By Kelvin Li May 2016 COMPANY OVERVIEW Product overview amp company details The Buckle Inc operates as a retailer of casual apparel footwear and accessories for young men and women in the United States ID: 718294
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Slide1
LBO PITCH: BUCKLE NYSE:BKE
By: Kelvin Li May 2016Slide2
COMPANY OVERVIEW
Product overview & company details
The Buckle, Inc. operates as a retailer of casual apparel, footwear, and accessories for young men and women in the United States.
The company markets a selection of brand name casual apparel, including denims, other casual bottoms, tops, sportswear, outerwear, accessories, and footwear. It operates stores under the Buckle and The Buckle names. The company also sells its products through its Website, buckle.com.
As of March 28, 2016, it operated 468 retail stores in 44 states. The company was formerly known as Mills Clothing, Inc. and changed its name to The Buckle.
SOURCE:
CapitalIQ
, Company Filings
Merchandise mix
Description
Financial data
Annotated stock chart
Key financials
2
Share
Mkt. Cap
EV
P/EEV/EBITDA% of 52Price(mm)(mm)(LTM)(LTM)Wk. High$24.581186.5988.88.0x3.8x36%
Annual general meeting
Announced Cash Dividend
$0.23
Announced Shelf Registration
Reports Sales Results followed by Q2 Results
Board Meeting
Reports Sales Results
Reports Q3 Sales
Board Meeting
Retirement of Senior VP of Women’s Merchandising
Board Meeting
Reports Sales Results Slide3
Product Overview & Segmentation
SOURCE:CapitalIQ
Gross margin %
EBITDA margin 1
yr
% change
Peer name:
3
INDUSTRY OVERVIEWSlide4
Heavy undervaluation compared to peers
SOURCE:CapitalIQ
, Annual report BKE, Deutsche bank equity research
Clean balance sheet with strong asset base for collateral
BKE has historically never had debt on its balance sheet increasing the possibility of acquiring cheap debt when leveraged.
The average cost of debt of peers is approximately 5%; fairly low.
BKE has 468 stores that can be used as collateral for debt as they are owned and not leased.
Consistent free cash flow generation
Strong factors supporting FCF generation
Historic FCF generation demonstrates consistency
FCF generation:
BKE derives approximately 42% of its sales from its denims line. This fashion style is timeless and is difficult to differentiate oneself in, therefore keeping CF consistent.
Compared to close competitors American Eagle (AEO), Abercrombie (ANF), and Gap (GPS), BKE must close at least 9 stores to match the closure rate of its peers. This will increase free cash flow to be allocated in more growth areas or be used to draw down debt during the buyout.
9.4% of sales were online compared to peers ANG and AEO at 23.9%, 18.5% respectively. The opportunity to increase online sales can be done by implementing buy online pick-up in-store (BOPIS) and the new electronic loyalty program this
year
Opportunities to cut costs:
