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Buckle Holds It Together Near Term; Deutsche Bank Upgrades

Buckle Holds It Together Near Term; Deutsche Bank Upgrades

Citing near-term valuation support, Deutsche Bank upgraded shares of Buckle Inc (NYSE: BKE) to Neutral. Since the firm's Sell rating in April 2016, the shares of the company have depreciated 52 percent versus a 14 percent gain by the S&P 500 Index.

The firm said it sees an opportunity for good momentum to extend at least into April, given the Easter shift and potential further upside if store closures accelerate.

Cautious On Long-Term Prospects

Analysts Tiffany Kanaga and Paul Trussell, however, remain cautious around the company's long-term prospects, given a challenging and over-stored mall-based environment. The analysts predict a 20 percent decline in earnings per share in each of the next three years due to:

  • Negative same-store sales.
  • Continued gross profit margin pressure as the company works toward offering more compelling price points.
  • No cost savings programs identified, unlike peers, to offset sales deleverage.
  • No resumption in share repurchase expected.

"Under such earnings pressure, we forecast FCF levels to dip below the ~$85 million annual dividend payout necessary to sustain the special dividend at 75c, and continue to see the special dividend as at risk for reduction or elimination," the analysts said.

March Comps, Down, But Beats

Deutsche Bank noted that Buckle's March same-stores sales were down 10.1 percent year-over-year, not as worse as its forecast for a 15 percent drop and the consensus estimate for a 10.8 percent decline. This, according to the firm, has come despite dismal Prodco traffic trends, unfavorable weather and a promotional backdrop.

"We were pleased to see the 2-year stack accelerate to its best level since December, and anticipate further improvement in April given the Easter shift which has added an average of ~400 bps in prior instances," Deutsche Bank indicated.

Right-Sizing Encouraging

While noting that Buckle has closed four stores in the year-to-date period compared to six for all of 2016, the firm said it is encouraged by these initial moves to right-size the fleet and believe incremental actions could boost comps and productivity alongside spurring management to apply a greater focus on e-commerce.

Deutsche Bank raised its 2018 earnings per share estimate to $1.33 from $1.25, although it is well below the Street estimate of $1.70. The firm thinks the stock incorporates fair risk/reward balance.

The rating goes to Neutral from Sell, while the price target is raised to $16 from $15.

At the time of writing, Buckle shares were up 6.57 percent at $17.85.

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Image Credit: Corey Coyle [CC BY 3.0 (], via Wikimedia Commons

Latest Ratings for BKE

May 2020CFRADowngradesHoldSell
Nov 2018Deutsche BankUpgradesSellHold
Aug 2017Deutsche BankMaintainsSell

View More Analyst Ratings for BKE
View the Latest Analyst Ratings


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