The holiday season has been a mixed bag for retailers, with some managing to grow strongly as conditions in the U.S. economy improve while others struggle under the weight of unpopular merchandise and the need for hefty promotional discounts to move their inventory. Coming into Friday morning's fiscal fourth-quarter financial report, Buckle (NYSE:BKE) investors had a pretty good idea of what to expect, given the monthly sales reports that the retailer issues. Although Buckle largely met expectations, it still hasn't shown investors how it plans to boost its growth rate in the near future. Let's take a closer look at how Buckle did and what it says about the retail environment right now.
Buckle tightens its belt
Buckle managed to grow a little bit faster in its fiscal fourth quarter compared to the results it reported in November. Sales of $353.5 million were 4.3% higher than the year-ago quarter, and comparable-store sales recovered from last quarter's slight decline to post a 1.1% rise. Net income rose by about 1.3% to $60.1 million, producing earnings of $1.25 per share, which was a penny ahead of the consensus among those following the retailer.
Buckle doesn't reveal a huge amount of detail on its business in its quarterly reports, but what it does give shows the challenges it faces in keeping its costs down in order to maximize its profits. Gross margins fell again, this time by about a quarter percentage point as costs of sales rose at a faster pace than revenue. Moreover, a big jump in general and administrative expenses sent overall overhead upward much more sharply than sales, which led to a slight drop in pre-tax income.
Buckle's online business continues to grow at a faster pace than the overall company, with a solid showing of 12.6% growth for the quarter showing the importance of the segment. However, online sales still represent less than 10% of Buckle's total revenue, even as the most recent holiday season showed the continuing trend among shoppers to go online.
For the full year, Buckle's doldrums were readily apparent. Total revenue climbed 2.2%, but comps were flat, and net income was within $100,000 of last year's total, sending earnings per share down slightly due to a minimally higher outstanding share count.
Will Buckle buckle under pressure?
Despite Buckle's slow growth, investors have still gotten rewarded by the company. In December, Buckle announced a special dividend of $2.77 per share, and it also boosted its regular quarterly dividend by a penny to $0.23 per share. Internally, Buckle remains confident that it will be able to keep profits moving higher quickly enough to cover dividend payments going forward, especially given its predilection for special dividends as a substantial portion of its roughly 7.5% dividend yield.
The problem, though, is that there are few signs that Buckle's future is improving from an operational standpoint. Last week, Buckle announced its net sales for February, the first month of the current quarter, and the results were extremely discouraging. Overall revenue fell 0.9% from last February, with a severe drop of 2.7% in comparable-store sales leading the way downward. Moreover, with Buckle having just started to include online sales as part of overall comps, those results would likely have been even worse if the retailer had broken out its brick-and-mortar sales as it has done in the past.
Overall, retailers that sell to teens and young adults have generally struggled lately, and Buckle doesn't appear likely to avoid the same trend that has held back players throughout the industry. Given enough time, Buckle could well start to outperform again, given its history of competing well against its peers. For now, though, investors will have to be patient as Buckle works its way through the sluggishness that has hurt many of its rivals to a much greater extent than its own results show.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends The Buckle. The Motley Fool owns shares of The Buckle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.