BKE - The Buckle: Weak February Sales Ahead Of Q4 Earnings Shares Modestly Undervalued

Summary

• The consumer remains strong for now, but February sales data from The Buckle suggest some weaker recent spending trends.
• After a 20% dip, I see the stock has a bit undervalued with technical support nearing.
• I outline a way to play earnings along with spotting cheap options with BKE.

The consumer remains strong. I like this NBER-recession determinant visual from JPM. It illustrates that real consumer spending is solidly in the green, representing robust purchase activity. But The Buckle issued weak February same-store sales numbers, and the firm has its Q4 report due out on the 10th. I see the stock has slightly undervalued and approaching support on the chart.

Consumer Spending Strong in January

According to CFRA Research, The Buckle, Inc ( BKE ) operates as a retailer of casual apparel, footwear, and accessories for young men and women in the United States. It markets a selection of brand-name casual apparel, including denims, other casual bottoms, tops, sportswear, outerwear, accessories, and footwear, as well as private label merchandise primarily comprising BKE, Buckle Black, Salvage, Red by BKE, Daytrip, Gimmicks, Gilded Intent, FITZ + EDDI, Willow & Root, Outpost Makers, Departwest, Reclaim, BKE Vintage, Nova Industries, J.B. Holt, and Veece.

The Nebraska-based $2.0 billion market cap Specialty Retail industry company within the Consumer Discretionary sector trades at a low 8.1 trailing 12-month GAAP price-to-earnings ratio and pays a high 3.4% dividend yield, according to The Wall Street Journal. The Buckle is one of just a handful of consumer companies that still reports same-store sales.

The February update was not encouraging as it revealed a not-so-nice 6.9% fall in net sales among comp stores - that comes after January sales jumped 7.9% YoY. So, this is some downbeat news after optimism following a special dividend announcement back in early December and a quarterly earnings beat last November .

On valuation , BKE earnings are seen as falling year on year in Q4 while annual operating EPS should continue to run flat at around $5 per share. That makes valuation somewhat easier here - assuming $5 of per-share profits and a 5-year average forward non-GAAP multiple of 11, shares would have a fair value near $55.

On a price-to-sales basis, though, BKE is at 1.52x while the five-year average is just 1.38, so that suggests the stock is a bit pricey. Taking a midpoint of those two, I see the $45 to $50 range as being about right. Shareholder accretive activities also make BKE attractive.

BKE: Earnings Outlook and Profitability Ratios

Looking ahead, corporate event data from Wall Street Horizon show a confirmed Q4 2022 earnings date of Friday, March 10, before market open with a conference call later that morning. You can listen live here .

Corporate Event Risk Calendar

Digging into the upcoming earnings report, data from Option Research & Technology Services (ORATS) show a consensus EPS forecast of $1.56 which would be an 8% decline from $1.69 of per-share profits earned in the same period a year ago. The Buckle has topped expectations in each quarter dating back to July 2020 while the stock has traded higher-post earnings in the previous five reports, so there are bullish trends here.

Options traders have priced in a small 4% implied move up or down post-earnings when analyzing the at-the-money straddle expiring soonest after the report. That's cheap premium on this small retailer, so a long premium play makes sense.

BKE: Low Implied Volatility Ahead of Earnings

The Technical Take

Back in July last year, I was bullish on The Buckle mainly on valuation, but the chart also was at solid long-term support in the upper $20s. Indeed, shares surged during the back half of 2022 right up to an old gap near $48 (plus a couple of bucks). The stock has since retreated to the low $40, and I see support in the $37 to $39 range, so we are near a good risk/reward spot.

But what's concerning is that the RSI momentum index has broken trend, so there could be a bit more downside to come. Scooping up shares with a limit buy of $39, stop under $37, ahead of earnings seems good. Resistance is at $50, so that is a spot to take profits, and that's also where the valuation starts to get a bit stretched.

BKE: Some Additional Downside Likely

The Bottom Line

BKE has rallied big from last summer's lows, but the current 20% pullback offers a chance for a tactical long play while the valuation suggests upside could be limited. I'm a modest buy on the name and the trade idea outlined I think is the best approach.

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