EBIT margins struggling, the opportunity to cut costs through headcount reductions is possible as payroll increases prove to be a problem. EBIT margins peaked at 23% and lie at 22%.
Peer groupIndustry cost of debt4RATIONALE FOR BUYOUTSlide5
SOURCE:CapitalIQ
, Annual report
BKE
5
Transaction Summary
Sources of Funds
% of TotalMultiple
Uses of Funds Purchase PriceAmountSourcesof EBITDAPricingAmount% of Total UsesRevolving Credit Facility Size25 LIBOR+n/a bps
Equity Purchase Price
1543.4
97.8%
Offer Price / Share
32.0Revolving Credit Facility Draw
0.0
0.0% 0.0x
n/a
Repay Existing Bank Debt
0.00.0%
Fully Diluted Shares
48.3
Term Loan A
0.00.0%
0.0xn/a
Tender/Call Premiums
0.0
0.0%
Equity Purchase Price1543.4
Term Loan B
850.0
53.9% 2.9x
LIBOR + 150 bps
Financing Fees
20.0
1.3%
Add: Existing Net Debt
-197.7
Term Loan C
0.0
0.0%
0.0x
n/a
Other Fees and Expenses
15.0
1.0%
EV
1345.7
2nd Lien
0.0
0.0%
0.0x
n/a
-
Return Analysis
Senior Notes
0.0
0.0%
0.0x
n/a
-
Senior Subordinated Notes
300.0
19.0%
1.0x
10%
-
Exit Year
2020
Equity Contribution
321.320.4% 1.1xn/a-Entry Multiple4.7xRollover Equity0.00.0% 0.0xn/a-Exit Multiple5.0xCash on Hand107.16.8% 0.4xn/a- IRR31%Total Sources of Funds1578.4100% Total Uses of Funds1578.4100% Cash Return3.8xFinancial Data Summary HistoricProjected 20132014201520162017201820192020 Sales1124.01128.01153.11168.01171.41177.71186.91199.2 % Growth-0.4% 2.2% 1.3% 0.3% 0.5% 0.8% 1.0% Gross Profit 595.792597.544609.62618.4620.2623.5628.5635.0 % GPM53.0% 53.0% 52.9% 52.9% 52.9% 52.9% 52.9% 52.9% EBITDA290.8288.7289.1298.0298.8300.4302.8306.0 % margin26% 26% 25% 26% 26% 26% 26% 26% Capex (37.4)(37.5)(37.7)(38.0)(38.4) % of sales 3.2% 3.2% 3.2% 3.2% 3.2% Cash Interest Expense (47.5)(43.3)(39.1)(35.7)(32.1) Total Interest Expense (27.5)(43.3)(39.1)(35.7)(32.1) EBITDA 298.0298.8300.4302.8306.0 Less: Cash Interest Expense (47.5)(43.3)(39.1)(35.7)(32.1) Add: Interest Income 00000 Less: Taxes (89.1)(83.5)(85.6)(87.6)(90.1) Less: Capex (37.4)(37.5)(37.7)(38.0)(38.4) Less: Increase in NWC 0.0(21.4)(0.3)(0.5)(0.7) Free Cash Flow 124.0113.3137.9141.0144.8 Cumulative FCF 124.0237.3375.2516.2661.0 Capitalization 201520162017201820192020 Cash52.5107.10.00.00.03.3 Revolving Credit Facility0.00.00.00.00.00.0 Term Loan B850.0661.1419.7282.0141.20.0 Other Debt0.00.00.00.00.00.0 Total Senior Secured Debt850.0661.1419.7282.0141.20.0 Senior Subordinated Notes300.0300.0300.0300.0300.0300.0 Total Debt1,150.0961.1719.7582.0441.2300.0 Shareholder's Equity355.3469.6608.5751.0896.81,046.7 Total Capitalization1,505.31,430.71,328.21,333.01,338.01,346.7 % Bank Debt Repaid 22% 51% 67% 83% 100% Credit Statistics% Debt/Total Capitalization76% 67% 54% 44% 33% 22% EBITDA/ Cash Interest Expense6.3x6.9x7.7x8.5x9.5x EBITDA/ Total Interest Expense10.9x6.9x7.7x8.5x9.5x Senior Secured Debt/EBITDA2.2x1.4x0.9x0.5x0.0x Total Debt/EBITDA 3.2x2.4x1.9x1.5x1.0x
LBO TRANSACTION SUMMARYSlide6
SOURCE:CapitalIQ
, Annual report
BKE
6
Weight
Value
Total
EV/Rev LTM 0.5x-0.8x
20% 3.9
$38.9
EV/Rev FY+1 0.4x-0.8x20%
3.8
EV/EBITDA LTM 4.9x-9.1x10%
4.6 EV/EBITDA FY+1 4.5x-8.0x
