WWD.com/globe-news/financial/the-right-mix-keeps-buckle-on-top-in-tough-market-457007/

Like a pair of well-worn jeans, The Buckle Inc. has been a mainstay in a souring economic environment.

This story first appeared in the April 21, 2008 issue of WWD.  Subscribe Today.

Posting two consecutive months of more than 20 percent growth in same-store sales, and with shares up more than 55 percent for the year-to-date period, the Nebraska-based retailer is showing no signs of a slowdown.

The key to its success has been its mix of unique branded merchandise and private labels, as well as its mom-and-pop corporate culture that emphasizes customer service, said Thomas Filandro, retail analyst at Susqehanna Financial Group.

With denim names such as Big Star and MEK that are harder to find at other retail locations, and big players such as Lucky Brand, Buckle has carved a niche that breeds loyalty among its customers.

Denim is its main anchor, making up 45 percent of total sales. Merchandisers are working to add more brands and increase the selection to attract a wider variety of customers, said Dennis Nelson, chief executive officer and president, in a fourth-quarter conference call to Wall Street.

Buckle also has worked to increase its tops selection and offers footwear and accessories.

The average ticket price for a pair of jeans is moderately priced at between $70 and $80.

“They operate on a good price point,” said Craig Johnson, president, Customer Growth Partners, a consulting firm.

While the company targets the 12- to 24-year-old demographic, they have found that even women in their 30s and 40s are shopping the stores, especially in markets where they have been located for many years.

“[Our sales team does] a great job of being able to fit almost any guest into a pair of jeans that look nice and are comfortable,” Nelson said. “We emphasize finding that favorite denim fit, and in our strongest stores do a great job of satisfying the guest and making a long-term [customer] out of their shopping experience.”

Many of the district managers have been working at the company for more than 20 years and heavy investments are made to further educate and develop management teams. A significant portion of managers’ annual compensation is in the form of year-end bonuses based on store profitability.

“They have a department-store mentality in that they identify one or two brands that you can’t get anywhere else, but operate on a specialty store model in terms of customer service,” Filandro said.

With 371 units, growth has been slow and measured, which tends to be a negative for Wall Street.

“Management will not open a new store unless they have the right site and the availability of an internal leader to successfully manage the particular market,” Filandro said.

The company rolled out 20 stores last year and plans on opening 19 this year, two of which will be located in Maryland and represent the retailer’s entry into 39 states.

But in a troubled environment, slow store growth could actually be a positive, Filandro said.

Johnson noted that Buckle has “not overexpanded” and therefore has avoided some of the pitfalls of specialty chains that target the younger consumer market.

The company has the potential to successfully operate as many as 700 to 800 stores across the U.S., which means there is still plenty of room for expansion, Filandro said.

While the retailer is starting to build up its store base in California and Florida, the units are mainly located in the Midwest and South. Filandro does not expect them to enter the Northeast until at least 2010.

Comps are Buckle’s main driver and have been buoyed by an increase in overall transactions. Last month, the company reported a 20.9 percent increase in same-store sales and a 24.3 percent jump in February.

“As they are opening stores in more densely populated areas and A-malls, we have found that they are underinventoried and are out of stock within a couple of months,” Filandro said.

Shares of the retailer closed on Friday at $49.21, compared with its close of $31.23 on Jan. 2. Filandro said the stock is fairly priced and the company has a substantial amount of cash on its balance sheet.

Johnson said Buckle has disciplined financials, solid operating margins and a good focus on basic operating execution.

In the fourth quarter ended Feb. 2, earnings shot up 32 percent to $29.1 million, or 94 cents a diluted share, from $22.1 million, or 73 cents, in the year-ago period. Sales for the quarter rose 18 percent to $207 million from $175 million, while total same-store sales swelled 18.7 percent.

For the full-year period, earnings grew 35 percent to $75.2 million, or $2.44 a diluted share, from $55.7 million, or $1.86, last year. Sales increased 17 percent to $629.9 million from $530.1 million.

“On a relative basis, given the economy, this sleepy little company in Nebraska is knocking the socks off everyone,” Filandro said.