LBO PITCH BUCKLE NYSE BKE By Kelvin Li
LBO PITCH: BUCKLE NYSE: BKE By: Kelvin Li May 2016
COMPANY OVERVIEW Product overview & company details Merchandise mix Description Other Casual Outerwear 2% bottoms Footwear 2% 2% 6% § 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. Sportswear 6% Denims 42% Accessories 9% Key financials Tops 31% Share Price $24. 58 Mkt. Cap (mm) 1186. 5 EV (mm) 988. 8 P/E (LTM) 8. 0 x EV/EBITDA (LTM) 3. 8 x % of 52 Wk. High 36% Financial data Annotated stock chart 45 40 35 Price 30 1600 Reports Sales Results followed by Q 2 Results Annual general meeting Announced Cash Dividend $0. 23 Reports Sales Results Board Meeting Retirement of Senior VP of Women’s Merchandising 1400 1200 1000 Announced Shelf Registration 25 20 800 Reports Sales Results Reports Q 3 Sales 600 Volume (000's) 50 15 400 10 200 5 0 May-15 Jun-15 Jul-15 SOURCE: Capital. IQ, Company Filings Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 0 May-16 2
INDUSTRY OVERVIEW Product Overview & Segmentation Peer name: Gross margin % EBITDA margin 1 yr % change Macy's, Inc. (NYSE: M) 39. 1% Finish Line Inc. (Nasdaq. GS: FINL) 38. 3% (13. 90%) (22. 08%) 0. 00% 25. 3% Fred's, Inc. (Nasdaq. GS: FRED) (8. 23%) 25. 1% Wal-Mart Stores Inc. (NYSE: WMT) 91. 98% 36. 0% J. C. Penney Company, Inc. (NYSE: JCP) 10. 79% 47. 8% L Brands, Inc. (NYSE: LB) (15. 75%) 36. 4% The Gap, Inc. (NYSE: GPS) 21. 71% 56. 5% Ascena Retail Group Inc. (Nasdaq. GS: ASNA) 8. 32% 31. 0% Dollar General Corporation (NYSE: DG) (13. 37%) 35. 6% Dillard's Inc. (NYSE: DDS) 9. 02% 29. 5% Target Corp. (NYSE: TGT) 4. 88% 13. 1% Kohl's Corp. (NYSE: KSS) 36. 1% Nordstrom Inc. (NYSE: JWN) 36. 2% (3. 42%) (4. 96%) 34. 88% 37. 4% Dollar Tree, Inc. (Nasdaq. GS: DLTR) 8. 18% 39. 8% Big Lots Inc. (NYSE: BIG) 22. 24% 35. 1% Five Below, Inc. (Nasdaq. GS: FIVE) 27. 36% 43. 5% Express Inc. (NYSE: EXPR) (18. 13%) 61. 3% Abercrombie & Fitch Co. (NYSE: ANF) 34. 18% 37. 0% American Eagle Outfitters, Inc. (NYSE: AEO) 0. 92% 35. 1% Urban Outfitters Inc. (Nasdaq. GS: URBN) (6. 41%) 54. 1% Chico's FAS Inc. (NYSE: CHS) (8. 78%) 37. 0% DSW Inc. (NYSE: DSW) SOURCE: Capital. IQ 14. 74% 44. 3% Foot Locker, Inc. (NYSE: FL) 0. 0% 16. 26% 43. 0% Tailored Brands, Inc. (NYSE: TLRD) Costco Wholesale Corporation (Nasdaq. GS: COST) (9. 33%) 49. 4% The Buckle, Inc. (NYSE: BKE) 20. 0% 40. 0% 60. 0% 80. 0% (40. 00%) (20. 00%) 0. 00% 20. 00% 40. 00% 60. 00% 80. 00% 100. 00% 3
RATIONALE FOR BUYOUT Heavy undervaluation compared to peers Clean balance sheet with strong asset base for collateral 25. 0 x 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. 21. 1 x Industry Peers Avg. 20. 0 x § 19. 1 x 17. 8 x 15. 0 x Industry cost of debt 10. 0 x 7. 6 x 5. 0 x 0. 8 x 0. 9 x 0. 7 x 0. 9 x 3. 8 x 6. 6 x 7. 5 x 8. 0 x 10% 8. 9 x Avg. 5. 2% 8% 4. 2 x 2. 4 x 0. 9 x 6% 4% 0. 0 x LTM FY+1 LTM EV/Rev FY+1 EV/EBITDA LTM EV/FCF LTM FY+1 P/E FY+1 2% PEG 0% Peer group Consistent free cash flow generation Historic FCF generation demonstrates consistency Strong factors supporting FCF generation 200. 0 FCF generation: 180. 0 § 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 160. 0 140. 0 120. 0 Avg. $103 mm 100. 0 80. 0 60. 0 40. 0 20. 0 Opportunities to cut costs: 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 SOURCE: Capital. IQ, Annual report BKE, Deutsche bank equity research • 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%. 4