10% 4.3
EV/UFCF 9.4x-16.2x10% 4.2 P/E LTM 12.7x-26.4x10% 6.0 P/E FY+1 9.6x-19.0x10% 3.9 Prescedents EV/EBITDA 11.9x-14.2x10% 8.2 Football field analysis on implied street pricingCalculation of Exit MV
2020E EBITDA
306.0
Exit EV/EBITDA Multiple (Historic multiple around 6x-7x, chose 5x)
5.0
Implied Exit EV
1529.8
Add: Cash3.3
Less: Debt
296.7
Less: Pref. Shares
0
Less: Minority Interest0
Exit Market Cap
1236.3
Pro Forma
Projected
2015
2016
2017
2018
2019
2020
Initial Equity Investment
-321.3
0
0
0
0
0
Dividends Issued
0
0
0
0
0
0
Exit Equity Value
0
0
0
0
0
1236.3
Total
-321.3
0
0
0
0
1236.3
IRR
31%
Cash Return
3.8x
EXPECTED VALUE ON STOCKAnalysis on ValuationWeighting on methodsExpected IRR from purchase priceSlide7
7
APPENDIXSlide8
SOURCE:CapitalIQ
, Annual report
BKE
8
Pro Forma
Projected
20152016
2017
201820192020
Entry EV/EBITDA Multiple
4.7x
Initial Equity Investment
321.3
EBITDA298.0298.8300.4302.8306.0Exit EV/EBITDA Multiple 5.0x
EV When Exited
1,489.9
1,494.2
1,502.2
1,514.0
1,529.8
Revolving Credit Facility
0.0
0.0
0.0
0.0
0.0
Term Loan B
661.1
419.7
282.0
141.2
0.0
Senior Subordinated Notes
300.0
300.0
300.0
300.0
300.0
Other Debt
0.0
0.0
0.0
0.0
0.0
Total Debt
961.1
719.7
582.0
441.2
300.0
Less: Cash and Cash Equivalents
107.1
0.0
0.0
0.0
3.3
Net Debt
854.0
719.7
582.0
441.2
296.7
Exit MV
635.9
774.5
920.2
1,072.8
1,233.0
Cash Return 2.0x2.4x2.9x3.3x3.8x Projected 20162017201820192020Initial Equity Investment(321.3)(321.3)(321.3)(321.3)(321.3)Exiting MV635.90.00.00.00.0 774.50.00.00.0 920.20.00.0 1,072.80.0 1,233.0Internal Rate of Return (IRR) 98% 55% 42% 35% 31% RETURN ANALYSIS PER YEARReturn dependent on investment exit periodSlide9
SOURCE:CapitalIQ
, Annual report
BKE
9
DCF Growth Assumptions Used
Historic
Projected
2013
2014
2015
2016
2017
2018
2019
2020
Sales1124.01128.01153.11168.01171.41177.71186.91199.2% growth0.4% 2.2% 1.3% 0.3% 0.5% 0.8% 1.0% COGS
528.2
530.5
543.5
549.6551.1
554.1
558.5
564.3
Gross Profit
595.8
597.5
609.6
618.4
620.2
623.5
628.5635.0
% margin
53.0%
53.0%
52.9% 52.9%
52.9%
52.9% 52.9%
52.9%
SG&A
305.0
308.9
320.5
320.5
321.4
323.1
325.7
329.0
% of sales
27.1%
27.4%
27.8%
27.4%
27.4%
27.4%
27.4%
27.4%
Other Expenses
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
EBITDA
290.8
288.7
289.1
298.0
298.8
300.4
302.8
306.0
D&A
32.6
31.732.133.133.233.433.634.0EBIT258.2257.0257.0264.9265.7267.1269.2272.0% margin23.0% 22.8% 22.3% 22.7% 22.7% 22.7% 22.7% 22.7% Interest Expense Revolving Credit Facility 0.00.00.00.00.0Term Loan A 0.00.00.00.00.0Term Loan B 17.313.28.95.61.9Term Loan C 0.00.00.00.00.0Existing Term Loan 0.00.00.00.00.02nd Lien 0.00.00.00.00.0Senior Notes 0.00.00.00.00.0Senior Subordinated Notes 30.030.030.030.030.0Commitment Fee on Unused Revolver 0.10.10.10.10.1Administrative Agent Fee Cash Interest Expense 47.543.339.135.732.1Amortization of Deferred Financing Fees -20.00.00.00.00.0Total Interest Expense 27.543.339.135.732.1Interest Income 0.00.00.00.00.0Net Interest Expense 27.543.339.135.732.1Earnings Before Taxes 237.4222.4228.0233.5239.9Income Tax Expense 89.183.585.687.690.1Net Income 148.3138.9142.4145.8149.9% margin 12.7% 11.9% 12.1% 12.3% 12.5% PROFORMA INCOME STATEMENTSlide10
