Everyone knows fashion retailing is a cyclical business. The
better theeconomy is, the more consumers spend. Conversely, when
the economy is weak, people tend to stay at home and keep their
purse strings tied tight. As a result, when it looks an economic
rough patch is on the horizon, investors steer clear of retailers
that sell anything but the basic necessities of life. After all,
looking good isn't quite as important during tough times.
But there's just one problem with that strategy: Sometimes that
mindset doesn't quite work to investors' advantage. Right now, for
example, there's one retailer that's managed to grow its top
andbottom line for years now, no matter what kind of economic
Better yet, thestock has shrugging offbear markets on its way to
becoming one of top-performingstocks for the past 10 years, rising
more than 650%. And the next several years don't look like they're
going to be any different.
The Buckle (
is a small-cap retailer made up of more than 400 stores selling
competitively-priced casual apparel, footwear and accessories for
young men and women. But this description doesn't do the stock
justice. A few key statistics and figures paint the true picture.
The company has had 10 straight years of risingrevenue , from
$401 million in 2003 to $1.06 billion in fiscal 2012. (Even when
therecession was hitting other retailers in 2008, The Buckle kept
Profits have also been rising for 10 straight years, from $32
million in 2003 to $151.5 million in fiscal 2012. The fact that the
company didn't have to slash prices and crimp margins when things
got rough during the Great Recession underscores just how in touch
The Buckle is with consumer demand, walking that fine line between
"needs" and "wants."
Net margin growth in eight of the past 10 years -- from 8% in
2003 to 14.2% in fiscal 2012 -- is just as impressive. This is
because, for many retailers, expansion comes at the expense of
margins. For The Buckle, however, growth has scaled quite nicely,
as it has actually achieved an economy of scale.
These are phenomenal stats, not just for retailing, but for any
kind of business. Take a look at the chart below...
The growth streak almost seems too good to be true, prodding
cautious investors to wonder whether such a track record is truly
sustainable. Well, it is sustainable, because The Buckle has
managed to do a handful of things consistently, which most other
retail companies never even come close to doing.
One of the main differences is the sheer fact that the company
hasn't taken on debt to expand. Indeed, it hasn't had anylong-term
debt on its books in years. It doesn'tfund expansion by issuing
stock either. It relies solely on thecash it actually has in the
bank to grow. While this may have meant a slower expansion than
some of its competitors can boast, The Buckle has also avoided the
trouble that debt eventually brings.
While consistentearnings andmargin growth suggest the company is
well-managed, it's not the only reason sales and profits are in
such a long-term uptrend. The Buckle's stores sell a mix of
name-brand apparel, as well as private-label goods. The former
draws a crowd, but produces just average margins. The latter isn't
a huge draw, but those goods are highly profitable. The key,
however, is the proportional mix of goods, as the company's value
and fashion proposition keeps shoppers coming back.
Finally, The Buckle'sCEO Dennis Nelson owns 2.8 millionshares of
the company, versus 47.6 million issued andoutstanding shares .
This translates into ownership of about 6% of the entire company,
which is more than considerable given today's typical levels
ofinsider ownership. If nothing else, investors can appreciate the
fact that the man leading the company is very much on the same side
of the table as its shareholders.
Note that all three are subjective rather than objective
advantages. But when it's all said and done, it's those intangible
factors that give The Buckle its competitive edge and makes the
company an outstandinginvestment .
Risks to Consider:
While the retailer is amazingly consistent when it comes to
earnings growth, it's this kind of reliability that maymean it also
lags its peers when the economy is roaring and other retailers are
capitalizing on a major surge in consumerism.
Action to Take -->
For the moderate-growth segment of your portfolio, step into The
Buckle and leave it alone. Shares have appreciated at a pace of 10%
per year for the past 10 years, and could continue to grow at that
pace for the foreseeable future.
It may not seem like a big number, but the stock and earnings
are amazingly reliable in terms of growth. Though short-term
traders may like to play the consistent up-and-down action it
offers, the stock is best used as a longer-term growth position.
And, what little it lacks in short-term stability, it offsets with
a respectabledividend . Thecurrent yield is almost 2%, not counting
the frequent special dividends, and yes, the payout has grown in
step with the retailer's rising income.