LBO TRANSACTION SUMMARY Transaction Summary Amount 25 0. 0 850. 0 300. 0 321. 3 0. 0 107. 1 1578. 4 Sources of Funds Revolving Credit Facility Size Revolving Credit Facility Draw Term Loan A Term Loan B Term Loan C 2 nd Lien Senior Notes Senior Subordinated Notes Equity Contribution Rollover Equity Cash on Hand Total Sources of Funds Financial Data Summary Sales % Growth Gross Profit % GPM EBITDA % margin % of Total Sources 0. 0% 53. 9% 0. 0% 19. 0% 20. 4% 0. 0% 6. 8% 100% 2013 1124. 0 595. 792 53. 0% 290. 8 26% Historic 2014 1128. 0 0. 4% 597. 544 53. 0% 288. 7 26% Capex % of sales Cash Interest Expense Total Interest Expense EBITDA Less: Cash Interest Expense Add: Interest Income Less: Taxes Less: Capex Less: Increase in NWC Free Cash Flow Cumulative FCF Capitalization Cash Revolving Credit Facility Term Loan B Other Debt Total Senior Secured Debt Senior Subordinated Notes Total Debt Shareholder's Equity Total Capitalization % Bank Debt Repaid Credit Statistics % Debt/Total Capitalization EBITDA/ Cash Interest Expense EBITDA/ Total Interest Expense Senior Secured Debt/EBITDA Total Debt/EBITDA SOURCE: Capital. IQ, Annual report BKE Multiple of EBITDA 0. 0 x 2. 9 x 0. 0 x 1. 1 x 0. 0 x 0. 4 x Amount % of Total Uses 1543. 4 97. 8% 0. 0% 20. 0 1. 3% 15. 0 1. 0% Purchase Price Offer Price / Share Fully Diluted Shares Equity Purchase Price Add: Existing Net Debt EV 32. 0 48. 3 1543. 4 -197. 7 1345. 7 Return Analysis 1578. 4 100% Exit Year Entry Multiple Exit Multiple IRR Cash Return 2020 4. 7 x 5. 0 x 31% 3. 8 x 2019 1186. 9 0. 8% 628. 5 52. 9% 302. 8 26% (38. 0) 3. 2% (35. 7) 302. 8 (35. 7) 0 (87. 6) (38. 0) (0. 5) 141. 0 516. 2 2020 1199. 2 1. 0% 635. 0 52. 9% 306. 0 26% (38. 4) 3. 2% (32. 1) 306. 0 (32. 1) 0 (90. 1) (38. 4) (0. 7) 144. 8 661. 0 2015 1153. 1 2. 2% 609. 62 52. 9% 289. 1 25% 2016 1168. 0 1. 3% 618. 4 52. 9% 298. 0 26% (37. 4) 3. 2% (47. 5) (27. 5) 298. 0 (47. 5) 0 (89. 1) (37. 4) 0. 0 124. 0 2017 1171. 4 0. 3% 620. 2 52. 9% 298. 8 26% (37. 5) 3. 2% (43. 3) 298. 8 (43. 3) 0 (83. 5) (37. 5) (21. 4) 113. 3 237. 3 Projected 2018 1177. 7 0. 5% 623. 5 52. 9% 300. 4 26% (37. 7) 3. 2% (39. 1) 300. 4 (39. 1) 0 (85. 6) (37. 7) (0. 3) 137. 9 375. 2 2015 52. 5 0. 0 850. 0 300. 0 1, 150. 0 355. 3 1, 505. 3 2016 107. 1 0. 0 661. 1 300. 0 961. 1 469. 6 1, 430. 7 22% 2017 0. 0 419. 7 300. 0 719. 7 608. 5 1, 328. 2 51% 2018 0. 0 282. 0 300. 0 582. 0 751. 0 1, 333. 0 67% 2019 0. 0 141. 2 300. 0 441. 2 896. 8 1, 338. 0 83% 2020 3. 3 0. 0 300. 0 1, 046. 7 1, 346. 7 100% 76% 67% 6. 3 x 10. 9 x 2. 2 x 3. 2 x 54% 6. 9 x 1. 4 x 2. 4 x 44% 7. 7 x 0. 9 x 1. 9 x 33% 8. 5 x 0. 5 x 1. 5 x 22% 9. 5 x 0. 0 x 1. 0 x Uses of Funds Pricing LIBOR+n/a bps Equity Purchase Price n/a Repay Existing Bank Debt n/a Tender/Call Premiums LIBOR + 150 bps Financing Fees n/a Other Fees and Expenses n/a 10% n/a n/a Total Uses of Funds 5
