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Under the Radar Stocks

Buckle raises prices while rivals languish Add to ...

Who knew tiny little Kearney, Neb., was a fashion hub?

There's no denying that those Nebraskans know their blue jeans. Still, it's not every day that a "city" of about 27,000 people spawns a hidden retail gem like Buckle . But that is where, in 1948, a small men's clothing store was born, and it's where it still resides: tucked on the outskirts of the town across the street from a farmer's field. What began there as a men's apparel chain named Mills Clothing eventually expanded to include women's apparel in 1977 -- and the name was changed to Buckle in 1991. And although the retailer has always retained a focus in the Midwest, its performance is worthy of national attention.

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Selling better-priced denim and casual apparel to fickle young women and men is never an easy endeavor -- throw in parents now looking to save a buck, and the job becomes even harder. But even with these hurdles, Buckle has managed to post some astonishing numbers of late:

* For the past 22 consecutive months, the company has achieved double-digit same-store sales growth.

* During the quarter that ended May 2, it posted a 44% increase in profit, earning $26.9 million, or 58 cents a share, compared with $18.7 million, or 40 cents, in the year-ago period.

* During the same period, the company's revenue jumped 25% to $199.7 million from $160.2 million, while its total same-store sales for the quarter grew 17.7%.

Buckle isn't about quirky, of-the-minute, fashion trends. Jeans, the crux of its business, are an American staple that will seemingly never go out of style -- proving that, even during an economic downturn, shoppers will spend if you give them newness and merchandise they want.

Rivals Abercrombie & Fitch and American Eagle Outfitters are learning this lesson the hard way. In May, Abercrombie & Fitch reported a 28% plunge in same-store sales, while American Eagle saw a 7% decrease.

While Buckle keeps a low-profile in the media, some investors are taking notice. Since the beginning of 2009, shares in the company have risen 42% to $31.71. Its price-to-earnings ratio of 13 is appealing when compared with Abercrombie & Fitch's 14.6 or American Eagle's 18.

But the biggest wow of the Buckle story, at a time when consumers are looking for bargains, is that the company has actually been able to raise its prices. Juniors prices are up 3%, while men's are up 8%.

So how has Buckle managed to buck the trends?

The company credits much of its success to its unique selling culture. J.P. Morgan analyst Anna Andreeva likens their sales associates to those of Nordstrom , who keep a list of loyal customers and personally call each one when new products are set to hit the sales floor.

These sales associates then assist shoppers through every step of the sale. Given that one of the biggest fashion obstacles for women is finding a pair of jeans that fit, a willing associate to walk them through the process represents a premium value.

It also helps that most of Buckle's stores are located in smaller regional malls where there is less direct competition and that their store portfolio skews heavily to the Midwest and Texas where retail is currently performing the strongest.

Indeed, Buckle has only a handful of stores in California and Florida, the areas hardest hit during the recession. And with only about 393 stores in 40 states, the company still has plenty of room to grow. While most retailers are shrinking or delaying store openings, this year management plans to open 20 new stores and remodel 21 existing locations.

The company is also looking to move into the Northeast, an area currently untapped in its portfolio. In February, Buckle opened its first store in Buffalo, N.Y., and it intends to open a store in Mays Landing, N.J. in time for the back-to-school season. Best of all, the company is sharing its success with its shareholders, authorizing a 20 cents a share quarterly dividend to be paid on July 27 to shareholders of record at the close of business on July 15.

But all this praise doesn't mean the retailer is without its challenges.

Men's sales have been struggling. While this is an industry-wide problem -- both American Eagle and Urban Outfitters reported sluggish sales in the category -- Buckle must rectify the situation for itself quickly, as 40% of its business lies in this sector.

Buckle has started to offset these declines by upping its women's business and expanding its demographic reach.

Women's apparel now constitutes 60% of the company's sales, Ms. Andreeva said, and includes expanded sizes in denim and a mix of dresses and knit tops.

Traditionally, the retailer caters to teens. Over the last several years, however, the company has been tapping into the 25- to 30-year-old demographic -- a market currently experiencing a void from the struggles of American Eagle's Martin + Osa chain and the recent announcement by Abercrombie & Fitch that it was closing of its Ruehl chain. And if Buckle is able to successfully capture more of that demographic? Then you're talking about a solid, Midwestern stock for both good times and bad.

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