) that were converted to preferred stock. As of January 30, 2010 and January 31, 2009, $22.8 million and $30.9 million, respectively, of investments were in ARS and preferred securities. ARS have a long-term stated maturity, but are reset through a “dutch auction” process that occurs every 7 to 49 days, depending on the terms of the individual security. Since February 2008, a significant number of auctions related to these securities failed, meaning that there was not enough demand to sell the entire issue at auction. The failed auctions have limited the liquidity of the Company’s investments in ARS, and the Company believes that certain of the underlying issuers of its ARS are currently at risk. Further auction failures could have a material impact on Company’s earnings; however, the Company does not believe further auction failures would have a material impact on its ability to fund its business.

The Company reviews impairments in accordance with FASB ASC 320, Investments-Debt and Equity Securities, to determine the classification of potential impairments as either “temporary” or “other-than-temporary.”  A temporary impairment results in an unrealized loss being recorded in other comprehensive income. An impairment that is considered other-than-temporary would be recognized as a loss in the statements of income. The Company considers various factors in reviewing impairments, including the length of time and extent to which the fair value has been less than the Company’s cost basis, the financial condition and near-term prospects of the issuer, and the Company’s intent and ability to hold the investments for a period of time sufficient to allow for any anticipated recovery in market value. The Company believes it has the ability and maintains its intent to hold its investments until recovery of market value occurs.

 
13

 

The Company’s investments in ARS and preferred securities are reported at fair market value, and as of January 30, 2010, the reported investment amount is net of a $1.3 million temporary impairment and a $2.7 million other-than-temporary impairment (“OTTI”) to account for the impairment of certain securities from their stated par value. The Company reported the $1.3 million temporary impairment, net of tax, as an “accumulated other comprehensive loss” of $0.8 million in stockholders’ equity as of January 30, 2010. The Company has accounted for the impairment as temporary, as it currently expects to be able to successfully liquidate its investments without loss once the ARS market resumes normal operations. The Company reviews all investments for OTTI at least quarterly or as indicators of impairment exist. Indicators of impairment include the duration and severity of the decline in market value. In addition, the Company considers qualitative factors including, but not limited to, the financial condition of the investee, the credit rating of the investee, and the current and expected market and industry conditions in which the investee operates. Given current market conditions in the ARS market, the Company may incur additional temporary impairment or OTTI in the future if market conditions persist and the Company is unable to recover the cost of its investments in ARS.

Interest Rate Risk. >To the extent that the Company borrows under its line of credit facility, the Company would be exposed to market risk related to changes in interest rates. As of January 30, 2010, no borrowings were outstanding under the line of credit facility. The Company is not a party to any derivative financial instruments. Additionally, the Company is exposed to market risk related to interest rate risk on the cash and investments in interest-bearing securities. These investments have carrying values that are subject to interest rate changes that could impact earnings to the extent that the Company did not hold the investments to maturity. If there are changes in interest rates, those changes would also affect the investment income the Company earns on its cash and investments. For each one-quarter percent decline in the interest/dividend rate earned on cash and investments (approximately a 50% change in the rate earned), the Company’s net income would decrease approximately $0.4 million or less than $0.01 per share. This amount could vary based upon the number of shares of the Company’s stock outstanding and the level of cash and investments held by the Company.

The company cautions that the risk factors described above could cause actual results to vary materially from those anticipated in any forward-looking statements made by or on behalf of the Company. Management cannot assess the impact of each factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to vary from those contained in forward-looking statements.

ITEM 1B – UNRESOLVED STAFF COMMENTS

None.

 
14

 

ITEM 2 - PROPERTIES

All of the store locations operated by the Company are leased facilities. Most of the Company's stores have lease terms of approximately ten years and generally do not contain renewal options. In the past, the Company has not experienced problems renewing its leases, although no assurance can be given that the Company can renew existing leases on favorable terms. The Company seeks to negotiate extensions on leases for stores undergoing remodeling to provide terms of approximately ten years after completion of remodeling. Consent of the landlord generally is required to remodel or change the name under which the Company does business. The Company has not experienced problems in obtaining such consent in the past. Most leases provide for a fixed minimum rental cost plus an additional rental cost based upon a set percentage of sales beyond a specified breakpoint, plus common area and other charges. The current terms of the Company's leases, including automatic renewal options, expiring on or before January 31st of each year is as follows:

Year
    
Number of expiring
leases
 
2011
    71  
2012
    54  
2013
    38  
2014
    41  
2015
    28  
2016
    25  
2017
    27  
2018 and later
    123  
Total
    407  

The corporate headquarters and distribution center for the Company are located within a facility purchased by the Company in 1988, which is located in Kearney, Nebraska. The building currently provides approximately 261,200 square feet of space, which includes approximately 82,200 square feet related to the Company’s 2005 addition. The Company also owns a 40,000 square foot building with warehouse and office space near the corporate headquarters. This building houses the Company’s screenprinting operations. The Company acquired the lease, with favorable terms, on the land the building is built upon. The lease is currently in the second of ten five-year renewal options, which expires on October 31, 2011. The Company is also in the process of building a new distribution center in Kearney, Nebraska. The Company broke ground on a new 240,000 square foot distribution center in September 2009 and is targeting a completion date of July 2010, at which at which point the new distribution center will replace the Company’s current distribution center.

ITEM 3 - LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. As of the date of this form, the Company was not engaged in legal proceedings that are expected, individually or in the aggregate, to have a material effect on the Company.

ITEM 4 - RESERVED

 
15

 

PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock trades on the New York Stock Exchange under the symbol BKE. Prior to the Company’s initial public offering on May 6, 1992, there was no public market for the Company’s common stock.

Dividend Payments

During fiscal 2007, cash dividends were $0.1333 per share in the first and second quarters and $0.1667 per share in the third and fourth quarters. During fiscal 2008, cash dividends were $0.1667 per share in the first and second quarters and $0.20 per share in the third and fourth quarters. In addition, the Company paid a special one-time cash dividend of $2.00 per share in the third quarter of fiscal 2008. During fiscal 2009, cash dividends were $0.20 per share in each of the four quarters. The Company also paid a special one-time cash dividend of $1.80 per share in the third quarter of fiscal 2009. Dividend amounts prior to the Company's 3-for-2 stock split with distribution date of October 30, 2008 have been adjusted to reflect the impact of the stock split. The Company plans to continue its quarterly dividends during fiscal 2010.