SOURCE:CapitalIQ
, Annual report
BKE
10
DCF Growth Assumptions Used
Historic
Adjustments
Pro Forma
Projected
2015
+
-
2015
2016
2017
2018
20192020Cash and Cash Equivalents159.6 -107.152.5107.10.00.00.03.3Accounts Receivable8.6
8.6
5.6
5.65.6
5.75.7
Inventories
129.9
129.9
121.7
122.1122.7
123.7125.0
Prepaids and Other Current Assets
26.5
26.5
17.3
17.3
17.3
17.317.3
Total Current Assets
324.6
324.6
251.7
145.0
145.7
146.7
151.4
Property, Plant, and Equipment, net
172.7
172.7
176.9
181.2
185.5
189.9
194.3
Goodwill and Intangible Assets
0.0
1188.1
1188.1
1188.1
1188.1
1188.1
1188.1
1188.1
Other Assets
30.6
30.6
30.6
30.630.630.630.6Deferred Financing Fees15.120.0 35.115.115.115.115.115.1Total Assets543.0 543.01662.51560.11565.11570.41579.5 Accounts Payable35.7 35.735.736.736.837.037.3Accrued Liabilities46.9 46.948.748.748.748.748.7Other Current Liabilities39.7 39.739.739.739.739.739.7Total Current Liabilities122.3 122.3124.0125.1125.2125.4125.7 Revolving Credit Facility0.0 0.00.00.00.00.00.0Term Loan A0.0 0.00.00.00.00.00.0Term Loan B0.0850.0 850.0661.1419.7282.0141.20.0Term Loan C0.0 0.00.00.00.00.00.0Existing Term Loan0.0 0.00.00.00.00.00.02nd Lien0.0 0.00.00.00.00.00.0Senior Notes0.0 0.00.00.00.00.00.0Senior Subordinated Notes0.0300.0 300.0300.0300.0300.0300.0300.0Other Debt0.0 0.00.00.00.00.00.0Other Long-Term Liabilities65.4 65.465.465.465.465.465.4Total Liabilities187.7 187.71150.6910.2772.6632.1491.1 Noncontrolling Interest0.0 0.00.00.00.00.00.0Shareholder's Equity355.3321.3-355.3321.3469.6608.5751.0896.81046.7Total Shareholder's Equity355.3 355.3469.6608.5751.0896.81046.7Total Liabilities and Equity543.0 543.01620.21518.71523.61528.91537.8Balance CheckYES YESYESYESYESYESYES Net Working Capital 37.9 37.959.359.560.060.761.7(Increase)/Decrease in NWC 0.0(21.4)(0.3)(0.5)(0.7)(1.0)PROFORMA BALANCE SHEETSlide11
SOURCE:CapitalIQ
, Annual report
BKE
11
Projected
2016
2017
201820192020
Operating Activities
Net Income
148.3
138.9142.4
145.8149.9
Plus: D&A
33.133.233.433.634.0Plus: Amortization of Financing Fees(20.0)0.00.00.00.0Changes in Working Capital Items: (Inc.) / Dec. A/R3.0(0.0)(0.0)(0.0)(0.1)(Inc.) / Dec. Inventories
8.2
(0.4)(0.7)
(1.0)
(1.3)(Inc.) / Dec. Prepaid and Other Current Assets
9.2
0.00.0
0.00.0
Inc. / (Dec.) in A/P
(0.1)
1.0
0.1
0.2
0.3
Inc. / (Dec.) Accrued Liabilities
1.8
0.0
0.00.0
0.0Inc. / (Dec.) Other Current Liabilities
0.0
0.0
0.0
0.0
0.0
(Inc.) / Dec. NWC
12.4
(0.3)
(0.5)
(0.7)
(1.0)
Cash Flow from Operating Activities
173.8
171.8
175.3
178.8
182.9
Investing Activities
Capex.
(37.4)
(37.5)
(37.7)
(38.0)
(38.4)
Other Investing Activities
0.0
0.0
0.0
0.0
0.0
Cash Flow from Investing Activities
(37.4)
(37.5)
(37.7)
(38.0)
(38.4)