EXPECTED VALUE ON STOCK Football field analysis on implied street pricing 52 wk. High and Low Prescedents EV/EBITDA 11. 9 x-14. 2 x Expected Price: $38 LBO Purchase Price: $32 52 Wk. High $47 52 Wk. Low $23 P/E FY+1 9. 6 x-19. 0 x P/E LTM 12. 7 x-26. 4 x Floor on Valuation: EV/UFCF 9. 4 x-16. 2 x Max purchase price in order to receive an IRR of 20% is to buy BKE shares @$38. 63 a share EV/EBITDA FY+1 4. 5 x-8. 0 x EV/EBITDA LTM 4. 9 x-9. 1 x EV/Rev FY+1 0. 4 x-0. 8 x EV/Rev LTM 0. 5 x-0. 8 x 0 20 40 60 80 100 120 140 160 180 200 Analysis on Valuation Weighting on methods Expected IRR from purchase price Weight Value Total EV/Rev LTM 0. 5 x-0. 8 x 20% 3. 9 $38. 9 EV/Rev FY+1 0. 4 x-0. 8 x 20% 3. 8 EV/EBITDA LTM 4. 9 x-9. 1 x 10% 4. 6 EV/EBITDA FY+1 4. 5 x-8. 0 x 10% 4. 3 EV/UFCF 9. 4 x-16. 2 x 10% 4. 2 P/E LTM 12. 7 x-26. 4 x 10% 6. 0 P/E FY+1 9. 6 x-19. 0 x 10% 3. 9 Prescedents EV/EBITDA 11. 9 x-14. 2 x 10% 8. 2 SOURCE: Capital. IQ, Annual report BKE Calculation of Exit MV 2020 E EBITDA Exit EV/EBITDA Multiple (Historic multiple around 6 x-7 x, chose 5 x) Implied Exit EV Add: Cash Less: Debt Less: Pref. Shares Less: Minority Interest Exit Market Cap 306. 0 5. 0 1529. 8 3. 3 296. 7 0 0 1236. 3 Initial Equity Investment Dividends Issued Exit Equity Value Total IRR Cash Return 2020 0 0 1236. 3 Pro Forma 2015 -321. 3 0 0 -321. 3 31% 3. 8 x Projected 2016 2017 2018 2019 0 0 0 0 6
APPENDIX 7
RETURN ANALYSIS PER YEAR Return dependent on investment exit period Entry EV/EBITDA Multiple Initial Equity Investment EBITDA Exit EV/EBITDA Multiple EV When Exited Revolving Credit Facility Term Loan B Senior Subordinated Notes Other Debt Total Debt Less: Cash and Cash Equivalents Net Debt Exit MV Cash Return Initial Equity Investment Exiting MV Internal Rate of Return (IRR) SOURCE: Capital. IQ, Annual report BKE Pro Forma 2015 2016 2017 Projected 2018 2019 298. 0 1, 489. 9 298. 8 1, 494. 2 300. 4 1, 502. 2 302. 8 1, 514. 0 0. 0 661. 1 300. 0 961. 1 0. 0 419. 7 300. 0 719. 7 0. 0 282. 0 300. 0 582. 0 0. 0 141. 2 300. 0 441. 2 107. 1 854. 0 635. 9 2. 0 x 0. 0 719. 7 774. 5 2. 4 x 0. 0 582. 0 920. 2 2. 9 x 0. 0 441. 2 1, 072. 8 3. 3 x 2016 (321. 3) 635. 9 2017 (321. 3) 0. 0 774. 5 Projected 2018 (321. 3) 0. 0 920. 2 98% 55% 42% 4. 7 x 321. 3 5. 0 x 2019 (321. 3) 0. 0 1, 072. 8 35% 2020 306. 0 1, 529. 8 0. 0 300. 0 3. 3 296. 7 1, 233. 0 3. 8 x 2020 (321. 3) 0. 0 1, 233. 0 31% 8
PROFORMA INCOME STATEMENT DCF Growth Assumptions Used 2013 Historic 2014 2015 2016 2017 1124. 0 1128. 0 1153. 1 1168. 0 1171. 4 528. 2 595. 8 % margin 53. 0% 305. 0 % of sales 27. 1% 0. 0 290. 8 32. 6 258. 2 23. 0% 0. 4% 530. 5 597. 5 53. 0% 308. 9 27. 4% 0. 0 288. 7 31. 7 257. 0 22. 8% 2. 2% 543. 5 609. 6 52. 9% 320. 5 27. 8% 0. 0 289. 1 32. 1 257. 0 22. 3% 1. 3% 549. 6 618. 4 52. 9% 320. 5 27. 4% 0. 0 298. 0 33. 1 264. 9 22. 7% Commitment Fee on Unused Revolver Projected 2018 2019 2020 1177. 7 1186. 9 1199. 2 0. 3% 551. 1 620. 2 52. 9% 321. 4 27. 4% 0. 0 298. 8 33. 2 265. 7 22. 7% 0. 5% 554. 1 623. 5 52. 9% 323. 1 27. 4% 0. 0 300. 4 33. 4 267. 1 22. 7% 0. 8% 558. 5 628. 5 52. 9% 325. 7 27. 4% 0. 0 302. 8 33. 6 269. 2 22. 7% 0. 0 17. 3 0. 0 30. 0 13. 2 0. 0 30. 0 8. 9 0. 0 30. 0 5. 6 0. 0 30. 0 1. 0% 564. 3 635. 0 52. 9% 329. 0 27. 4% 0. 0 306. 0 34. 0 272. 0 22. 7% 0. 0 1. 9 0. 0 30. 0 0. 1 0. 1 Administrative Agent Fee Cash Interest Expense 47. 5 43. 3 39. 1 35. 7 32. 1 Amortization of Deferred Financing Fees -20. 0 0. 0 27. 5 0. 0 27. 5 237. 4 89. 1 148. 3 12. 7% 43. 3 0. 0 43. 3 222. 4 83. 5 138. 9 11. 9% 39. 1 0. 0 39. 1 228. 0 85. 6 142. 4 12. 1% 35. 7 0. 0 35. 7 233. 5 87. 6 145. 8 12. 3% 32. 1 0. 0 32. 1 239. 9 90. 1 149. 9 12. 5% Sales % growth COGS Gross Profit SG&A Other Expenses EBITDA D&A EBIT % margin Interest Expense Revolving Credit Facility Term Loan A Term Loan B Term Loan C Existing Term Loan 2 nd Lien Senior Notes Senior Subordinated Notes Total Interest Expense Interest Income Net Interest Expense Earnings Before Taxes Income Tax Expense Net Income % margin SOURCE: Capital. IQ, Annual report BKE 9