Issuer Purchases of Equity Securities

The following table sets forth information concerning purchases made by the Company of its common stock for each of the months in the fiscal quarter ended January 30, 2010:

   
Total
Number 
of Shares 
Purchased
   
Average 
Price Paid 
Per Share
   
Total Number of 
Shares Purchased 
as Part of Publicly 
Announced Plans
   
Approximate 
Number of Shares Yet To
Be Purchased Under 
Publicly Announced Plans
 
                         
Nov. 1, 2009 to Nov. 28, 2009
    -       -       -       799,300  
Nov. 29, 2009 to Jan. 2, 2010
    -       -       -       799,300  
Jan. 3, 2010 to Jan. 30, 2010
    -       -       -       799,300  
      -       -       -          

The Board of Directors authorized a 1,000,000 share repurchase plan on November 20, 2008. The Company has 799,300 shares remaining to complete this authorization.

 
16

 

Stock Price Performance Graph

The graph below compares the cumulative total return on common shares of the Company for the last five fiscal years with the cumulative total return on the Russell 2000 Stock Index and a peer group of Retail Trade Stocks:


Total Return Analysis
                                   
   
1/29/2005
   
1/28/2006
   
2/3/2007
   
2/2/2008
   
1/31/2009
   
1/30/2010
 
                                     
The Buckle , Inc.
    100.00       125.24       192.80       244.39       205.93       320.94  
Peer Group
    100.00       100.07       119.19       104.04       48.98       90.65  
Russell 2000 Index
    100.00       118.90       131.29       118.46       74.81       107.05  

In addition to the Company, the Peer Group included in the above performance graph includes the following retail company stocks: AEO, ANF, ANN, ARO, CBK, GPS, LTD, PSUN, and WTSLA.

The following table lists the Company’s quarterly market range for fiscal years 2009, 2008, and 2007, as reported by the New York Stock Exchange, and has been adjusted to reflect the 3-for-2 stock split, effected in the form of a stock dividend, on October 30, 2008:

   
Fiscal Years Ended
 
   
January 30, 2010
   
January 31, 2009
   
February 2, 2008
 
Quarter
 
High
   
Low
   
High
   
Low
   
High
   
Low
 
                                     
First
  $ 38.30     $ 20.54     $ 33.67     $ 24.72     $ 24.91     $ 21.63  
Second
    39.09       28.75       35.98       29.03       27.63       22.71  
Third
    37.49       25.52       44.57       21.08       29.14       21.46  
Fourth
    33.72       26.39       27.20       13.57       28.90       20.03  

The number of record holders of the Company’s common stock as of March 26, 2010 was 401. Based upon information from the principal market makers, the Company believes there are approximately 8,100 beneficial owners. The closing price of the Company’s common stock on March 26, 2010 was $36.89.

Additional information required by this item appears in the Notes to Financial Statements under Footnote J "Stock-Based Compensation" on pages 46 to 48 of this report and is incorporated by reference.

 
17

 

ITEM 6 - SELECTED FINANCIAL DATA
   
SELECTED FINANCIAL DATA
 
   
(Amounts in Thousands Except Share, Per Share Amounts, and Selected Operating Data)
 
   
Fiscal Years Ended
 
   
January 30,
   
January 31,
   
February 2,
   
February 3,
   
January 28,
 
   
2010
   
2009
   
2008
   
2007 (d)
   
2006
 
Income Statement Data
                             
Net sales
  $ 898,287     $ 792,046     $ 619,888     $ 530,074     $ 501,101  
Cost of sales (including buying, distribution, and occupancy costs)
    497,668       448,558       365,350       322,760       307,063  
Gross profit
    400,619       343,488       254,538       207,314       194,038  
Selling expenses
    168,741       151,251       118,699       107,592       100,148  
General and administrative expenses
    32,416       30,041       26,212       20,701       17,568  
Income from operations
    199,462       162,196       109,627       79,021       76,322  
Other income, net
    3,674       7,829       9,183       9,032       6,123  
Gain (loss) - impairment of securities
    991       (5,157 )     -       -       -  
Income before income taxes
    204,127       164,868       118,810       88,053       82,445  
Provision for income taxes
    76,824       60,459       43,563       32,327       30,539  
Net income
  $ 127,303     $ 104,409     $ 75,247     $ 55,726     $ 51,906  
Basic earnings per share
  $ 2.79     $ 2.30     $ 1.69     $ 1.29     $ 1.17  
Diluted earnings per share
  $ 2.73     $ 2.24     $ 1.63     $ 1.24     $ 1.13  
Dividends declared per share (a)
  $ 2.60     $ 2.73     $ 0.60     $ 1.71     $ 0.27  
                                         
Selected Operating Data
                                       
Stores open at end of period
    401       387       368       350       338  
Average sales per square foot
  $ 428     $ 401     $ 335     $ 302     $ 298  
Average sales per store (000's)
  $ 2,129     $ 1,995     $ 1,668     $ 1,493     $ 1,474  
Comparable store sales change (b)
    7.8 %     20.6 %     13.2 %     0.0 %     1.4 %
Balance Sheet Data (c)
                                       
Working capital
  $ 172,779     $ 197,539     $ 184,395     $ 189,017     $ 193,428  
Long-term investments
  $ 72,770     $ 56,213     $ 81,201     $ 31,958     $ 41,654  
Total assets
  $ 488,903     $ 465,340     $ 450,657     $ 368,198     $ 374,266  
Long-term debt
  $ -     $ -     $ -     $ -     $ -  
Stockholders' equity
  $ 354,259     $ 337,222     $ 338,320     $ 286,587     $ 299,793  
(a) During fiscal 2005, cash dividends were $0.0533 per share in the first quarter, $0.0667 per share in the second quarter, and $0.0756 per share in the third and fourth quarters. During fiscal 2006, cash dividends were $0.0756 per share in the first and second quarters, $0.0889 per share in the third quarter, and $0.1333 per share in the fourth quarter. In addition, the Company paid a special one-time cash dividend of $1.3333 per share in the fourth quarter of fiscal 2006. During fiscal 2007, cash dividends were $0.1333 per share in the first and second quarters and $0.1667 per share in the third and fourth quarters. During fiscal 2008, cash dividends were $0.1667 per share in the first and second quarters and $0.20 per share in the third and fourth quarters. In addition, the Company paid a special one-time cash dividend of $2.00 per share in the third quarter of fiscal 2008. During fiscal 2009, cash dividends were $0.20 per share in each of the four quarters. The Company also paid a special one-time cash dividend of $1.80 per share in the third quarter of fiscal 2009. Dividend amounts prior to the Company's 3-for-2 stock split with distribution date of January 12, 2007 and 3-for-2 stock split with distribution date of October 30, 2008, have been adjusted to reflect the impact of these stock splits.
(b) Stores are deemed to be comparable stores if they were open in the prior year on the first day of the fiscal period presented. Stores which have been remodeled, expanded, and/or relocated, but would otherwise be included as comparable stores, are not excluded from the comparable store sales calculation. Online sales are excluded from comparable store sales.
(c)  At the end of the period.
(d)  Consists of 53 weeks.