Financing Activities Revolving Credit Facility0.00.00.00.00.0Term Loan A0.00.00.00.00.0Term Loan B(188.9)(241.4)(137.6)(140.8)(141.2)Term Loan C0.00.00.00.00.0Existing Term Loan0.00.00.00.00.02nd Lien0.00.00.00.00.0Senior Notes0.00.00.00.00.0Senior Subordinated Notes0.00.00.00.00.0Other Debt0.00.00.00.00.0Dividends0.00.00.00.00.0Equity Issuance / (Repurchase)0.00.00.00.00.0Cash Flow from Financing Activities(188.9)(241.4)(137.6)(140.8)(141.2) Excess Cash for the Period(52.5)(107.1)0.003.3Beginning Cash Balance159.6107.10.00.00.0Ending Cash Balance107.10.00.00.03.3PROFORMA CASH FLOW STATEMENTSlide12
SOURCE:CapitalIQ
, Annual report
BKE
12
Transaction Assumptions
Implied EV/EBITDA from Offer Premium
5x
Offer Price/Share
$32.0
Offer Premium (25% Prescedents 1 wk Prior Premium)
30%
Fully Diluted Shares Outstanding
48.3Equity Purchase Price (mm)
$1,543.4
Plus: Debt
$0.0
Plus: Preferred Shares$0.0 Plus: Minority Interest$0.0 Less: Cash and Cash Equivalents$197.7 Enterprise Value (mm)$1,345.7 Credit ParametersParametersActualDebt/EBITDA
4.0-5.5x4.0x
Senior Bank Debt/ EBITDA
3.0x
2.9x
% of Total
Multiple
Sources of Funds
Amount
Sources
of EBITDA
Pricing
Uses of Funds
Amount
% of Total Uses
Revolving Credit Facility Size
25
LIBOR+n/a bps
Equity Purchase Price
1543.4
97.8%
Revolving Credit Facility Draw
0.0
0.0%
0.0x
n/a
Repay Existing Bank Debt
0.0
0.0%
Term Loan A
0.0
0.0%
0.0x
n/a
Tender/Call Premiums
0.0
0.0%
Term Loan B
850.0
53.9%
2.9x
LIBOR + 150 bps
Financing Fees
20.0
1.3%
Term Loan C
0.0
0.0%
0.0x
n/a
Other Fees and Expenses
15.0
1.0%
2nd Lien0.00.0% 0.0xn/a- Senior Notes0.00.0% 0.0xn/a- Senior Subordinated Notes300.019.0% 1.0x10%- Equity Contribution321.320.4% 1.1xn/a- Rollover Equity0.00.0% 0.0xn/a- Cash on Hand107.16.8% 0.4xn/a- Total Sources of Funds1578.4 Total Uses of Funds1578.4100% NotesFinancing Fees @ $20 and Other Fees and Expenses at$15 , assumptions based off similar sized clothing peersTRANSACTION ASSUMPTIONS & SOURCES AND USESSlide13
SOURCE:CapitalIQ
, Annual report
BKE
13
Senior Subordinated Notes
Size
300
Coupon
10%
Term (assume 10 no term sheet)
10
Beginning Balance 300.0300.0300.0300.0300.0Repayment 0.00.00.00.00.0Ending Balance 300.0300.0300.0300.0300.0Interest Expense
30.0
30.0
30.0
30.030.0
Term Loan B Facility
Size
850
LIBOR Spread
1.50%
Term (assume 5 no term sheet)
5
Repayment Sched
1% /yr, Bullet at Maturity
Beginning Balance
850.0
661.1
419.7
282.0
141.2
Mandatory Repayments
(8.5)
(8.5)
(8.5)
(8.5)
(8.5)
Optional Repayments
(180.4)
(232.9)
(129.1)
(132.3)
(132.7)
Ending Balance
661.1
419.7
282.0
141.2
0.0
Interest Rate
2.3%2.4%2.5%2.6%2.7%Interest Expense 17.313.28.95.61.9Revolving Credit Facility Size of Facility25 LIBOR Spread (n/a assume 3%)3% Term (AIF claims 7 yrs)7 Commitment Fee on Unused Debt0.50% Beginning Balance 0.00.00.00.00.0Drawdown (Repayment) 0.00.00.00.00.0Ending Balance 0.00.00.00.00.0Interest Rate 3.8% 3.9% 4.0% 4.1% 4.2% Interest Expense 0.00.00.00.00.0Commitment Fee 0.10.10.10.10.1Assuming CF sweepCurve Pulled from Bloomberg Pro Forma Projected 201520162017201820192020Forward LIBOR Curve0.63% 0.79% 0.94% 1.04% 1.14% 1.23% Cash Flow from Operating Activities173.8171.8175.3178.8182.9Cash Flow from Investing Activities(37.4)(37.5)(37.7)(38.0)(38.4)Cash Available for Debt Repayment136.4134.4137.6140.8144.5Mandatory Repayments(8.5)(8.5)(8.5)(8.5)(8.5)Cash from Balance Sheet52.5107.10.00.00.0Cash Available for Optional Debt Repayment180.4232.9129.1132.3136.0DEBT SCHEDULESlide14
