Buckle (NYSE:BKE) posted a fantastic Q3 earnings report, but it wasn’t enough to overcome the massive wave of selling that was triggered by the news. Price action surged to retest an all-time high set in June of 2013, and, believe it or not. There were quite a few investors still holding on, waiting to sell.
Quite a few bears, for some reason, have the stock’s short-interest above 17%. This means that price action may see some more downside in the near to mid-term, but the long-term outlook is still bright. In that perspective, we want to own Buckle, but we want to wait for a better price.
A Blowout Quarter For Buckle
The analysts will need to let their estimates on Buckle out a few notches after the Q3 earnings report. The company delivered $319.4 million in consolidated revenue, which is suitable for a gain of 27.3% over last year and beat the Marketbeat.com consensus estimate by 1800 basis points.
That is a very significant margin of error especially coming from a retailer, and there is no reason not to think sales strength will not continue. On a comp basis, sales are up 27.3%, with the net number of stores down less than 1% YOY. Comps were driven by a combination of traffic, mix, and higher sell-through of full-priced merchandise. eCommerce continues to be a driver of sales, rising 9% for the year to account for 15.8% of the net.
The details get even better, with margins and earnings both outperforming as well. The company reported a 395 basis point improvement in gross margin and 425 basis point improvement in operating margin to produce GAAP earnings far above the consensus. The $1.26 in GAAP EPS is up 48% from last year and beat the consensus estimate by $0.34 or 3600 basis points.
The company did not give any guidance but made commentary that was both positive and cautionary. The company says it is well-positioned for a holiday, but portions of the supply chain remain challenged. The analysts expect the company to earn about $1.30 in the coming quarter, flat on a YOY basis, and we think this grossly underestimates the company’s performance to date and the holiday season.
The Buckle Is On Track For Dividend Growth
The Buckle pays an attractive 2.7% yield, and it is one that we see growing. The company’s dividend statistics may not reveal a history of increases, but the payout history does. The company tends to make a base payment that has been growing consistently on an annual basis for several years and makes special yearly payments.
Over the past twelve months, the base payout and special dividend amount to a yield of 11.9%, and there is no reason this trend will not continue. The company’s balance sheet is a fortress. It’s net cash with nearly no debt, FCF is strong, and earnings are far outpacing consensus estimates.
The Technical Outlook: Buckle Hits Resistance
Shares of Buckle surged in the wake of the Q3 earnings report but have hit resistance. The candle formed is huge and very dark and can be considered a Dark Cloud Cover. This pattern will probably result in a deeper pullback, with the short-term moving average the first target for serious support.
If price action cannot maintain support at this level, we see it moving to the $44 of $40 level before bottoming. If, however, the short-term moving average confirms the presence of bulls, we see the stock consolidating above the $48 and then making another try at new all-time highs.