PROFORMA BALANCE SHEET DCF Growth Assumptions Used Historic Cash and Cash Equivalents Accounts Receivable Inventories Prepaids and Other Current Assets Total Current Assets Property, Plant, and Equipment, net Goodwill and Intangible Assets Other Assets Deferred Financing Fees Total Assets Accounts Payable Accrued Liabilities Other Current Liabilities Total Current Liabilities Revolving Credit Facility Term Loan A Term Loan B Term Loan C Existing Term Loan 2 nd Lien Senior Notes Senior Subordinated Notes Other Debt Other Long-Term Liabilities Total Liabilities Noncontrolling Interest Shareholder's Equity Total Liabilities and Equity Balance Check Net Working Capital (Increase)/Decrease in NWC SOURCE: Capital. IQ, Annual report BKE 2015 159. 6 8. 6 129. 9 26. 5 324. 6 172. 7 0. 0 30. 6 15. 1 543. 0 35. 7 46. 9 39. 7 122. 3 0. 0 0. 0 65. 4 187. 7 0. 0 355. 3 543. 0 YES 37. 9 Adjustments + -107. 1 1188. 1 20. 0 850. 0 300. 0 321. 3 -355. 3 Pro Forma 2015 52. 5 8. 6 129. 9 26. 5 324. 6 2016 107. 1 5. 6 121. 7 17. 3 251. 7 2017 0. 0 5. 6 122. 1 17. 3 145. 0 Projected 2018 0. 0 5. 6 122. 7 17. 3 145. 7 2019 0. 0 5. 7 123. 7 17. 3 146. 7 172. 7 1188. 1 30. 6 35. 1 543. 0 176. 9 1188. 1 30. 6 15. 1 1662. 5 181. 2 1188. 1 30. 6 15. 1 1560. 1 185. 5 1188. 1 30. 6 15. 1 1565. 1 189. 9 1188. 1 30. 6 15. 1 1570. 4 35. 7 46. 9 39. 7 122. 3 35. 7 48. 7 39. 7 124. 0 36. 7 48. 7 39. 7 125. 1 36. 8 48. 7 39. 7 125. 2 37. 0 48. 7 39. 7 125. 4 0. 0 850. 0 0. 0 300. 0 65. 4 187. 7 0. 0 661. 1 0. 0 300. 0 65. 4 1150. 6 0. 0 419. 7 0. 0 300. 0 65. 4 910. 2 0. 0 282. 0 0. 0 300. 0 65. 4 772. 6 0. 0 141. 2 0. 0 300. 0 65. 4 632. 1 0. 0 321. 3 355. 3 543. 0 YES 0. 0 469. 6 1620. 2 YES 0. 0 608. 5 1518. 7 YES 0. 0 751. 0 1523. 6 YES 0. 0 896. 8 1528. 9 YES 37. 9 0. 0 59. 3 (21. 4) 59. 5 (0. 3) 60. 0 (0. 5) 60. 7 (0. 7) 2020 3. 3 5. 7 125. 0 17. 3 151. 4 194. 3 1188. 1 30. 6 15. 1 1579. 5 37. 3 48. 7 39. 7 125. 7 0. 0 0. 0 300. 0 65. 4 491. 1 0. 0 1046. 7 1537. 8 YES 61. 7 (1. 0) 10
PROFORMA CASH FLOW STATEMENT Operating Activities Net Income Plus: D&A Plus: Amortization of Financing Fees Changes in Working Capital Items: (Inc. ) / Dec. A/R (Inc. ) / Dec. Inventories (Inc. ) / Dec. Prepaid and Other Current Assets Inc. / (Dec. ) in A/P Inc. / (Dec. ) Accrued Liabilities Inc. / (Dec. ) Other Current Liabilities (Inc. ) / Dec. NWC Cash Flow from Operating Activities Investing Activities Capex. Other Investing Activities Cash Flow from Investing Activities Financing Activities Revolving Credit Facility Term Loan A Term Loan B Term Loan C Existing Term Loan 2 nd Lien Senior Notes Senior Subordinated Notes Other Debt Dividends Equity Issuance / (Repurchase) Cash Flow from Financing Activities Excess Cash for the Period Beginning Cash Balance Ending Cash Balance SOURCE: Capital. IQ, Annual report BKE 2016 2017 Projected 2018 2019 2020 148. 