The Buckle (BKE) fits the bill for investors looking for a stock that offers both long-term growth potential and current income.

This Zacks #2 Rank stock is expected to grow its earnings per share at 12.0% per year for the next three to five years. It also has a current dividend yield of 2.1%

Investment Story

BKE is a specialty retailer of casual apparel, footwear, and accessories for young men and women. It sells its merchandise under both private-label and name brands. It operates over 400 stores in 41 states under The Buckle nameplate.

The company differentiates its stores through its merchandise mix and a superior shopping experience. The Buckle competes with other mall-based, specialty retailers including Abercrombie and Fitch (ANF), American Eagle Outfitters (AEO), and Aeropostale (ARO).

The Buckle isn’t a flash in the pan. It has grown its annual sales at 9% per year since 2002. And in the last three years, the retailer has reported negative comps just one time.

The company’s success stems from management’s ability to identify merchandise that resonates with its target market (young men and women between the ages of 12 and 24) and to staff its stores with helpful but not pushy front-line associates.

The Buckle’s most recent monthly sales report demonstrates that the retailer’s momentum remains strong. On April 8, it reported March comp-store sales of +7.2%. This was about 100 basis points ahead of analyst expectations. On its face, BKE’s March comp doesn’t look as strong as some other retailers. However, we note that Buckle’s 7.2% March 2010 comp was on top of a stellar 14.7% comp in March 2009.

Earnings Trends

BKE’s recent earnings results have been solid. In the fourth quarter, the retailer beat the Zacks Consensus Estimate by 6 cents, or 7.1%. The retailer has beaten the Zacks Consensus Estimate by an average of 9.2% in the 5 quarters.

The Buckle’s continued strength has analysts increasing their estimates. In the last 7 days, there have been 12 upward revisions to the company’s earnings estimates. And in the last month, the Zacks Consensus Estimate for fiscal 2011 is up 22 cents, or 4.3%, and consensus estimates for fiscal 2012 are up 2 cents, or 1.0%.


Future earnings growth will continue to come from strong top-line growth and store expansion. BKE didn’t suffer the margin contraction that impacted the rest of retail. As such, The Buckle has little room for margin expansion.

The Buckle continues to open new stores. The company increases its square footage by 4% to 5% per year. In addition, BKE is one of the few retailers that has been able to increase prices without suffering a hit to sales. This is helping to slightly boost its gross margin. However, operating costs are about as low as they can be, which limits the retailer’s operating leverage.

The lack of margin expansion opportunities could be the primary reason that analysts are split on the stock. Of the 13 analysts covering BKE, four analyst rate the stock ‘Strong Buy;’ five rate the stock a ‘Hold;’ and four have a ‘Sell’ rating on the stock.

The Buckle will report first-quarter results around May 20.

Zacks Investment Research