 
18

 

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial statements and notes thereto of the Company included in this Form 10-K. 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 included in this Form 10-K.

EXECUTIVE OVERVIEW

Company management considers the following items to be key performance indicators in evaluating Company performance.

Comparable Store Sales – Stores are deemed to be comparable stores if they were open in the prior year on the first day of the fiscal period being presented. Stores which have been remodeled, expanded, and/or relocated, but would otherwise be included as comparable stores, are not excluded from the comparable store sales calculation. Online sales are excluded from comparable store sales. Management considers comparable store sales to be an important indicator of current Company performance, helping leverage certain fixed costs when results are positive. Negative comparable store sales results could reduce net sales and have a negative impact on operating leverage, thus reducing net earnings.

Net Merchandise Margins – Management evaluates the components of merchandise margin including initial markup and the amount of markdowns during a period. Any inability to obtain acceptable levels of initial markups or any significant increase in the Company’s use of markdowns could have an adverse effect on the Company’s gross margin and results of operations.

Operating Margin – Operating margin is a good indicator for management of the Company’s success. Operating margin can be positively or negatively affected by comparable store sales, merchandise margins, occupancy costs, and the Company’s ability to control operating costs.

Cash Flow and Liquidity (working capital) - Management reviews current cash and short-term investments along with cash flow from operating, investing, and financing activities to determine the Company’s short-term cash needs for operations and expansion. The Company believes that existing cash, short-term investments, 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.

 
19

 

RESULTS OF OPERATIONS

The following table sets forth certain financial data expressed as a percentage of net sales and the percentage change in the dollar amount of such items compared to the prior period:

   
Percentage of Net Sales
   
Percentage Increase
 
   
For Fiscal Years Ended
   
(Decrease)
 
   
January 30,
2010
   
January 31,
2009
   
February 2,
2008
   
Fiscal Year
2008 to 2009
   
Fiscal Year
2007 to 2008
 
                               
Net sales
    100.0 %     100.0 %     100.0 %     13.4 %     27.8 %
                                         
Cost of sales (including buying, distribution, and occupancy costs)
    55.4 %     56.6 %     58.9 %     10.9 %     22.8 %
Gross profit
    44.6 %     43.4 %     41.1 %     16.6 %     34.9 %
Selling expenses
    18.8 %     19.1 %     19.1 %     11.6 %     27.4 %
General and administrative expenses
    3.6 %     3.8 %     4.2 %     7.9 %     14.6 %
Income from operations
    22.2 %     20.5 %     17.7 %     23.0 %     48.0 %
Other income, net
    0.4 %     1.0 %     1.5 %     (53.1 %)     (14.7 %)
Gain (loss) - impairment of securities
    0.1 %     (0.7 %)     -       (119.2 %)     -  
Income before income taxes
    22.7 %     20.8 %     19.2 %     23.8 %     38.8 %
Provision for income taxes
    8.5 %     7.6 %     7.0 %     27.1 %     38.8 %
Net income
    14.2 %     13.2 %     12.1 %     21.9 %     38.8 %

Fiscal 2009 Compared to Fiscal 2008

Net sales for the 52-week fiscal year ended January 30, 2010, increased 13.4 percent to $898.3 million from net sales of $792.0 million for the 52-week fiscal year ended January 31, 2009. Comparable store net sales for the fiscal year increased by $56.9 million, or 7.8%, in comparison to the 52-week year ended January 31, 2009. The comparable store sales increase was primarily due to a 3.9% increase in the average retail price of merchandise sold during the year, to a 2.0% increase in the average number of units sold per transaction, and to a 1.3% increase in the number of transactions at comparable stores during the year. Sales growth for the fiscal year was also attributable to the inclusion of a full year of operating results for the 21 new stores opened during fiscal 2008, to the opening of 20 new stores during fiscal 2009, and to growth in online sales. Online sales for the year (which are not included in comparable store sales) increased 45.2% to $52.3 million. Average sales per square foot for fiscal 2009 increased 6.8% from $401 to $428. Total square footage as of January 30, 2010 was 2.017 million.

The Company’s average retail price per piece of merchandise sold increased $1.69, or 3.9%, during fiscal 2009 compared to fiscal 2008. This $1.69 increase was primarily attributable to the following changes (with their corresponding effect on the overall average price per piece): an 8.5% increase in average denim price points ($1.52), a 9.5% increase in average footwear price points ($0.18), and an 8.5% increase in average active apparel price points ($0.15). These increases were partially offset by the impact of a shift in the merchandise mix (-$0.10) and by reduced price points in certain other categories (-$0.06). These changes are primarily a reflection of merchandise shifts in terms of brands and product styles, fabrics, details, and finishes.

Gross profit after buying, distribution, and occupancy costs increased $57.1 million in fiscal 2009 to $400.6 million, a 16.6% increase. As a percentage of net sales, gross profit increased from 43.4% in fiscal 2008 to 44.6% in fiscal 2009. The increase was attributable to a 1.0% improvement, as a percentage of net sales, in actual merchandise margins; which was achieved through reduced markdowns and strong sell through of new product during the year that was partially offset by an increase in Primo Card redemptions. The increase was also attributable to a 0.10% reduction, as a percentage of net sales, in expense related to the incentive bonus accrual and a 0.10% reduction related to leveraged buying, distribution, and occupancy costs. Merchandise shrinkage was flat at 0.50% of net sales for both fiscal 2009 and fiscal 2008.

 
20

 

Selling expenses increased from $151.3 million in fiscal 2008 to $168.7 million in fiscal 2009, an 11.6% increase. Selling expenses as a percentage of net sales decreased from 19.1% in fiscal 2008 to 18.8% in fiscal 2009. The reduction was primarily attributable to a 0.25% reduction, as a percentage of net sales, in expense related to the incentive bonus accrual, to a 0.15% reduction in store payroll expense, and to a 0.10% reduction related to the leveraging of certain other selling expenses. These reductions were partially offset by an increase in internet related fulfillment and marketing expenses (0.20%, as a percentage of net sales).