3 33. 1 (20. 0) 138. 9 33. 2 0. 0 142. 4 33. 4 0. 0 145. 8 33. 6 0. 0 3. 0 8. 2 9. 2 (0. 0) (0. 4) 0. 0 (0. 0) (0. 7) 0. 0 (0. 0) (1. 0) 0. 0 (0. 1) 1. 8 0. 0 12. 4 173. 8 1. 0 0. 0 (0. 3) 171. 8 0. 1 0. 0 (0. 5) 175. 3 0. 2 0. 0 (0. 7) 178. 8 (37. 4) 0. 0 (37. 4) (37. 5) 0. 0 (37. 5) (37. 7) 0. 0 (37. 7) (38. 0) 0. 0 (188. 9) 0. 0 0. 0 (188. 9) 0. 0 (241. 4) 0. 0 0. 0 (241. 4) 0. 0 (137. 6) 0. 0 0. 0 (137. 6) 0. 0 (140. 8) 0. 0 0. 0 (140. 8) (52. 5) 159. 6 107. 1 (107. 1) 107. 1 0. 0 0 0. 0 149. 9 34. 0 0. 0 (0. 1) (1. 3) 0. 0 0. 3 0. 0 (1. 0) 182. 9 (38. 4) 0. 0 (141. 2) 0. 0 0. 0 (141. 2) 3. 3 0. 0 3. 3 11
TRANSACTION ASSUMPTIONS & SOURCES AND USES Credit Parameters Transaction Assumptions 5 x Implied EV/EBITDA from Offer Premium Offer Price/Share $32. 0 Offer Premium (25% Prescedents 1 wk Prior Premium) 30% Fully Diluted Shares Outstanding 48. 3 4. 0 -5. 5 x 4. 0 x 3. 0 x 2. 9 x Senior Bank Debt/ EBITDA $1, 543. 4 Equity Purchase Price (mm) Plus: Debt $0. 0 Plus: Preferred Shares $0. 0 Plus: Minority Interest $0. 0 $197. 7 Less: Cash and Cash Equivalents $1, 345. 7 Enterprise Value (mm) Debt/EBITDA Parameters Actual % of Total Multiple Amount Sources of EBITDA Pricing Revolving Credit Facility Size 25 LIBOR+n/a bps Equity Purchase Price 1543. 4 97. 8% Revolving Credit Facility Draw 0. 0% 0. 0 x n/a Repay Existing Bank Debt 0. 0% Sources of Funds Uses of Funds Amount % of Total Uses Term Loan A 0. 0% 0. 0 x n/a Tender/Call Premiums 0. 0% Term Loan B 850. 0 53. 9% 2. 9 x LIBOR + 150 bps Financing Fees 20. 0 1. 3% Term Loan C 0. 0% 0. 0 x n/a Other Fees and Expenses 15. 0 1. 0% 2 nd Lien 0. 0% 0. 0 x n/a - Senior Notes 0. 0% 0. 0 x n/a - Senior Subordinated Notes 300. 0 19. 0% 1. 0 x 10% - Equity Contribution 321. 3 20. 4% 1. 1 x n/a - Rollover Equity 0. 0% 0. 0 x n/a - Cash on Hand 107. 1 6. 8% 0. 4 x n/a - Total Sources of Funds 1578. 4 Total Uses of Funds 1578. 4 100% Notes Financing Fees @ $20 and Other Fees and Expenses at$15 , assumptions based off similar sized clothing peers SOURCE: Capital. IQ, Annual report BKE 12
DEBT SCHEDULE Assuming CF sweep Curve Pulled from Bloomberg Forward LIBOR Curve Pro Forma 2015 0. 63% Projected 2016 2017 2018 2019 2020 0. 79% 0. 94% 1. 04% 1. 14% 1. 23% Cash Flow from Operating Activities Cash Flow from Investing Activities Cash Available for Debt Repayment Mandatory Repayments Cash from Balance Sheet Cash Available for Optional Debt Repayment 173. 8 (37. 4) 136. 4 (8. 5) 52. 5 180. 4 Revolving Credit Facility Size of Facility LIBOR Spread (n/a assume 3%) Term (AIF claims 7 yrs) Commitment Fee on Unused Debt Beginning Balance Drawdown (Repayment) Ending Balance Interest Rate Interest Expense Commitment Fee Senior Subordinated Notes Size Coupon Term (assume 10 no term sheet) Beginning Balance Repayment Ending Balance Interest Expense Term Loan B Facility Size LIBOR Spread Term (assume 5 no term sheet) Repayment Sched Beginning Balance Mandatory Repayments Optional Repayments Ending Balance Interest Rate Interest Expense SOURCE: Capital. IQ, Annual report BKE 25 3% 7 0. 50% 171. 8 (37. 5) 134. 4 (8. 5) 107. 1 232. 9 0. 0 3. 8% 0. 0 0. 1 300 10% 10 0. 0 3. 9% 0. 0 0. 1 300. 0 30. 0 850 1. 50% 5 1% /yr, Bullet at Maturity 850. 0 (8. 5) (180. 4) 661. 1 2. 3% 17. 3 175. 3 (37. 7) 137. 6 (8. 5) 0. 0 129. 1 0. 0 4. 0% 0. 0 0. 1 300. 0 30. 0 178. 8 (38. 0) 140. 8 (8. 5) 0. 0 132. 3 0. 0 4. 1% 0. 0 0. 1 300. 0 30. 0 182. 9 (38. 4) 144. 5 (8. 5) 0. 0 136. 0 0. 0 4. 2% 0. 0 0. 1 300. 0 300. 0 30. 0 661. 1 419. 7 282. 0 141. 2 (8. 5) (232. 9) (129. 1) (132. 3) (132. 7) 419. 7 282. 0 141. 2 0. 0 2. 4% 2. 5% 2. 6% 2. 7% 13. 2 8. 9 5. 6 1. 9 13
