Jeans, footwear, and accessories fashion destination The Buckle (NYSE:BKE) released second-quarter earnings on Aug. 23 that evidenced modest top- and bottom-line expansions. While far from spectacular, Buckle's earnings scorecard shouldn't be dismissed: Every quarter of growth represents a win for the retail chain as it adapts its business model to fit contemporary consumer preferences. Below, we'll walk through the quarter's details and briefly discuss management's evolving sales strategies. (Note that all comparative numbers in the following discussion refer to those of the prior-year quarter.)

The Buckle: The raw numbers

Metric Q2 2019 Q2 2018 Change 
Revenue $203.8 million $201.1 million 1.3%
Net income $16.4 million $15.7 million 4.5%
Diluted earnings per share $0.34 $0.32 6.2%

Data source: The Buckle.  

What happened this quarter?

  • Comparable sales improved by 1.8%, while online sales rose by 9.2%, to $23.1 million. E-commerce comprised just over 11% of total sales.
  • Sales in the women's merchandise segment rose 0.5%. Average denim prices decreased to $72.55 from $75.85. The average women's price point across all categories dipped from $38.70 to $36.50 over the quarter.
  • Women's merchandise enjoyed strength in both the company's signature "BKE" brand as well as newer private-label offerings. The women's segment introduced Kontoor Brand's Wrangler jeans in certain stores, and expanded its offering of Levi's merchandise throughout its store base.
  • Sales in the men's merchandise segment rose 2.5%. Average denim prices crept up from $85.20 to $85.60, while the average price point overall decreased from $46.50 to $45.45.
  • The men's segment also expanded its private-label selection, introducing the new West Coast-inspired "Veece" causal clothing brand in all stores. Denim, button fronts, footwear, and youth styles all performed well, while shorts sales proved the single weak spot in the segment's spring offerings.
  • Buckle completed three store remodels, closed one store, and opened one new location in Kalispell, Montana. The chain ended the quarter with 449 stores, against 455 stores in Q2 2018.
  • Gross margin slipped 60 basis points to 38.6%, as a 70 basis-point dip in merchandise margin was offset slightly by lower occupancy, materials procurement, and distribution costs.
A leather belt rests on a denim jacket.

Image source: Getty Images.

Management's comments

As Buckle gradually adapts to a retail landscape that has proved challenging to many store-based merchants, the company has shown a propensity to experiment. It followed the overall jeans market to lower, sub-$80 price points, even though this has cut into its favored $100-plus premium jeans sales, which carry higher margins. In another pertinent example of its experimentation, it allowed a greater representation of competitors' brands like Levi's and Wranglers in its stores.

During the company's earnings conference call, Bob Carlberg, Buckle's Senior Vice President of Men's Merchandising, had this to say about recent store-format R&D:

[A]lthough we have carried youth product for many years, we started testing the concept of youth-only stores during the quarter with the opening of two pop-up locations in Idaho. Although we are still early in the test, we are pleased with the positive response to the product and the experience. We will continue to monitor the performance of these locations throughout back-to-school and holiday before determining if this is a long-term strategy for our business.

Carlberg's comments illustrate management's willingness to innovate in order to get the company back to growth. Moreover, shareholders should observe that pop-up modeling is a savvy, capital-light method for gathering data about potential new store formats.

Looking forward

Buckle shares have lost nearly two-thirds of their value over the last five years. Yet they're flat year to date, indicating a potential bottoming as earnings have stabilized. It may take several quarters for Buckle to resume attractive earnings expansion, and a commensurate amount of patience from shareholders. Yet those who favor value investments, especially dividend stocks like Buckle -- which yields an enticing 5% at current share prices -- may see an emerging opportunity in this lengthy turnaround story.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.