General and administrative expenses increased from $30.0 million in fiscal 2008 to $32.4 million in fiscal 2009, a 7.9% increase. As a percentage of net sales, general and administrative expenses decreased from 3.8% in fiscal 2008 to 3.6% in fiscal 2009. General and administrative expenses for fiscal 2008 are reported net of a $3.0 million gain from the involuntary conversion of one of the Company’s corporate aircrafts to a monetary asset upon receipt of $11.5 million in insurance proceeds. The aircraft was destroyed by a tornado that hit the airport in Kearney, Nebraska on May 29, 2008. Excluding the $3.0 million gain recognized during the second quarter of the fiscal year, general and administrative expenses were 4.2% of net sales in fiscal 2008 compared to 3.6% in fiscal 2009. The reduction was primarily attributable to a 0.30% reduction, as a percentage of net sales, in expense related to the incentive bonus accrual and to a 0.30% reduction related to the leveraging of certain other general and administrative expenses.

As a result of the above changes, the Company’s income from operations increased $37.3 million to $199.5 million for fiscal 2009, a 23.0% increase compared to fiscal 2008. Income from operations was 22.2% as a percentage of net sales in fiscal 2009 compared to 20.5% as a percentage of net sales in fiscal 2008. Excluding the $3.0 million gain on the involuntary disposal of a corporate aircraft, income from operations in fiscal 2008 was 20.1% as a percentage of net sales.

Other income decreased from $7.8 million in fiscal 2008 to $3.7 million in fiscal 2009, a 53.1% decrease. The decrease in other income is due to a reduction in income earned on the Company’s cash and investments, as a result of lower interest rates.

Income tax expense as a percentage of pre-tax income was 36.7% in fiscal 2008 and 37.6% in fiscal 2009, bringing net income to $127.3 million in fiscal 2009 versus $104.4 million in fiscal 2008, an increase of 21.9%. The effective income tax rate increased for fiscal 2009 due to less income generated from tax-exempt investments.

Fiscal 2008 Compared to Fiscal 2007

Net sales for the 52-week fiscal year ended January 31, 2009, increased 27.8 percent to $792.0 million from net sales of $619.9 million for the 52-week fiscal year ended February 2, 2008. Comparable store net sales for the fiscal year increased by $119.1 million, or 20.6%, in comparison to the 52-week year ended February 2, 2008. The comparable store sales increase was primarily due to an increase in the number of transactions at comparable stores during the year, in addition to a 5.0% increase in the average retail price of merchandise sold during the year and a 2.5% increase in the average number of units sold per transaction. Sales growth for the fiscal year was also attributable to the inclusion of a full year of operating results for the 20 new stores opened during fiscal 2007, to the opening of 21 new stores during fiscal 2008, and to growth in online sales. Average sales per square foot for fiscal 2008 increased 19.7% from $335 to $401. Total square footage as of January 31, 2009 was 1.928 million.

The Company’s average retail price per piece of merchandise sold increased $2.06, or 5.0%, during fiscal 2008 compared to fiscal 2007. This $2.06 increase was primarily attributable to the following changes (with their corresponding effect on the overall average price per piece): an 11.3% increase in average knit shirt price points ($1.35), a 7.1% increase in average denim price points ($1.19), a 12.7% increase in average woven shirt price points ($0.29), a 4.3% increase in average accessory price points ($0.14), a 12.3% increase in average sweater price points ($0.12), and increased average price points in certain other categories ($0.10). These increases were partially offset by the impact of a shift in the merchandise mix (-$1.13). These changes are primarily a reflection of merchandise shifts in terms of brands and product styles, fabrics, details, and finishes.

 
21

 

Gross profit after buying, distribution, and occupancy costs increased $88.9 million in fiscal 2008 to $343.5 million, a 34.9% increase. As a percentage of net sales, gross profit increased from 41.1% in fiscal 2007 to 43.4% in fiscal 2008. The increase was primarily due to a 0.50% improvement, as a percentage of net sales, in actual merchandise margins, which was achieved through an increase in regular-price selling during the period that was partially offset by an increase in Primo Card redemptions and a slight reduction, as a percentage of net sales, in private label merchandise sales. The increase was also attributable to a 1.90% reduction, as a percentage of net sales, related to leveraged buying, distribution, and occupancy costs. These improvements were partially offset by an increase in expense related to the incentive bonus accrual (0.10%, as a percentage of net sales). Merchandise shrinkage was flat at 0.50% of net sales for both fiscal 2008 and fiscal 2007.

Selling expenses increased from $118.7 million in fiscal 2007 to $151.3 million in fiscal 2008, a 27.4% increase. Selling expenses as a percentage of net sales was 19.1% in both fiscal 2007 and fiscal 2008. Increases driven primarily by an increase in expense related to the incentive bonus accrual (0.60%, as a percentage of net sales), an increase in internet related fulfillment and marketing expenses (0.15%, as a percentage of net sales), and investments made during the fourth quarter related to certain store fixtures and supplies (0.20%, as a percentage of net sales) were offset by a 0.65% reduction, as a percentage of net sales, in store payroll expense and a 0.30% reduction related the leveraging of certain other selling expenses.

General and administrative expenses increased from $26.2 million in fiscal 2007 to $30.0 million in fiscal 2008, a 14.6% increase. As a percentage of net sales, general and administrative expenses decreased from 4.2% in fiscal 2007 to 3.8% in fiscal 2008. General and administrative expenses for fiscal 2008 are reported net of a $3.0 million gain from the involuntary conversion of one of the Company’s corporate aircrafts to a monetary asset upon receipt of $11.5 million in insurance proceeds. The aircraft was destroyed by a tornado that hit the airport in Kearney, Nebraska on May 29, 2008. Excluding the $3.0 million gain recognized during the second quarter of the fiscal year, general and administrative expenses were 4.2% of net sales in both fiscal 2007 and fiscal 2008. An increase in expense related to the incentive bonus accrual (0.20%, as a percentage of net sales) was offset by a 0.20% reduction, as a percentage of net sales, related to the leveraging of certain other general and administrative expenses

As a result of the above changes, the Company’s income from operations increased $52.6 million to $162.2 million for fiscal 2008, a 48.0% increase compared to fiscal 2007. Income from operations was 20.5% as a percentage of net sales in fiscal 2008 compared to 17.7% as a percentage of net sales in fiscal 2007.

Other income decreased from $9.2 million in fiscal 2007 to $7.8 million in fiscal 2008, a 14.7% decrease. The decrease in other income is due to a reduction in income earned on the Company’s cash and investments, as a result of lower interest rates.

Additionally, as referenced in Note B to the financial statements, the Company recorded a total of $5.2 million in unrealized losses during fiscal 2008 resulting from the other-than-temporary impairment of certain of its investments in auction-rate securities. The other-than-temporary impairment has been recorded as a separate component in the statement of income for the fiscal year ended January 31, 2009.