COMPARABLES BKE comparables All values in USD Footwear Comps: DSW Inc. (NYSE: DSW) Foot Locker, Inc. (NYSE: FL) Finish Line Inc. (Nasdaq. GS: FINL) Mkt Cap (mm) EV/Rev LTM FY+1 EV/EBITDA EV/UFCF LTM FY+1 LTM 1, 880. 6 7, 998. 3 824. 3 2, 212. 9 18, 616. 7 64, 590. 8 P/E FY+1 PEG Stores Same Store FY+1 Opened Closed Sales Growth 1, 622. 1 7, 107. 3 744. 8 0. 6 x 1. 0 x 0. 4 x 0. 6 x 0. 9 x 0. 4 x 5. 6 x 6. 5 x 5. 9 x 5. 6 x 6. 0 x 5. 0 x 11. 7 x 16. 2 x 76. 6 x 14. 9 x 15. 3 x 40. 7 x 14. 4 x 12. 6 x 1. 2 x 1. 0 x 56 10 11 62 1% 9% 2% Discount Retailers: Big Lots Inc. (NYSE: BIG) Dollar Tree, Inc. (Nasdaq. GS: DLTR) Costco Wholesale Corporation (Nasdaq. GS: COST) Target Corp. (NYSE: TGT) Dollar General Corporation (NYSE: DG) Wal-Mart Stores Inc. (NYSE: WMT) Fred's, Inc. (Nasdaq. GS: FRED) 2, 221. 1 25, 223. 0 64, 944. 8 0. 4 x 1. 6 x 0. 4 x 1. 2 x 0. 5 x 6. 1 x 14. 7 x 13. 6 x 5. 8 x 10. 8 x 12. 7 x 8. 8 x NM NM 15. 9 x 62. 7 x 28. 2 x 13. 4 x 21. 4 x 26. 2 x 1. 3 x 2. 6 x 9 566 26 20 41 3 2% 2% 7% 45, 114. 8 53, 836. 8 23, 822. 3 26, 634. 9 208, 445. 9 252, 839. 9 502. 3 549. 5 0. 7 x 1. 3 x 0. 5 x 0. 3 x 0. 8 x 1. 2 x 0. 5 x 0. 2 x 7. 3 x 11. 6 x 7. 5 x 15. 0 x 7. 1 x 10. 5 x 8. 0 x 9. 6 x 29. 0 x 15. 7 x 24. 1 x 14. 4 x 21. 0 x 14. 5 x NM 14. 3 x 18. 2 x 16. 0 x 49. 7 x 1. 5 x 1. 3 x 4. 2 x 5. 0 x 15 730 8 13 36 9 2% 3% 0% 2% Fashion Retailers: Chico's FAS Inc. (NYSE: CHS) Urban Outfitters Inc. (Nasdaq. GS: URBN) American Eagle Outfitters, Inc. (NYSE: AEO) Abercrombie & Fitch Co. (NYSE: ANF) Express Inc. (NYSE: EXPR) Five Below, Inc. (Nasdaq. GS: FIVE) Nordstrom Inc. (NYSE: JWN) Kohl's Corp. (NYSE: KSS) Dillard's Inc. (NYSE: DDS) Ascena Retail Group Inc. (Nasdaq. GS: ASNA) The Gap, Inc. (NYSE: GPS) L Brands, Inc. (NYSE: LB) J. C. Penney Company, Inc. (NYSE: JCP) Tailored Brands, Inc. (NYSE: TLRD) Macy's, Inc. (NYSE: M) 1, 568. 2 3, 173. 4 2, 507. 6 1, 626. 3 1, 281. 6 2, 101. 2 7, 855. 8 7, 166. 0 2, 225. 9 1, 465. 9 7, 392. 4 19, 355. 5 2, 421. 3 710. 0 9, 783. 2 1, 520. 3 2, 997. 0 2, 247. 6 1, 376. 0 1, 164. 3 2, 001. 8 10, 065. 8 11, 167. 0 2, 848. 4 2, 829. 1 7, 753. 4 22, 519. 5 6, 354. 3 2, 335. 9 16, 687. 2 0. 6 x 0. 9 x 0. 6 x 0. 4 x 0. 5 x 2. 4 x 0. 7 x 0. 6 x 0. 4 x 0. 5 x 1. 9 x 0. 5 x 0. 7 x 0. 6 x 0. 8 x 0. 6 x 0. 4 x 0. 5 x 2. 0 x 0. 7 x 0. 6 x 0. 4 x 0. 5 x 1. 8 x 0. 5 x 0. 7 x 0. 6 x 5. 7 x 6. 0 x 4. 8 x 4. 3 x 4. 1 x 17. 4 x 5. 8 x 4. 7 x 4. 0 x 5. 5 x 3. 5 x 8. 5 x 9. 6 x 6. 4 x 5. 0 x 5. 3 x 5. 8 x 4. 4 x 3. 9 x 3. 8 x 14. 1 x 6. 1 x 4. 6 x 4. 2 x 3. 9 x 4. 1 x 8. 3 x 6. 5 x 5. 4 x 13. 1 x 11. 4 x 12. 2 x 5. 1 x 10. 5 x 63. 2 x 4. 3 x 10. 6 x 8. 4 x 14. 4 x 7. 4 x 17. 2 x 15. 0 x 13. 1 x 12. 5 x NM 15. 2 x 12. 7 x 47. 2 x 12. 1 x 36. 7 x 14. 4 x 13. 1 x 9. 0 x NM 8. 3 x 16. 0 x NM NM 9. 7 x 14. 6 x 13. 6 x 11. 4 x 19. 8 x 9. 9 x 29. 6 x 14. 2 x 9. 5 x 9. 1 x 8. 7 x 9. 5 x 16. 7 x 95. 8 x 8. 5 x 9. 1 x 1. 4 x 1. 0 x 0. 9 x 1. 3 x 0. 8 x 1. 0 x 1. 