Motley Fool
0
All posts from Motley Fool
Motley Fool in Motley Fool,

Why Buckle Inc.’s Stock Fell 15% in May

What: Youth fashion retailer Buckle's (NYSE: BKE) stock sank 15% in May, according to data provided by S&P Global Market Intelligence.

BKE data by YCharts.

The slump pushed shares to a new all-time low, and they're currently down 43% over the last year. 

So what: The stock sank in response to quarterly results that revealed sharply declining business trends. Comparable-store sales plunged by 10% in the first quarter, and while the entire apparel market has been shrinking, Buckle's slump was more pronounced than rivals'. Macy's and Dillard's, to name two examples, each posted 5% comps dips over the same period.

Image source: Getty Images.

Buckle's gross margin also took a bigger hit than competitors as price cuts pushed profitability down to 39% from 42% a year ago. The negative sales and margin trends translated into a 31% drop in net income, to $34 million.

Now what: A small slice of Buckle's slump can be tied to corporate investments in a new guest loyalty card initiative that boosts promotional discounts. Many retailers have seen good results from these programs in terms of repeat business and higher customer traffic. That's likely why Buckle was happy to take the financial hit from its launch. "Despite the impact on reported sales," executives said in a press release, "the Company is excited about the many potential benefits Guest Loyalty will provide to both Buckle and its guests."

There's no sign that business trends are improving right now, though. In fact, Buckle announced in early June that its monthly sales fell by 11%, which will put even more pressure on profits in Q2. 

Investors aren't likely to see a rebound in this stock until comps trends show solid improvements. That's a tall order, given that the industry itself is shrinking. It will be especially difficult for Buckle to engineer a strong recovery because it has to get ahead of fast-changing youth fashion trends. Because of those risks, I would stay away from this stock even at its current low valuation of just nine times trailing earnings.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.