Income tax expense as a percentage of pre-tax income was 36.7% in both fiscal 2007 and fiscal 2008, bringing net income to $104.4 million in fiscal 2008 versus $75.2 million in fiscal 2007, an increase of 38.8%.

LIQUIDITY AND CAPITAL RESOURCES

As of January 30, 2010, the Company had working capital of $172.8 million, including $135.3 million of cash and cash equivalents and $22.7 million of short-term investments. The Company’s cash receipts are generated from retail sales and from investment income, and the Company's primary ongoing cash requirements are for inventory, payroll, occupancy costs, dividend payments, new store expansion, remodeling, and other capital expenditures. Historically, the Company’s primary source of working capital has been cash flow from operations. During fiscal 2009, 2008, and 2007 the Company's cash flow from operations was $158.0 million, $143.7 million, and $121.1 million, respectively.

 
22

 

The Company has available an unsecured line of credit of $17.5 million with Wells Fargo Bank, N.A. for operating needs and letters of credit. The line of credit provides that outstanding letters of credit cannot exceed $10.0 million. Borrowings under the line of credit provide for interest to be paid at a rate equal to the prime rate established by the Bank. The Company has, from time to time, borrowed against these lines of credit. There were no borrowings during fiscal 2009, 2008, and 2007. The Company had no bank borrowings as of January 30, 2010 and was in compliance with the terms and conditions of the line of credit agreement. During fiscal 2009, the Company extended this line of credit agreement through July 31, 2012.

Dividend payments> – During fiscal 2009, the Company paid total cash dividends of $120.3 million as follows:  $0.20 per share in each of the four quarters and a special one-time cash dividend of $1.80 per share in the third quarter. During fiscal 2008, cash dividends totaled $126.7 million as follows:  $0.1667 per share in the first and second quarters, $0.20 per share in the third and fourth quarters, and a special one-time cash dividend of $2.00 per share in the third quarter. During fiscal 2007, cash dividends totaled $27.0 million as follows:  $0.1333 per share in the first and second quarters and $0.1667 per share in the third and fourth quarters. Dividend amounts prior to the Company's 3-for-2 stock split with distribution date of October 30, 2008, have been adjusted to reflect the impact of this stock split. The Company plans to continue its quarterly dividends in fiscal 2010.


During fiscal 2009, 2008, and 2007, the Company invested $35.1 million, $28.6 million, and $25.2 million, respectively, in new store construction, store renovation, and store technology upgrades. The Company spent $15.5 million, $3.6 million, and $2.3 million in fiscal 2009, 2008, and 2007, respectively, in capital expenditures for the corporate headquarters and distribution facility. The Company also spent $15.2 million during fiscal 2008 to purchase a new corporate aircraft as a replacement for the aircraft that was destroyed by a tornado. The capital spending for the corporate headquarters and distribution center during fiscal 2009 included $5.5 million invested in the expansion of the Company’s online fulfillment infrastructure within its current warehouse and distribution center in Kearney, Nebraska. The newly expanded online fulfillment center went live in June 2009 and the expansion approximately doubled the size of the previous infrastructure. Fiscal 2009 capital spending for the corporate headquarters also included payments made as work progressed on the Company’s new distribution center currently under construction in Kearney, Nebraska.

During fiscal 2010, the Company anticipates completing approximately 45 store construction projects, including approximately 20 new stores and approximately 25 stores to be remodeled and/or relocated. As of March 2010, leases for 21 new stores have been signed and no new leases are under negotiation; however, exact new store openings, remodels, and relocations may vary from those anticipated. The average cost of opening a new store during fiscal 2009 was approximately $0.9 million, including construction costs of approximately $0.7 million and inventory costs of approximately $0.2 million, net of payables. Management estimates that total capital expenditures during fiscal 2010 will be approximately $65 to $70 million, which includes planned new store and store remodeling projects, the planned replacement of the Company’s current point-of-sale software and hardware, and the completion of the Company’s new distribution center. The Company believes that existing cash and cash equivalents, investments, 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. The Company has had a consistent record of generating positive cash flows each year and, as of January 30, 2010, had total cash and investments of $230.8 million. The Company does not currently have plans for any merger or acquisition, and has fairly consistent plans for new store expansion and remodels. Based upon past results and current plans, management does not anticipate any large swings in the Company’s need for cash in the upcoming years.

 
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Future conditions, however, may reduce the availability of funds based upon factors such as a decrease in demand for the Company’s product, change in product mix, competitive factors, and general economic conditions as well as other risks and uncertainties which would reduce the Company’s sales, net profitability, and cash flows. Also, the Company’s acceleration in store openings and/or remodels, or entering into a merger, acquisition, or other financial related transaction could reduce the amount of cash available for further capital expenditures and working capital requirements.

Auction-Rate Securities> - As of January 30, 2010, total cash and investments included $22.8 million of auction-rate securities (“ARS”) and $0 of preferred securities, which compares to $30.3 million of ARS and $0.6 million of preferred securities as of January 31, 2009. Of the $22.8 million in ARS and preferred securities as of January 30, 2010, $1.3 million has been included in short-term investments, due to known or anticipated subsequent redemptions at par value plus accrued interest, and $21.5 million has been included in long-term investments. ARS have a long-term stated maturity, but are reset through a “dutch auction” process that occurs every 7 to 49 days, depending on the terms of the individual security. During February 2008, a significant number of auctions related to these securities failed, meaning that there was not enough demand to sell the entire issue at auction. The failed auctions have limited the current liquidity of the Company’s investments in ARS and the Company has reason to believe that certain of the underlying issuers of its ARS are currently at risk. The Company does not anticipate, however, that further auction failures will have a material impact on the Company’s ability to fund its business.

ARS and preferred securities are reported at fair market value, and as of January 30, 2010, the reported investment amount is net of a $1.3 million temporary impairment and a $2.7 million other-than-temporary impairment (“OTTI”) to account for the impairment of certain securities from their stated par value. The Company reported the $1.3 million temporary impairment, net of tax, as an “accumulated other comprehensive loss” of $0.8 million in stockholders’ equity as of January 30, 2010. The Company has accounted for the impairment as temporary, as it currently expects to be able to successfully liquidate its investments without loss once the ARS market resumes normal operations. During fiscal 2009, the Company was able to successfully liquidate $5.3 million of its investments in ARS at par value. The Company also liquidated investments in preferred securities that were valued at $2.2 million ($5.4 million at par value) as of January 31, 2009 for $3.9 million, and recorded a gain of $1.7 million in the statement of income for the fiscal year ended January 30, 2010.