3 x 1. 1 x 0. 4 x 1. 1 x 1. 7 x 24. 0 x 0. 6 x 1. 0 x 31 74 32 3 249 217 26 5 3 1 3 237 93 41 (2%) 2% - (3%) 6% 3% 3% 1% (2%) (1%) - - 5% - (3%) 1, 186. 5 988. 8 3. 8 x (50%) 9. 1 x 4. 9 x 7. 6 x 6. 0 x 4. 2 x (37%) 8. 0 x 4. 5 x 6. 6 x 5. 8 x 7. 5 x (58%) 16. 2 x 9. 4 x 17. 8 x 12. 5 x 8. 0 x (62%) 26. 4 x 12. 7 x 21. 1 x 15. 1 x 8. 9 x (53%) 19. 0 x 9. 6 x 19. 1 x 14. 2 x 0. 9 x (63%) 1. 5 x 1. 0 x 2. 4 x 1. 3 x 1 (4%) 19, 603. 4 2, 056. 6 21, 183. 7 2, 997. 0 0. 9 x 31% 0. 8 x 0. 4 x 0. 7 x 0. 6 x 9 14, 200. 0 1, 582. 7 17, 785. 7 2, 507. 6 0. 9 x 17% 0. 8 x 0. 5 x 0. 8 x 0. 6 x 217 10 137 31 41 3 39 17 3% (1%) 2% 2% The Buckle, Inc. (NYSE: BKE) (Discount) Premium to Mean 75 th Percentile 25 th Percentile Mean Median SOURCE: Capital. IQ, Annual report BKE 14
DISCOUNTED CASH FLOW BKE discounted cash flow Perpetuity Growth Rate 0. 5% PV TV/ Implied EV (GGM) 74% 5. 81 PV TV/ Implied EV (multiples) 61% WACC Terminal Multiple (median comps) WACC Terminal Value SOURCE: Capital. IQ, Annual report BKE Implied EV from GGM Perpetuity Growth Rate 3177. 0 0. 30% 0. 40% 0. 50% 0. 60% 4. 1% 4610 4712 4819 4933 5. 1% 3695 3756 3819 3886 6. 1% 3096 3136 3177 3220 7. 1% 2673 2700 2729 2759 8. 1% 2357 2378 2398 2420 Implied Share Price from GGM Perpetuity Growth Rate 0. 0 0. 30% 0. 40% 0. 50% 0. 60% 4. 1% 100 102 104 106 5. 1% 81 82 83 85 6. 1% 68 69 70 71 7. 1% 59 60 61 61 8. 1% 53 53 54 54 Projected 2018 1, 177. 7 0. 5% 554. 1 623. 5 323. 1 300. 4 33. 4 267. 1 (100. 2) 33. 4 (0. 5) (37. 7) 162. 0 135. 8 0. 70% 5054 3955 3264 2789 2442 WACC 2015 1, 153. 1 2. 2% 543. 5 609. 6 320. 5 289. 1 32. 1 257. 0 (96. 1) 32. 1 (14. 9) (34. 6) 143. 5 6% BKE Discounted Cash Flow Historic CAGR 2016 2017 1. 3% 1, 168. 0 1, 171. 4 1. 3% 0. 3% 549. 6 551. 1 1. 2% 618. 4 620. 2 320. 5 321. 4 - - 298. 0 298. 8 33. 1 33. 2 (0. 2%) 264. 9 265. 7 (99. 4) (99. 7) 33. 1 33. 2 12. 4 (0. 3) (37. 4) (37. 5) 3. 1% 173. 6 161. 4 163. 6 143. 5 Historic 2014 1, 128. 0 0. 4% 530. 5 597. 5 308. 9 288. 7 31. 7 257. 0 (96. 6) 31. 7 (9. 1) (45. 5) 137. 5 0. 70% 109 86 72 62 55 WACC 2013 Revenue (Base Case ) 1, 124. 0 % Sales Growth yr/yr 5. 7% COGS 528. 2 Gross Profit 595. 8 SG&A 305. 0 R&D Other Expenses EBITDA 290. 8 D&A 32. 6 EBIT 258. 2 Less: Taxes (97. 1) Add: D&A 32. 6 Less: Increse in NWC (29. 8) Less: Capex (28. 8) UFCF 135. 1 PV of UFCF WACC Implied EV (GGM) 3177. 0 Implied EV (Multiples) 2162. 5 Implied Share Price (GGM) 69. 9 Implied Share Price (Multiples) 48. 9 2019 1, 186. 9 0. 8% 558. 5 628. 5 325. 7 302. 8 33. 6 269. 2 (101. 0) 33. 6 (0. 7) (38. 0) 163. 1 128. 9 2020 1, 199. 2 1. 0% 564. 3 635. 0 329. 0 306. 0 34. 0 272. 0 (102. 1) 34. 0 (1. 0) (38. 4) 164. 6 122. 6 TV(Multiples) 1777. 6 1324. 6 TV (GGM) 3139. 0 2339. 0 Implied EV from Multiples Terminal Multiple 2162. 5 3. 8 x 4. 8 x 5. 8 x 6. 8 x 7. 8 x 4. 1% 1832 2083 2334 2585 2835 5. 1% 1768 2007 2246 2485 2724 6. 1% 1707 1935 2163 2391 2619 7. 1% 1648 1866 2083 2301 2519 8. 1% 1593 1801 2009 2216 2424 Implied Share Price from Multiples Terminal Multiple 3. 8 x 4. 8 x 5. 8 x 6. 8 x 7. 8 x 4. 1% 42 47 52 58 63 5. 1% 41 46 51 56 61 6. 1% 39 44 49 54 58 7. 1% 38 43 47 52 56 8. 1% 37 41 46 50 54 15
