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x/15/201x

Accounting 202

Financial Statement Analysis Paper

The Buckle Inc. is a retail clothing company which specializes in medium to high priced clothing, jewelry, shoes and accessories for both men and women started in Kearney, Nebraska. With the assistance of independent auditors at the Deloitte and Touch LLC, chief executive officer Dennis Nelson leads a corporation with financial success and steady increase in investor confidence against its competitors. This particular financial report will closely examine Buckle’s change in balance sheets between the years of 2008 to 2011 and income statements from 2007 to 2011 as well as the overall performance of the company as a whole plus its risks and possible problem areas.

When analyzing the company’s financial data from the income statement, the net income from 2007 has increased in percentage of net sales throughout a 5-year span to 2011. The chart below displays the steady increase of the net income to net sales percentage of 10.5%, 12.1%, 13.2%, 14.2%, and 14.2% to 2007, 2008, 2009, 2010, and 2011 respectively. We can conclude that Buckle has had a great amount of earnings throughout 2007 to 2009 and between 2010 and 2011 a small plateau seems to have occurred in the amount of net income earned. Although the company has showed strong earnings, a simple increase in net income is not enough to ensure investor confidence. We can examine Buckle’s inventory turnover ratio to see how many times (on average) the company is selling their entire inventory and collecting net income. In 2009, the inventory ratio is 5.55 times, in 2010 it was 5.78 times, and 2011 was 6.00 times. Generally, the higher the ratio, the more efficient the company is at turning over their inventory from its system within a fiscal reporting period.

Examining the risks within the Buckle Inc. we can assess the company’s current ratio from 2009 to 2011 as this ratio compares the company’s current assets to current liabilities to see whether the company has adequate resources to pay its obligations. This method is most helpful in measuring the liquidity of a specific company. The data from the three years consist of 3.24, 2.87, and 2.67 in 2009, 2010, and 2011 respectively. As observed below, there is a pattern of slight decline in Buckle’s current ratio in which the amount of current assets shown in the balance sheet displays a decrease over the three years as well as an increase in the amount of current liabilities accrued by the company. This s one of the problem areas I find in the company. As style change along with seasons, Buckle seems to be accruing more liabilities than they can pay with the decreasing amount of current assets. If this trend continues, it could potentially harm investors’ confidence when prospecting to buy shares. The weakness I see from Buckle is the fact that they state two seasons to be their busiest, back to school (August – October) and the holiday season which is usually November to December. During these months, Buckle shows the highest amounts in revenue and income. Most of the company’s items are fairly high in price especially in their denim (45% of their sales) and as seasons change, even though their inventory in being “refreshed” more often, Buckle must find a way to keep up with the style change in their inventories.

In hope that the ratio will increase in future years, we can study the actual profitability of the company by surveying its profit margin. When looking at the profit margin of a company, any investor can interpret the data as the net income earned for every dollar of sales. From 2009 to 2011, the profit margins for the three consecutive years are 13.18%, 14.17%, and 14.18% respectively. For every dollar of profit Buckle earns, around $0.14 is actual income. For stockholders, the return on stockholders’ equity ratio best measures the profitability of their investments. Starting with 2009, the Return on equity was 23.4% and in 2010 it increased to 36.24% and even more so in 2011 with 38.48%.

Buckle has shown an increase in its stock price (per share) between 2009 and 2011 however, even though the company’s stocks are rising, there has been some critique on Buckle’s investments. Jake Lynch of TheStreet.com reports that although Buckle’s stocks have performed better than their competitors such as Abercrombie and Fitch, American Eagle, and J Crew, “the stock was downgraded last month to "neutral" by JPMorgan's Anna Andreeva, who argued that limited square footage and excessive margins might indicate a growth peak. The shares tanked afterward.” This occurred in September of 2008 and Buckle has made a turnaround with their stocks during 2010. According to Buckle’s 2008 to 2010 financial statements as well as Rob Luther of SeekingAlpha.com, the company recorded growing profits and revenue for the 4th quarter and full year of 2009, as well as an increase in same sales in March of the same year. The blend of both the growing profits and increase in sales raised the price up to $40.00 per share. The decline began when Buckle reported a decrease in same store net sales in April of 5.7%, when compared with April of 2009. However, according to JournalStar.com, Buckle has exceeded Wall Street’s expectations as a growing company in stocks as well as revenue. JournalStar states, “The company's stock closed up $0.66 at $48.54, not far from its 52-week high of $49. It consistently has beaten Wall Street expectations since before the recession.” As of January 29, 2011, the price per share of stock is $2.92 per share and $3.23 per share on January 28, 2012.

The company overall has proven to be a strong competitor among other clothing brands. Its sales have shown a steady rise throughout the years of operation, especially during these last few years when the company branched out its stores across the country. If we look at Buckle’s cash flow ratio, which is a company’s ability to measure its ability to generate operating cash flows in relation to the net income, there is a fluctuation in the change of data. The chart below shows that the cash flow yields for 2009, 2010, and 2011 were 1.34, 1.24, and 1.38 respectively. There seems to be a drop in the pattern in 2010 but neither the net cash flow from operating expense nor the net income decreased from the previous year, it’s just the difference between the two factors have the smallest difference in 2010 than in the two years making the ratio seem smaller than the other two years.

Personally, if I was a prospective investor, I would think of Buckle as a good company to invest in. Of course this company could polish some of their operations but no company is flawless. This particular company shows strong attributes as a grossing retail competitor and has shown mostly positive growth in all accounts. In my assessment of this company through analyzing its financial data, I can conclude that the Buckle Inc. is overall a respectable company that is on its way to becoming a better retail chain store.

References

Audit Integrity (2011, December 16). BUCKLE INC (NYSE: BKE) | Accounting & Governance Risk. Forbes. Retrieved March 18, 2012, from http://finapps.forbes.com/finapps/AccountingRisk.do?tkr=bke

Luther, R. (2010, August 5). Why Buckle Shouldn't Be Ignored - Seeking Alpha. Seeking Alpha. Retrieved March 19, 2012, from http://seekingalpha.com/article/218852-why-buckle-shouldn-t-be-ignored

Lynch, J. (2008, October 16). Buckle's Stock Looks Fashionable Again. The Street. Retrieved from http://www.thestreet.com/story/10442550/1/buckles-stock-looks-fashionable-again.html

The Associated Press (2011, December 8). The Buckle Continues to Surprise Wall Street. Journal Star. Retrieved March 18, 2012, from

http://journalstar.com/business/local/the-buckle-continues-to-surprise-wall-street/article_4e043810-d30d-5153-b7d2-6b36deabee7c.html

The Buckle Inc. (n.d.). Our History. The Buckle Inc.. Retrieved March 18, 2012, from http://www.buckle.com/corporate/about-buckle