SOURCE:CapitalIQ
, Annual report
BKE
14
Mkt
EV
EV/Rev
EV/EBITDAEV/UFCF
P/E
PEGStores
Stores Same Store
All values in USD
Cap (mm)(mm)
LTMFY+1
LTMFY+1LTMLTMFY+1FY+1OpenedClosed Sales GrowthFootwear Comps:
DSW Inc. (NYSE:DSW)
1,880.6
1,622.1
0.6x
0.6x
5.6x
5.6x
11.7x
14.9x
14.4x
1.6x
56
11
1%
Foot Locker, Inc. (NYSE:FL)
7,998.3
7,107.3
1.0x
0.9x
6.5x
6.0x
16.2x
15.3x
12.4x
1.2x
-
-
9%
Finish Line Inc. (NasdaqGS:FINL)
824.3
744.8
0.4x
0.4x
5.9x
5.0x
76.6x
40.7x
12.6x
1.0x
10
62
2%
Discount Retailers:
Big Lots Inc. (NYSE:BIG)
2,212.9
2,221.1
0.4x
0.4x
6.1x
5.8x
8.8x
15.9x
13.4x
1.3x
9
20
2%
Dollar Tree, Inc. (
NasdaqGS:DLTR
)
18,616.7 25,223.0 1.6x1.2x14.7x10.8xNM62.7x21.4x1.3x 566 41 2% Costco Wholesale Corporation (NasdaqGS:COST) 64,590.8 64,944.8 0.6x0.5x13.6x12.7xNM28.2x26.2x2.6x 26 3 7% Target Corp. (NYSE:TGT) 45,114.8 53,836.8 0.7x0.8x7.3x7.1x9.6x14.4x14.3x1.5x 15 13 2% Dollar General Corporation (NYSE:DG) 23,822.3 26,634.9 1.3x1.2x11.6x10.5x29.0x21.0x18.2x1.3x 730 36 3% Wal-Mart Stores Inc. (NYSE:WMT) 208,445.9 252,839.9 0.5x0.5x7.5x8.0x15.7x14.5x16.0x4.2x--0% Fred's, Inc. (NasdaqGS:FRED) 502.3 549.5 0.3x0.2x15.0x8.0x24.1xNM49.7x5.0x 8 9 2% Fashion Retailers:Chico's FAS Inc. (NYSE:CHS) 1,568.2 1,520.3 0.6x0.6x5.7x5.3x13.1xNM14.6x1.4x--(2%)Urban Outfitters Inc. (NasdaqGS:URBN) 3,173.4 2,997.0 0.9x0.8x6.0x5.8x11.4x15.2x13.6x1.0x 31 5 2% American Eagle Outfitters, Inc. (NYSE:AEO) 2,507.6 2,247.6 0.6x0.6x4.8x4.4x12.2x12.7x11.4x0.9x--- Abercrombie & Fitch Co. (NYSE:ANF) 1,626.3 1,376.0 0.4x0.4x4.3x3.9x5.1x47.2x19.8x1.3x--(3%)Express Inc. (NYSE:EXPR) 1,281.6 1,164.3 0.5x0.5x4.1x3.8x10.5x12.1x9.9x0.8x--6% Five Below, Inc. (NasdaqGS:FIVE) 2,101.2 2,001.8 2.4x2.0x17.4x14.1x63.2x36.7x29.6x1.0x 74 3 3% Nordstrom Inc. (NYSE:JWN) 7,855.8 10,065.8 0.7x0.7x5.8x6.1x4.3x14.4x14.2x1.3x 32 1 3% Kohl's Corp. (NYSE:KSS) 7,166.0 11,167.0 0.6x0.6x4.7x4.6x10.6x13.1x9.5x1.1x--1% Dillard's Inc. (NYSE:DDS) 2,225.9 2,848.4 0.4x0.4x4.0x4.2x8.4x9.0x9.1x1.1x 3 3 (2%)Ascena Retail Group Inc. (NasdaqGS:ASNA) 1,465.9 2,829.1 0.5x0.4x5.5x3.9x14.4xNM8.7x0.4x--(1%)The Gap, Inc. (NYSE:GPS) 7,392.4
7,753.4
0.5x
0.5x
3.5x
4.1x
7.4x
8.3x
9.5x
1.1x
249
237
-
L Brands, Inc. (NYSE:LB)
19,355.5
22,519.5
1.9x
1.8x
8.5x
8.3x
17.2x
16.0x
16.7x
1.7x
217
93
-
J. C. Penney Company, Inc. (NYSE:JCP)
2,421.3
6,354.3
0.5x
0.5x
9.6x
6.3x
15.0x
NM
95.8x
24.0x
-
41
5%
Tailored Brands, Inc. (NYSE:TLRD)
710.0
2,335.9
0.7x
0.7x
6.4x
6.5x
13.1x
NM
8.5x
0.6x
-
-
-
Macy's, Inc. (NYSE:M)
9,783.2
16,687.2
0.6x
0.6x
5.0x
5.4x
12.5x
9.7x
9.1x
1.0x
26
41
(3%)
The Buckle, Inc. (NYSE:BKE)