The Company reviews all investments for OTTI at least quarterly or as indicators of impairment exist and added $0.7 million to OTTI during the fourth quarter of fiscal 2009. The value and liquidity of ARS held by the Company may be affected by continued auction-rate failures, the credit quality of each security, the amount and timing of interest payments, the amount and timing of future principal payments, and the probability of full repayment of the principal. Additional indicators of impairment include the duration and severity of the decline in market value. The interest rates on these investments will be determined by the terms of each individual ARS. The material risks associated with the ARS held by the Company include those stated above as well as the current economic environment, downgrading of credit ratings on investments held, and the volatility of the entities backing each of the issues. In addition, the Company considers qualitative factors including, but not limited to, the financial condition of the investee, the credit rating of the investee, and the current and expected market and industry conditions in which the investee operates. The Company believes it has the ability and intent to hold these investments until recovery of market value occurs.

 
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon The Buckle, Inc.’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the financial statement date, and the reported amounts of sales and expenses during the reporting period. The Company regularly evaluates its estimates, including those related to inventory, investments, incentive bonuses, and income taxes. Management bases its estimates on past experience and on various other factors that are thought to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes that the estimates and judgments used in preparing these financial statements were the most appropriate at that time. Presented below are those critical accounting policies that management believes require subjective and/or complex judgments that could potentially affect reported results of operations.
 
1.
Revenue Recognition. Retail store sales are recorded upon the purchase of merchandise by customers. Online sales are recorded when merchandise is delivered to the customer, with the time of delivery being based on estimated shipping time from the Company’s distribution center to the customer. Shipping fees charged to customers are included in revenue and shipping costs are included in selling expenses. The Company accounts for layaway sales in accordance with FASB ASC 605, Revenue Recognition, recognizing revenue from sales made under its layaway program upon delivery of the merchandise to the customer. Revenue is not recorded when gift cards and gift certificates are sold, but rather when a card or certificate is redeemed for merchandise. A current liability for unredeemed gift cards and certificates is recorded at the time the card or certificate is purchased. The amounts of the gift certificate and gift card liabilities are determined using the outstanding balances from the prior three and four years of issuance, respectively. The liability recorded for unredeemed gift certificates and gift cards was $13.5 million and $10.1 million as of January 30, 2010 and January 31, 2009, respectively. The Company records breakage as other income when the probability of redemption, which is based on historical redemption patterns, is remote. Breakage reported for the fiscal years ended January 30, 2010, January 31, 2009, and February 2, 2008 was $0.4 million, $0.4 million, and $0.0 million, respectively.

The Company establishes a liability for estimated merchandise returns based upon the historical average sales return percentage. Customer returns could potentially exceed the historical average, thus reducing future net sales results and potentially reducing future net earnings. The accrued liability for reserve for sales returns was $0.6 million and $0.5 million at January 30, 2010 and January 31, 2009, respectively.
 
2.
Inventory. Inventory is valued at the lower of cost or market. Cost is determined using an average cost method that approximates the first-in, first-out (FIFO) method. Management makes adjustments to inventory and cost of goods sold, based upon estimates, to reserve for merchandise obsolescence and markdowns that could affect market value, based on assumptions using calculations applied to current inventory levels within each of four different markdown levels. Management also reviews the levels of inventory in each markdown group and the overall aging of the inventory versus the estimated future demand for such product and the current market conditions. Such judgments could vary significantly from actual results, either favorably or unfavorably, due to fluctuations in future economic conditions, industry trends, consumer demand, and the competitive retail environment. Such changes in market conditions could negatively impact the sale of markdown inventory, causing further markdowns or inventory obsolescence, resulting in increased cost of goods sold from write-offs and reducing the Company’s net earnings. The liability recorded as a reserve for markdowns and/or obsolescence was $5.8 million and $6.2 million as of January 30, 2010 and January 31, 2009, respectively. The Company is not aware of any events, conditions, or changes in demand or price that would indicate that its inventory valuation may not be materially accurate at this time.
 
 
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3.
Income Taxes. The Company records a deferred tax asset and liability for expected future tax consequences resulting from temporary differences between financial reporting and tax bases of assets and liabilities. The Company considers future taxable income and ongoing tax planning in assessing the value of its deferred tax assets. If the Company determines that it is more than likely that these assets will not be realized, the Company would reduce the value of these assets to their expected realizable value, thereby decreasing net income. Estimating the value of these assets is based upon the Company’s judgment. If the Company subsequently determined that the deferred tax assets, which had been written down, would be realized in the future, such value would be increased. Adjustment would be made to increase net income in the period such determination was made.

4.
Operating Leases. The Company leases retail stores under operating leases. Most lease agreements contain tenant improvement allowances, rent holidays, rent escalation clauses, and/or contingent rent provisions. For purposes of recognizing lease incentives and minimum rental expenses on a straight-line basis over the terms of the leases, the Company uses the date of initial possession to begin amortization, which is generally when the Company enters the space and begins to make improvements in preparation of intended use. For tenant improvement allowances and rent holidays, the Company records a deferred rent liability on the balance sheets and amortizes the deferred rent over the terms of the leases as reductions to rent expense on the statements of income.

For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy, the Company records minimum rental expenses on a straight-line basis over the terms of the leases on the statements of income. Certain leases provide for contingent rents, which are determined as a percentage of gross sales in excess of specified levels. The Company records a contingent rent liability on the balance sheets and the corresponding rent expense when specified levels have been achieved or are reasonably probable to be achieved.

5.
Investments. As more fully described in Liquidity and Capital Resources on pages 22 to 24 and in Note B to the financial statements on pages 39 to 41, in prior years the Company invested a portion of its investments in auction-rate securities (“ARS”) and preferred securities. These investments are classified as available-for-sale securities and are reported at fair market values of $22.8 million and $30.9 million as of January 30, 2010 and January 31, 2009, respectively.

The Company reviews impairment in accordance with FASB ASC 320, Investments-Debt and Equity Securities, to determine the classification of potential impairments as either temporary or other-than-temporary. A temporary impairment results in an unrealized loss being recorded in other comprehensive income. An impairment that is considered other-than-temporary would be recognized in net income. The Company considers various factors in reviewing impairment, including the duration and severity of the decline in market value. In addition, the Company considers qualitative factors including, but not limited to, the financial condition of the investee, the credit rating of the investee, the current and expected market and industry conditions in which the investee operates, and the Company’s intent and ability to hold the investments for a period of time sufficient to allow for any anticipated recovery in market value. The Company believes it has the ability and maintains its intent to hold these investments until recovery of market value occurs.

