BUCKLE INC 10-K

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of The Buckle, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of The Buckle, Inc. and subsidiary (the "Company") as of January 28, 2023 and January 29, 2022, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for each of the three fiscal years in the period ended January 28, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 28, 2023 and January 29 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 28, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 28, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 29, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Inventory – Adjustment to Inventory for Markdowns and Obsolescence – Refer to Note A to the financial statements Critical Audit Matter Description Inventory is stated at the lower of cost or net realizable value. The Company periodically evaluates the carrying value of inventory, which requires management to make assumptions and estimate the amount necessary to adjust inventory for markdowns and obsolescence. Changes in assumptions applied to the current inventory levels within each different markdown level and the overall aging of inventory could have a significant impact on the valuation of inventory. The adjustment to inventory for markdowns and obsolescence was $6.3 million as of January 28, 2023. Given the judgments made by management to estimate the adjustment to inventory for markdowns and obsolescence, auditing the adjustment to inventory for markdowns and obsolescence involved a higher degree of auditor judgment and the involvement of more senior members of the engagement team in executing, supervising, and reviewing the results of the procedures. 26 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the adjustment to inventory for markdowns and obsolescence included the following, among others: • We tested the effectiveness of the control related to evaluating the appropriateness of the assumptions and reasonableness of the adjustment to inventory for markdowns and obsolescence. • We tested the accuracy and completeness of the inventory balance within each markdown level and the overall aging of inventory. • We evaluated the reasonableness of management’s adjustment to inventory for markdowns and obsolescence by performing the following: ◦ Developing estimates of the adjustment to inventory for markdowns and obsolescence and comparing our estimates to management’s estimate. ◦ Comparing management’s current assumptions related to the inventory levels, within each different markdown level, and the overall aging of inventory to management’s historical assumptions and analyzing trends related to gross margin percentages. • We tested the mathematical accuracy of the Company’s calculation of the adjustment to inventory for markdowns and obsolescence. /s/ Deloitte & Touche LLP Omaha, Nebraska March 29, 2023 We have served as the Company’s auditor since 1990. 27 THE BUCKLE, INC. CONSOLIDATED BALANCE SHEETS (Amounts in Thousands Except Share and Per Share Amounts) ASSETS January 28, 2023 January 29, 2022 CURRENT ASSETS: Cash and cash equivalents $ 252,077 $ 253,970 Short-term investments (Notes B and C) 20,997 12,926 Receivables 12,648 12,087 Inventory 125,134 102,095 Prepaid expenses and other assets 12,480 10,128 Total current assets 423,336 391,206 PROPERTY AND EQUIPMENT (Note E) 466,321 453,228 Less accumulated depreciation and amortization ( 353,919 ) ( 352,724 ) 112,402 100,504 OPERATING LEASE RIGHT-OF-USE ASSETS (Note D) 271,421 258,914 LONG-TERM INVESTMENTS (Notes B and C) 20,624 19,352 OTHER ASSETS (Notes G and H) 9,796 10,908 Total assets $ 837,579 $ 780,884 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 44,835 $ 59,950 Accrued employee compensation 55,490 62,055 Accrued store operating expenses 19,754 20,264 Gift certificates redeemable 16,777 16,470 Current portion of operating lease liabilities (Note D) 89,187 88,273 Income taxes payable (Note G) — 1,529 Total current liabilities 226,043 248,541 DEFERRED COMPENSATION (Note J) 20,624 19,352 NON-CURRENT OPERATING LEASE LIABILITIES (Note D) 214,598 200,067 Total liabilities 461,265 467,960 COMMITMENTS (Notes F and I) STOCKHOLDERS’ EQUITY (Note K): Common stock, authorized 100,000,000 shares of $ 0.01 par value; 50,092,616 and 49,728,651 shares issued and outstanding at January 28, 2023 and January 29, 2022, respectively 501 497 Additional paid-in capital 178,964 167,328 Retained earnings 196,849 145,099 Total stockholders’ equity 376,314 312,924 Total liabilities and stockholders' equity $ 837,579 $ 780,884 See notes to consolidated financial statements. 