1,186.5
988.8
0.9x
0.9x
3.8x
4.2x
7.5x
8.0x
8.9x
0.9x
9
1
(4%)(Discount) Premium to Mean17% 31% (50%)(37%)(58%)(62%)(53%)(63%)75th Percentile 14,200.0 19,603.4 0.8x0.8x 9.1x8.0x16.2x26.4x19.0x1.5x 217 41 3% 25th Percentile 1,582.7 2,056.6 0.5x0.4x4.9x4.5x9.4x12.7x9.6x1.0x 10 3 (1%)Mean 17,785.7 21,183.7 0.8x0.7x 7.6x6.6x17.8x21.1x19.1x2.4x 137 39 2% Median 2,507.6 2,997.0 0.6x0.6x 6.0x5.8x12.5x15.1x14.2x1.3x 31 17 2%
BKE comparables
COMPARABLESSlide15
SOURCE:CapitalIQ
, Annual report
BKE
15
Terminal Value
Perpetuity Growth Rate
0.5%
PV TV/ Implied EV (GGM)
74%
Terminal Multiple (median comps)
5.81
PV TV/ Implied EV (multiples)
61%
BKE discounted cash flow
BKE Discounted Cash Flow
Historic
HistoricProjected 201320142015CAGR20162017201820192020 Revenue (Base Case )
1,124.01,128.0
1,153.1
1.3%
1,168.01,171.4
1,177.7
1,186.9
1,199.2
% Sales Growth yr/yr
5.7%
0.4%
2.2%
1.3%
0.3%
0.5%
0.8% 1.0%
COGS
528.2
530.5
543.5
549.6
551.1
554.1
558.5
564.3
Gross Profit
595.8
597.5
609.6
1.2%
618.4
620.2
623.5
628.5
635.0
SG&A
305.0
308.9
320.5
320.5
321.4
323.1
325.7
329.0
R&D
-
-
-
-
-
-
-
-
-
Other Expenses---- ----- EBITDA290.8288.7289.1 298.0298.8300.4302.8306.0 D&A32.631.732.1 33.133.233.433.634.0 EBIT258.2257.0257.0(0.2%)264.9265.7267.1269.2272.0TV(Multiples)Less: Taxes(97.1)(96.6)(96.1) (99.4)(99.7)(100.2)(101.0)(102.1)1777.6Add: D&A32.631.732.1 33.133.233.433.634.01324.6Less: Increse in NWC(29.8)(9.1)(14.9) 12.4(0.3)(0.5)(0.7)(1.0) Less: Capex(28.8)(45.5)(34.6) (37.4)(37.5)(37.7)(38.0)(38.4)TV (GGM)UFCF135.1137.5143.53.1% 173.6161.4162.0163.1164.63139.0PV of UFCF143.5 163.6143.5135.8128.9122.62339.0WACC 6% Implied EV (GGM) 3177.0Implied EV (Multiples) 2162.5Implied Share Price (GGM)69.9Implied Share Price (Multiples)48.9DISCOUNTED CASH FLOW Implied EV from GGM Implied EV from Multiples Perpetuity Growth Rate Terminal Multiple 3177.00.30%0.40%0.50%0.60%0.70%WACC2162.53.8x4.8x5.8x6.8x7.8xWACC4.1% 461047124819493350544.1% 183220832334258528355.1% 369537563819388639555.1% 176820072246248527246.1% 309631363177322032646.1% 170719352163239126197.1% 267327002729275927897.1% 164818662083230125198.1% 235723782398242024428.1% 15931801200922162424 Implied Share Price from GGM Implied Share Price from Multiples Perpetuity Growth Rate Terminal MultipleWACC0.00.30%0.40%0.50%0.60%0.70%WACC 3.8x4.8x5.8x6.8x7.8x4.1% 1001021041061094.1% 42475258635.1% 81828385865.1% 41465156616.1% 68697071726.1% 39444954587.1% 596061
61
62
7.1%
38
43
47
52
56
8.1%
53
53
54
54
55
8.1%
37
41
46
50
54Slide16
SOURCE:CapitalIQ
, Annual report
BKE
16
Projection Schedule
2013
2014
20153
yr avg.
201620172018
20192020
NotesMarginal tax rate
37.6% 37.6%
37.4% 37.5%
37.5%
37.5% 37.5% 37.5% 37.5% 3yr Avg.COGS % of Rev47.0% 47.0% 47.1% 47.1% 47.1% 47.1% 47.1% 47.1% 47.1% 3yr Avg. SG&A % of Rev27.1% 27.4% 27.8% 27.4% 27.4%
27.4% 27.4%
27.4%
27.4%
3yr Avg. D&A % of Rev
2.9% 2.8%
2.8%
2.8%
2.8% 2.8%
2.8% 2.8%
2.8%
3yr Avg.
Capex % of Rev
2.6% 4.0%
3.0%
3.2%
3.2% 3.2%
3.2%
3.2% 3.2%
3yr Avg.