The Company determined the fair value of ARS using Level 1 inputs for known or anticipated subsequent redemptions at par value, Level 2 inputs using observable inputs, and Level 3 using unobservable inputs, where the following criteria were considered in estimating fair value:

 
·
Pricing was provided by the custodian of ARS;
 
·
Pricing was provided by a third-party broker for ARS;
 
·
Sales of similar securities;
 
·
Quoted prices for similar securities in active markets;
 
·
Quoted prices for publicly traded preferred securities;
 
·
Quoted prices for similar assets in markets that are not active - including markets where there are few transactions for the asset, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly;
 
·
Pricing was provided by a third-part valuation consultant (using Level 3 inputs).

 
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In addition, the Company considers other factors including, but not limited to, the financial condition of the investee, the credit rating, insurance, guarantees, collateral, cash flows, and the current and expected market and industry conditions in which the investee operates. Management believes it has used information that was reasonably obtainable in order to complete its valuation process and determine if the Company’s investments in ARS had incurred any temporary and/or other-than-temporary impairment as of January 30, 2010.

OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND COMMERCIAL COMMITMENTS

As referenced in the tables below, the Company has contractual obligations and commercial commitments that may affect the financial condition of the Company. Based on management’s review of the terms and conditions of its contractual obligations and commercial commitments, there is no known trend, demand, commitment, event, or uncertainty that is reasonably likely to occur which would have a material effect on the Company’s financial condition, results of operations, or cash flows.

In addition, the commercial obligations and commitments made by the Company are customary transactions, which are similar to those of other comparable retail companies. The operating lease obligations shown in the table below represent future cash payments to landlords required to fulfill the Company’s minimum rent requirements. Such amounts are actual cash requirements by year and are not reported net of any tenant improvement allowances received from landlords.

The following tables identify the material obligations and commitments as of January 30, 2010:

   
Payments Due by Period
 
Contractual Obligations
(dollar amounts in thousands)
 
Total
   
Less than 1
year
   
1-3 years
   
4-5 years
   
After 5 years
 
Long-term debt
  $ -     $ -     $ -     $ -     $ -  
Purchase obligations
  $ 20,014     $ 20,014     $ -     $ -     $ -  
Deferred compensation
  $ 5,957     $ -     $ -     $ -     $ 5,957  
Operating leases
  $ 303,956     $ 49,006     $ 83,119     $ 67,236     $ 104,595  
Total contractual obligations
  $ 329,927     $ 69,020     $ 83,119     $ 67,236     $ 110,552  

   
Amount of Commitment Expiration by Period
 
Other Commercial Commitments
(dollar amounts in thousands)
 
Total
Amounts
Committed
   
Less than
1 year
   
1-3 years
   
4-5 years
   
After 5 years
 
Lines of credit
  $ -     $ -     $ -     $ -     $ -  
Total commercial commitments
  $ -     $ -     $ -     $ -     $ -  

The Company has available an unsecured line of credit of $17.5 million, of which $10.0 million is available for letters of credit, which is excluded from the preceding table. Certain merchandise purchase orders require that the Company open letters of credit. When the Company takes possession of the merchandise, it releases payment on the letters of credit. The amounts of outstanding letters of credit reported reflect the open letters of credit on merchandise ordered, but not yet received or funded. The Company believes it has sufficient credit available to open letters of credit for merchandise purchases. There were no bank borrowings during fiscal 2009, 2008, and 2007. The Company had outstanding letters of credit totaling $0.6 million and $1.1 million at January 30, 2010 and January 31, 2009, respectively. The Company has no other off-balance sheet arrangements.

 
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SEASONALITY AND INFLATION

The Company's business is seasonal, with the holiday 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 2009, 2008, and 2007, the holiday and back-to-school seasons accounted for approximately 35%, 37%, and 38%, respectively, 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 past three fiscal years. Quarterly results may vary significantly depending on a variety of factors including the timing and amount of sales and costs associated with the opening of new stores, the timing and level of markdowns, the timing of store closings, the remodeling of existing stores, competitive factors, and general economic conditions.

RELATED PARTY TRANSACTIONS

Included in other assets is a note receivable of $1.0 million at both January 30, 2010 and January 31, 2009, from a life insurance trust fund controlled by the Company’s Chairman. The note was created over three years, beginning in July 1994, when the Company paid life insurance premiums of $0.2 million each year for the Chairman on a personal policy. The note accrues interest at 5% of the principal balance per year and is to be paid from the life insurance proceeds. The note is secured by a life insurance policy on the Chairman.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Effective February 3, 2008, the Company adopted the provisions of FASB ASC 820, Fair Value Measurements and Disclosures. FASB ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of FASB ASC 820 apply to all financial instruments that are being measured and reported on a fair value basis. In addition, FASB ASC 820-10-15-1A delayed the effective date of FASB ASC 820 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years, for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of FASB ASC 820 during fiscal 2008 for all financial instruments and the adoption during fiscal 2009 for all non-financial assets and liabilities did not have any impact on the Company’s financial position or results of operations.

Effective February 3, 2008, the Company adopted the provisions of FASB ASC 825, Financial Instruments. FASB ASC 825 provides an option for companies to report selected financial assets and liabilities at fair value. Although the Company adopted the provisions of FASB ASC 825 effective February 3, 2008, it did not elect the fair value option for any financial instruments or other items held by the Company. Therefore, the adoption of FASB ASC 825 did not have any impact on the Company’s financial position or results of operations.

In May 2009, FASB issued FASB ASC 855, Subsequent Events. This guidance requires management to evaluate subsequent events through the date the financial statements are issued, or are available to be issued, and requires companies to disclose the date through which such subsequent events have been evaluated. FASB ASC 855 was effective for financial statements issued for interim or annual reporting periods ending after June 15, 2009. In February 2010, FASB issued Accounting Standards Update 2010-09 which removed the requirement for SEC filers to disclose the date through which subsequent events have been evaluated. The adoption of FASB ASC 855 did not have any impact on the Company’s financial position or results of operations.

In June 2009, FASB issued FASB ASC 105, Generally Accepted Accounting Principles, which establishes the FASB Accounting Standards Codification (“ASC”) as the single source of GAAP recognized by FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of FASB ASC 105, the codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the codification became non-authoritative. FASB ASC 105 was effective for financial statements issued for interim or annual reporting periods ending after September 15, 2009. Therefore, the Company adopted the provisions of FASB ASC 105 on August 2, 2009. The adoption of FASB ASC 105 did not have any impact on the Company’s financial position or results of operations.

 
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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.