28 THE BUCKLE, INC. CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands Except Per Share Amounts) Fiscal Years Ended January 28, 2023 January 29, 2022 January 30, 2021 SALES, Net of returns and allowances $ 1,345,187 $ 1,294,607 $ 901,278 COST OF SALES (Including buying, distribution, and occupancy costs) 669,184 641,598 500,610 Gross profit 676,003 653,009 400,668 OPERATING EXPENSES: Selling 293,891 266,424 191,158 General and administrative 53,980 51,086 41,488 347,871 317,510 232,646 INCOME FROM OPERATIONS 328,132 335,499 168,022 OTHER INCOME, Net 6,924 2,256 2,925 INCOME BEFORE INCOME TAXES 335,056 337,755 170,947 INCOME TAX EXPENSE (Note G) 80,430 82,935 40,808 NET INCOME $ 254,626 $ 254,820 $ 130,139 EARNINGS PER SHARE (Note L): Basic $ 5.17 $ 5.20 $ 2.67 Diluted $ 5.13 $ 5.16 $ 2.66 See notes to consolidated financial statements. 29 THE BUCKLE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Amounts in Thousands Except Share and Per Share Amounts) Number of Shares Common Stock Additional Paid-in Capital Retained Earnings Total BALANCE, February 1, 2020 49,205,681 $ 492 $ 152,258 $ 236,398 $ 389,148 Net income — — — 130,139 130,139 Dividends paid on common stock, ($ 2.60 per share) — — — ( 128,460 ) ( 128,460 ) Issuance of non-vested stock, net of forfeitures 227,050 2 ( 2 ) — — Amortization of non-vested stock grants, net of forfeitures — — 6,174 — 6,174 Common stock purchased and retired ( 25,000 ) — ( 372 ) — ( 372 ) BALANCE, January 30, 2021 49,407,731 $ 494 $ 158,058 $ 238,077 $ 396,629 Net income — — — 254,820 254,820 Dividends paid on common stock, ($ 6.99 per share) — — — ( 347,798 ) ( 347,798 ) Issuance of non-vested stock, net of forfeitures 320,920 3 ( 3 ) — — Amortization of non-vested stock grants, net of forfeitures — — 9,273 — 9,273 BALANCE, January 29, 2022 49,728,651 $ 497 $ 167,328 $ 145,099 $ 312,924 Net income — — — 254,626 254,626 Dividends paid on common stock, ($ 4.05 per share) — — — ( 202,876 ) ( 202,876 ) Issuance of non-vested stock, net of forfeitures 363,965 4 ( 4 ) — — Amortization of non-vested stock grants, net of forfeitures — — 11,640 — 11,640 BALANCE, January 28, 2023 50,092,616 $ 501 $ 178,964 $ 196,849 $ 376,314 See notes to consolidated financial statements. 30 THE BUCKLE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) Fiscal Years Ended January 28, 2023 January 29, 2022 January 30, 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 254,626 $ 254,820 $ 130,139 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 18,855 18,689 20,863 Amortization of non-vested stock grants, net of forfeitures 11,640 9,273 6,174 Deferred income taxes 1,142 ( 381 ) ( 1,298 ) Other 705 5 276 Changes in operating assets and liabilities: Receivables ( 94 ) ( 3,281 ) 313 Inventory ( 23,039 ) ( 1,032 ) 20,195 Prepaid expenses and other assets ( 2,352 ) 1,062 9,745 Accounts payable ( 16,213 ) 15,914 16,748 Accrued employee compensation ( 6,565 ) 26,190 12,936 Accrued store operating expenses ( 459 ) 832 2,099 Gift certificates redeemable 307 2,191 ( 1,040 ) Income taxes payable ( 1,996 ) ( 15,205 ) 8,000 Other assets and liabilities 5,825 2,677 2,270 Net cash flows from operating activities 242,382 311,754 227,420 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 30,360 ) ( 19,100 ) ( 7,657 ) Proceeds from sale of property and equipment — 954 111 Change in other assets ( 30 ) ( 30 ) 62 Purchases of investments ( 34,039 ) ( 18,778 ) ( 17,629 ) Proceeds from sales/maturities of investments 23,030 8,179 24,345 Net cash flows from investing activities ( 41,399 ) ( 28,775 ) ( 768 ) CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of common stock — — ( 372 ) Payment of dividends ( 202,876 ) ( 347,798 ) ( 128,460 ) Net cash flows from financing activities ( 202,876 ) ( 347,798 ) ( 128,832 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 1,893 ) ( 64,819 ) 97,820 CASH AND CASH EQUIVALENTS, Beginning of year 253,970 318,789 220,969 CASH AND CASH EQUIVALENTS, End of year $ 252,077 $ 253,970 $ 318,789 See notes to consolidated financial statements. 