PROJECTION SCHEDULE Projection Schedule 2013 2014 2015 3 yr avg. 2016 2017 2018 2019 2020 Notes Marginal tax rate 37. 6% 37. 4% 37. 5% 3 yr Avg. COGS % of Rev 47. 0% 47. 1% 47. 1% 3 yr Avg. SG&A % of Rev 27. 1% 27. 4% 27. 8% 27. 4% 3 yr Avg. D&A % of Rev 2. 9% 2. 8% 2. 8% 3 yr Avg. Capex % of Rev 2. 6% 4. 0% 3. 2% 3 yr Avg. Day sales outstanding 1. 1 1. 4 2. 7 1. 7 Inventory turnover 5. 1 4. 3 4. 2 4. 5 4. 5 Days payable outstanding 23. 6 25. 6 24. 0 24. 4 NWC Projections: A/R 3. 5 4. 3 8. 6 5. 5 5. 6 5. 7 DSO Avg. Inventory 103. 9 124. 1 129. 9 119. 3 121. 7 122. 1 122. 7 123. 7 125. 0 Inv. Turnover Avg Prepaid Expenses 17. 0 19. 3 15. 8 17. 3 3 yr Avg. Other Current Assets 0. 0 0. 0 A/P 34. 1 37. 1 35. 7 36. 8 37. 0 37. 3 37. 7 DPO Avg. Accrued Liabilities 52. 3 46. 9 48. 7 3 yr Avg. Other Current Liabilities 0. 0 0. 0 Current Assets 124. 3 147. 7 154. 2 142. 1 144. 7 145. 0 145. 7 146. 7 148. 1 Current Liabilities 86. 4 84. 1 82. 6 84. 4 85. 5 85. 7 86. 0 86. 4 NWC 37. 9 63. 7 71. 6 57. 7 59. 3 59. 5 60. 0 60. 7 61. 7 SOURCE: Capital. IQ, Annual report BKE 16
BETA COMPS & EQUITY CALCULATION Only Fashion and Footwear Companies were included Beta Comps Beta Calculation Beta Debt/Equity % Tax Rate % Industry Average Levered Beta 0. 98 Industry Average Debt/Equity 41% Industry Tax Rate 35% 35. 87% Unlevered Beta 0. 77 33. 73% BKE Tax Rate 37% 25. 8% 29. 37% BKE Debt/Equity 0. 00 11. 3% 38. 90% Levered Beta 0. 77 0. 91 - 37. 75% 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% Rf (10 yr Tbill) DSW Inc. (NYSE: DSW) 0. 75 - 38. 12% Chico's FAS Inc. (NYSE: CHS) 0. 86 14. 4% - Urban Outfitters Inc. (Nasdaq. GS: URBN) 1. 08 13. 2% American Eagle Outfitters, Inc. (NYSE: AEO) 0. 77 - Abercrombie & Fitch Co. (NYSE: ANF) 1. 26 Express Inc. (NYSE: EXPR) 1. 32 Five Below, Inc. (Nasdaq. GS: FIVE) Big Lots Inc. (NYSE: BIG) Cost of Equity Calc 1. 35% Ascena Retail Group Inc. (Nasdaq. GS: ASNA) 1. 51 7. 6% 36. 33% Beta The Gap, Inc. (NYSE: GPS) 1. 17 68. 0% 33. 16% Equity Risk Premium (Damodoran) 5. 11% L Brands, Inc. (NYSE: LB) 0. 75 - 32. 54% Rm (from Damodoran + 1%) 7. 46% Wal-Mart Stores Inc. (NYSE: WMT) 0. 23 59. 8% 34. 32% Cost of Equity 6. 1% Foot Locker, Inc. (NYSE: FL) 0. 68 5. 1% 37. 13% Fred's, Inc. (Nasdaq. GS: FRED) 1. 35 13. 1% - Tailored Brands, Inc. (NYSE: TLRD) 1. 47 - 37. 46% Finish Line Inc. (Nasdaq. GS: FINL) 0. 92 - 35. 21% 0. 85 179. 6% 30. 31% 41% 35. 45% Macy's, Inc. (NYSE: M) Average: 0. 98 SOURCE: Capital. IQ, Annual report BKE 0. 77 17
PRESCEDENT TRANSACTIONS BKE prescedent transaction Date of Announcement 08/07/2014 03/03/2016 Target Company Buyers Lululemon Athletica Inc. Advent International Corporation (Nasdaq. GS: LULU) Tumi Holdings, Inc. (NYSE: TUMI) SOURCE: Capital. IQ, Annual report BKE Financed Transaction Samsonite International S. A. (SEHK: 1910) Value Mkt. Cap (mm) EV/ EBITDA P/E Premium 1 Day Prior (%) 1 Week Prior (%) 1 Month Prior (%) Cash 922. 7 10, 945. 0 5, 884. 7 11. 9 x 23. 6 x 5. 2% 9. 3% 3. 2% Cash 2, 444. 1 2, 334. 4 2, 317. 3 14. 2 x 27. 8 x 34. 0% 41. 3% 52. 3% Mean 1, 683. 4 6, 639. 7 4, 101. 0 13. 0 x 25. 7 x 19. 6% 25. 3% 27. 7% Median 1, 683. 4 6, 639. 7 4, 101. 0 13. 0 x 25. 7 x 19. 6% 25. 3% 27. 7% High 2, 444. 1 10, 945. 0 5, 884. 7 14. 2 x 27. 8 x 34. 0% 41. 3% 52. 3% Low 922. 7 2, 334. 4 2, 317. 3 11. 9 x 23. 6 x 5. 2% 9. 3% 3. 2% 18
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