Apparel, footwear, and accessories retailer The Buckle (BKE 2.84%) reported respectable fiscal fourth-quarter 2018 earnings on March 15. While investors have all but given up on the company's growth potential (shares have fallen by 60% over the last five years), incipient signs point to a possible revival of the business in the coming years.

Let's review the quarter's details below and examine a few factors that hint at the fact that Buckle shares, which currently trade at just 10 times forward earnings, may still harbor potential for a long-term turnaround.  

Please note that all comparative numbers that follow refer to the prior-year quarter (the fourth quarter of fiscal 2017).

The Buckle: The raw numbers

Metric Q4 2018 Q4 2017 Change YOY (Decline)
Revenue $264.4 million $281.2 million (6%)
Net income $41.1 million $42 million (1.9%)
Diluted earnings per share $0.84 $0.87 (3.4%)

Data source: The Buckle. YOY = Year over year. 

What happened with The Buckle this quarter?

Close up of hip pocket on a pair of weathered blue jeans.

Image source: Getty Images.

  • Revenue and net income performance were slightly better than they appear at first glance, as the current quarter consisted of 13 weeks, versus the fourth quarter of fiscal 2017, which was 14 weeks. Management did not provide adjusted top- and bottom-line results for equivalent 13-week periods.  
  • Comparable-store sales based on equivalent 13-week periods dipped 0.6%.
  • Online sales increased 1.3% to $33.9 million; however, when adjusted for equivalent 13-week periods, online sales rose nearly 8%.
  • The Buckle's gross margin declined by 150 basis points to 45.9%, as average unit retail pricing dipped by 3.5%, an effect partly offset by a slightly higher average transaction price during the quarter.
  • The company closed three stores and completed three full remodels over the last three months, bringing fiscal 2018 tallies to seven store closures and six store remodels.
  • It exited the fiscal year with 450 stores totaling 2.34 million square feet, against 457 stores totaling 2.67 million square feet at the end of the previous fiscal year.
  • Inventory increased by 6.1% to $125.2 million. This was the result of a delayed spring season and, according to management, some stocking up to ensure that stores have enough denim supply at the beginning of the year to maximize sales.

Check out the latest earnings call transcript for The Buckle.

Management's comments

In the earnings conference call, CEO Dennis Nelson discussed the company's adaptation on numerous fronts to current retail conditions:

Our talented teams are at the forefront of our ability to successfully adapt both our differentiated product mix and service model to create the most enjoyable shopping experience for our guests. From a product perspective, the merchandisers have done a nice job of continually evolving and broadening our exclusive selection, growing our private brands and countering the trend of lower price points in our branded denim as well as certain other categories, all while maintaining our focus on profitability.

We've also continued to evolve how we take our service to the guests however and wherever they want to shop. Looking to the future, we are focused on strategic investments in both marketing and IT to deepen our understanding and relationship with our guests, presenting unified brand message to both new and existing guests and enhance our omnichannel offerings.

The Buckle has slowly but surely adapted to the overarching trends in the retail fashion industry, primarily by cutting back on mall-based store growth and beefing up its e-commerce capabilities. The company has also responded to changing consumer preferences. It no longer relies on a strategy of realizing the bulk of sales and margin growth from high-end jeans sales, and it continues to shift offerings to midtier pricing.

During the earnings call, Kelli Molczyk, vice president for women's merchandising, noted that average denim price points in women's apparel decreased from $83.05 in the fiscal fourth quarter of 2017 to $76.65 in the fourth quarter of 2018. As the business segment purposefully dropped selling prices, private-label denim unit volume increased against the comparable quarter.

Similarly, in men's merchandising, price points across all categories (denim, other apparel, footwear, accessories, et cetera) fell against the prior-year quarter -- although less drastically -- dipping roughly 1.5% to $83.20.

Looking forward: slow but tangible progress

With a more disciplined approach to real estate, which is centered on closing underperforming locations while stabilizing traffic via renovation, The Buckle is beginning to churn out higher sales per square foot. In the fourth quarter of fiscal 2018, the company achieved sales per square foot of $113, an improvement of roughly 7.5% against approximately $105 in the comparable prior-year quarter.

Management is undergirding the effects of responsive pricing and disciplined real estate management with increased investments in corporate IT, e-commerce, and in-store technology. Though their patience has been vigorously tested, current shareholders may begin to see margin expansion in the near future. And, given its modest forward earnings valuation, The Buckle deserves a place on value investors' watchlists in 2019.