Shift In Fashion Cycle A Cause For The Deterioration In BKE June Comps

Analysts at Goldman Sachs reiterate their "neutral" rating on The Buckle Inc

, while reducing their estimates for the company. The target price for BKE is set to $25. Goldman Sachs mentions, “Buckle’s June comps were -7.3%, below consensus of flat and a deceleration vs. a soft May. We believe the deceleration is due to the fashion cycle shift, which is moving away from some of the key fashion trends that have supported BKE’s business for the last several years.” “For the past three years, BKE has posted impressive comp-store sales growth and expanded operating margins by 700 bp to current peak levels as the trend cycle was in its favor. However, we see increasing signs that the product cycle is now shifting and pressuring BKE’s results. (1) BKE’s comps decelerated 200 bp vs. May, in contrast to specialty peers, which posted a median acceleration of 300 bp. (2) The women’s business (60% of sales) posted negative yoy results for the second consecutive month; the last time women’s sales were negative was in 2006. Interestingly, women’s denim was not called out as a top performing classification, the first time since January 2009. (3) QTD implied transactions are tracking -12% below 1Q -6%. Importantly, we see this weakness posing increasing markdown risk, as comp inventory was - 2.5%/ft entering 2Q, above qtd comps of -6%. This is the first time that inventory growth has exceeded sales growth since 2005,” the analysts say. Goldman Sachs has lowered its EPS estimates for 2010 and 2011 from $2.61 to $2.59 and from $2.13 to $2.12, respectively.