NWC Projections:
Day sales outstanding
1.1
1.4
2.7
1.7
1.7
1.7
1.7
1.7
1.7
Inventory turnover
5.1
4.3
4.2
4.5
4.5
4.5
4.5
4.5
4.5
Days payable outstanding
23.6
25.6
24.0
24.4
24.4
24.4
24.4
24.4
24.4
A/R
3.5
4.3
8.6
5.5
5.65.65.65.75.7DSO Avg.Inventory103.9124.1129.9119.3121.7122.1122.7123.7125.0Inv. Turnover AvgPrepaid Expenses17.019.315.817.317.317.317.317.317.33yr Avg.Other Current Assets0.00.00.00.00.00.00.00.00.0 A/P34.137.135.735.736.736.837.037.337.7DPO Avg.Accrued Liabilities52.346.946.948.748.748.748.748.748.73yr Avg.Other Current Liabilities0.00.00.00.00.00.00.00.00.0 Current Assets124.3147.7154.2142.1144.7145.0145.7146.7148.1 Current Liabilities86.484.182.684.485.485.585.786.086.4 NWC37.963.771.657.759.359.560.060.761.7 PROJECTION SCHEDULESlide17
SOURCE:CapitalIQ
, Annual report
BKE
17
Only Fashion and Footwear Companies were included
Beta Comps
Beta
Debt/Equity %
Tax Rate %
DSW Inc. (NYSE:DSW)
0.75
-
38.12%
Chico's FAS Inc. (NYSE:CHS)
0.86
14.4%
-Urban Outfitters Inc. (NasdaqGS:URBN) 1.08 13.2% 35.87% American Eagle Outfitters, Inc. (NYSE:AEO) 0.77 - 33.73% Abercrombie & Fitch Co. (NYSE:ANF) 1.26 25.8% 29.37% Express Inc. (NYSE:EXPR) 1.32 11.3%
38.90%
Five Below, Inc. (NasdaqGS:FIVE)
0.91
-
37.75%
Big Lots Inc. (NYSE:BIG)
0.6
8.6%
36.96%
Kohl's Corp. (NYSE:KSS)
0.88
85.7% 36.99%
Dillard's Inc. (NYSE:DDS)
1.2
46.0%
38.52%
Ascena Retail Group Inc. (NasdaqGS:ASNA)
1.51
7.6%
36.33%
The Gap, Inc. (NYSE:GPS)
1.17
68.0%
33.16%
L Brands, Inc. (NYSE:LB)
0.75
-
32.54%
Wal-Mart Stores Inc. (NYSE:WMT)
0.23
59.8%
34.32%
Foot Locker, Inc. (NYSE:FL)
0.68
5.1%
37.13%
Fred's, Inc. (NasdaqGS:FRED)
1.35
13.1%
-
Tailored Brands, Inc. (NYSE:TLRD)
1.47
-
37.46%
Finish Line Inc. (NasdaqGS:FINL)
0.92
-
35.21%
Macy's, Inc. (NYSE:M)
0.85
179.6%
30.31%
Average:
0.98
41%
35.45%
Beta Calculation
Industry Average Levered Beta
0.98
Industry Average Debt/Equity
41% Industry Tax Rate35% Unlevered Beta0.77BKE Tax Rate37% BKE Debt/Equity0.00Levered Beta0.77Cost of Equity Calc Rf (10yr Tbill)1.35%Beta0.77Equity Risk Premium (Damodoran)5.11%Rm (from Damodoran + 1%)7.46%Cost of Equity6.1% BETA COMPS & EQUITY CALCULATIONSlide18
SOURCE:CapitalIQ
, Annual report
BKE
18
Date of
Target
Buyers
Financed
TransactionMkt.
EVEV/P/E Premium
Premium
PremiumAnnouncementCompany
ValueCap (mm)
(mm)EBITDA
1 Day Prior (%) 1 Week Prior (%)
1 Month Prior (%)
08/07/2014Lululemon Athletica Inc. (NasdaqGS:LULU)Advent International CorporationCash 922.7 10,945.0 5,884.7 11.9x23.6x5.2% 9.3% 3.2% 03/03/2016Tumi Holdings, Inc. (NYSE:TUMI)Samsonite International S.A. (SEHK:1910)Cash 2,444.1 2,334.4
2,317.3 14.2x
27.8x
34.0%
41.3% 52.3%
Mean
1,683.4
6,639.7
4,101.0
13.0x
25.7x
19.6%
25.3%
27.7%
Median
1,683.4
6,639.7
4,101.0
13.0x
25.7x
19.6%
25.3%
27.7%
High
2,444.1
10,945.0
5,884.7
14.2x
27.8x
34.0%
41.3%
52.3%
Low
922.7
2,334.4
2,317.3
11.9x
23.6x
5.2%
9.3%
3.2%
BKE
prescedent
transaction
PRESCEDENT TRANSACTIONS