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk> - To the extent that the Company borrows under its line of credit facility, the Company would be exposed to market risk related to changes in interest rates. As of January 30, 2010, no borrowings were outstanding under the line of credit facility. The Company is not a party to any derivative financial instruments. Additionally, the Company is exposed to market risk related to interest rate risk on the cash and investments in interest-bearing securities. These investments have carrying values that are subject to interest rate changes that could impact earnings to the extent that the Company did not hold the investments to maturity. If there are changes in interest rates, those changes would also affect the investment income the Company earns on its cash and investments. For each one-quarter percent decline in the interest/dividend rate earned on cash and investments (approximately a 50% change in the rate earned), the Company’s net income would decrease approximately $0.4 million or less than $0.01 per share. This amount could vary based upon the number of shares of the Company’s stock outstanding and the level of cash and investments held by the Company.

Other Market Risk> – At January 30, 2010, the Company held $26.8 million, at par value, of investments in auction-rate securities (“ARS”) and preferred stock. The Company concluded that a $1.3 million temporary impairment and $2.7 million other-than-temporary impairment (“OTTI”) existed related to these securities as of January 30, 2010. Given current market conditions in the ARS and capital markets, the Company may incur additional temporary or other-than-temporary impairment in the future if market conditions persist and the Company is unable to recover the cost of its investments in ARS.

 
29

 

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
The Buckle, Inc.
Kearney, Nebraska

We have audited the accompanying balance sheets of The Buckle, Inc. (the “Company”) as of January 30, 2010 and January 31, 2009, and the related statements of income, stockholders’ equity, and cash flows for each of the three fiscal years in the period ended January 30, 2010. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of The Buckle, Inc. as of January 30, 2010 and January 31, 2009, and the results of its operations and its cash flows for each of the three fiscal years in the period ended January 30, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 30, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report, dated March 31, 2010, expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 31, 2010

 
30

 

THE BUCKLE, INC.

BALANCE SHEETS
(Dollar Amounts in Thousands Except Share and Per Share Amounts)


   
January 30,
   
January 31,
 
   
2010
   
2009
 
ASSETS
           
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 135,340     $ 162,463  
Short-term investments (Notes A, B, and C)
    22,687       19,150  
Accounts receivable, net of allowance of $35 and $46, respectively
    6,911       3,734  
Inventory
    88,187       83,963  
Prepaid expenses and other assets (Note F)
    11,684       17,655  
Total current assets
    264,809       286,965  
                 
PROPERTY AND EQUIPMENT (Note D):
    305,974       264,154  
Less accumulated depreciation and amortization
    (159,392 )     (147,460 )
      146,582       116,694  
                 
LONG-TERM INVESTMENTS (Notes A, B, and C)
    72,770       56,213  
OTHER ASSETS (Notes F and G)
    4,742       5,468  
                 
    $ 488,903     $ 465,340  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES:
               
Accounts payable
  $ 24,364     $ 22,472  
Accrued employee compensation
    41,463       40,460  
Accrued store operating expenses
    8,866       7,701  
Gift certificates redeemable
    13,507       10,144  
Income taxes payable
    3,830       8,649  
Total current liabilities
    92,030       89,426  
                 
DEFERRED COMPENSATION (Note I)
    5,957       4,090  
DEFERRED RENT LIABILITY
    36,657       34,602  
Total liabilities
    134,644       128,118  
                 
COMMITMENTS (Notes E and H)
               
                 
STOCKHOLDERS’ EQUITY (Note J):
               
Common stock, authorized 100,000,000 shares of $.01 par value; 46,381,263 and 45,906,265 shares issued and outstanding at January 30, 2010 and January 31, 2009, respectively
    464       459  
Additional paid-in capital
    78,837       68,894  
Retained earnings
    275,751       268,789  
Accumulated other comprehensive loss
    (793 )     (920 )
Total stockholders’ equity
    354,259       337,222  
                 
    $ 488,903     $ 465,340  

See notes to financial statements.

 
31

 

THE BUCKLE, INC.

STATEMENTS OF INCOME
(Dollar Amounts in Thousands Except Per Share Amounts)


   
Fiscal Years Ended
 
   
January 30,
   
January 31,
   
February 2,
 
   
2010
   
2009
   
2008
 
SALES, Net of returns and allowances of $73,596, $54,973, and $42,087, respectively
  $ 898,287     $ 792,046     $ 619,888  
                         
COST OF SALES (Including buying, distribution, and occupancy costs)
    497,668       448,558       365,350  
                         
Gross profit
    400,619       343,488       254,538  
                         
OPERATING EXPENSES:
                       
Selling
    168,741       151,251       118,699  
General and administrative
    32,416       30,041       26,212  
      201,157       181,292       144,911  
                         
INCOME FROM OPERATIONS
    199,462       162,196       109,627  
                         
OTHER INCOME, Net (Note A)
    3,674       7,829       9,183  
GAIN (LOSS) - IMPAIRMENT OF SECURITIES (Note B)
    991       (5,157 )     -  
                         
INCOME BEFORE INCOME TAXES
    204,127       164,868       118,810  
                         
PROVISION FOR INCOME TAXES (Note F)
    76,824       60,459       43,563  
                         
NET INCOME
  $ 127,303     $ 104,409     $ 75,247  
                         
EARNINGS PER SHARE (Note K):
                       
Basic
  $ 2.79     $ 2.30     $ 1.69  
                         
Diluted
  $ 2.73     $ 2.24     $ 1.63  

See notes to financial statements.

 
32

 

THE BUCKLE, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollar Amounts in Thousands Except Share and Per Share Amounts)

 
                           
Accumulated
       
               
Additional
         
Other
       
   
Number of
   
Common
   
Paid-in
   
Retained
   
Comprehensive
       
   
Shares
   
Stock
   
Capital
   
Earnings
   
Loss
   
Total
 
                                     
BALANCE, February 4, 2007
    29,408,576     $ 294     $ 43,493     $ 242,800       -     $ 286,587  
                                                 
Net income
    -       -       -       75,247       -       75,247  
Dividends paid on common stock,
                                               
($.1333 per share - 1st and 2nd quarters)
    -       -       -       (12,014 )     -       (12,014 )
($.1667 per share - 3rd and 4th quarters)
    -       -       -       (14,988 )     -       (14,988 )
Common stock issued on exercise of stock options
    937,247       9       12,015       -       -       12,024  
Issuance of non-vested stock, net of forfeitures
    138,345       1       (1 )     -       -       -  
Amortization of non-vested stock grants, net of forfeitures
    -       -       3,886       -       -       3,886  
Stock option compensation expense
    -       -       293       -       -       293  
Common stock purchased and retired
    (642,500 )     (6 )     (21,571 )     -       -       (21,577 )
Income tax benefit related to exercise of stock options
    -       -       8,862       -       -       8,862  
                                                 
BALANCE, February 2, 2008
    29,841,668       298       46,977