Opening New Stores And Remodels Will Improve Store Presence And Attract More Customers

Key Takeaways

• Strategic relocation to outdoor centers and store expansion are expected to increase foot traffic and boost revenues.
  
• Private label growth and better inventory management aim to improve margins by reducing markdowns and increasing full-price sales.
  
• Uncertainty in sales guidance and challenges in maintaining margins amid decreasing income, store relocations, and reliance on China could affect Buckle's future profitability and revenues.

Catalysts

Operates as a retailer of casual apparel, footwear, and accessories for young men and women in the United States.

• Buckle's strategic relocation of stores from malls to higher traffic outdoor centers is expected to enhance customer foot traffic and sales, potentially boosting overall revenues.
  
• The company's focus on increasing merchandise margins through private label growth and better inventory management is likely to improve net margins by reducing markdowns and increasing regular price sales.
  
• Continuous investment in the digital experience and successful efforts in enhancing e-commerce have shown strong growth, which should further elevate Buckle's revenue and earnings as this segment expands.
  
• The expected expansion with opening new stores and completing remodels, particularly relocations to new outdoor centers, can be a catalyst for increased revenue by enhancing store presence and attracting more customers.
  
• Buckle's strong relationships with vendors and ability to potentially mitigate tariff impacts could support stable merchandise costs, preserving gross and net margins in the face of external economic challenges.

Buckle Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Buckle's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 16.1% today to 15.4% in 3 years time.
• Analysts expect earnings to reach $203.4 million (and earnings per share of $4.05) by about April 2028, up from $195.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.4x on those 2028 earnings, up from 9.8x today. This future PE is lower than the current PE for the US Specialty Retail industry at 16.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.87%, as per the Simply Wall St company report.

Buckle Future Earnings Per Share Growth

Risks

• The company's decision not to provide future sales or earnings guidance adds uncertainty for investors, which could lead to unpredictable revenue and earnings outcomes.
  
• Recent financial results show a decrease in net income and net sales for the fiscal year, which may indicate potential challenges in maintaining margins and overall earnings growth.
  
• Increased selling, general, and administrative expenses as a percentage of net sales could pressure net margins, limiting the company's ability to maintain profitability levels.
  
• Store closures and reliance on relocating stores from malls to outdoor centers may reflect challenges in adapting to consumer retail trends, potentially impacting future revenues.
  
• Heavy reliance on China for inventory sourcing poses a risk, especially amid potential tariff changes or supply chain disruptions, which could adversely affect revenue and gross margins.

Valuation

• The analysts have a consensus price target of $41.0 for Buckle based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $203.4 million, and it would be trading on a PE ratio of 12.4x, assuming you use a discount rate of 7.9%.
• Given the current share price of $38.42, the analyst price target of $41.0 is 6.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.