31 THE BUCKLE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar Amounts in Thousands Except Share and Per Share Amounts) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year - The Buckle, Inc. (the “Company”) has its fiscal year end on the Saturday nearest January 31. All references in these consolidated financial statements to fiscal years are to the calendar year in which the fiscal year begins. Fiscal 2022 represents the 52-week period ended January 28, 2023, fiscal 2021 represents the 52-week period ended January 29, 2022, and fiscal 2020 represents the 52-week period ended January 30, 2021. Nature of Operations - The Company is a retailer of medium to better-priced casual apparel, footwear, and accessories for fashion-conscious young men and women. The Company operates its business as one reportable segment and sells its merchandise through its retail stores and e-Commerce platform. The Company operated 441 stores located in 42 states throughout the United States as of January 28, 2023. During fiscal 2022, the Company opened 4 new stores, substantially remodeled 23 stores, and closed 3 stores. During fiscal 2021, the Company opened 1 new store, substantially remodeled 15 stores, and closed 4 stores. During fiscal 2020, the Company opened 3 new stores, substantially remodeled 4 stores, and closed 8 stores. Principles of Consolidation - The consolidated financial statements include the accounts of The Buckle, Inc. and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition - Retail store sales are recorded, net of expected returns, upon the purchase of merchandise by customers. Online sales are recorded, net of expected returns, when the merchandise is tendered for delivery to the common carrier. Shipping fees charged to customers are included in revenue and shipping costs are included in selling expenses. The Company recognizes revenue from sales made under its layaway program upon delivery of the merchandise to the customer. Revenue is not recorded when gift cards and gift certificates are sold, but rather when a card or certificate is redeemed for merchandise. A current liability for unredeemed gift cards and certificates is recorded at the time the card or certificate is purchased. The liability recorded for unredeemed gift certificates and gift cards was $ 16,777 and $ 16,470 as of January 28, 2023 and January 29, 2022, respectively. Gift card and gift certificate breakage is recognized as revenue in proportion to the redemption pattern of customers by applying an estimated breakage rate. The estimated breakage rate is based on historical issuance and redemption patterns and is re-assessed by the Company on a regular basis. Sales tax collected from customers is excluded from revenue and is included as part of "accrued store operating expenses" on the Company's consolidated balance sheets. The Company establishes a liability for estimated merchandise returns, based upon the historical average sales return percentage, that is recognized at the transaction value. The Company also recognizes a return asset and a corresponding adjustment to cost of sales for the Company's right to recover returned merchandise, which is measured at the estimated carrying value, less any expected recovery costs. The accrued liability for reserve for sales returns was $ 2,979 as of January 28, 2023 and $ 3,013 as of January 29, 2022. The Company's Buckle Rewards program allows participating guests to earn points for every qualifying purchase, which (after achievement of certain point thresholds) are redeemable as a discount off a future purchase. In addition, through partnership with Bread Financial and Comenity Bank (collectively the "Bank"), the Company offers a private label credit card ("PLCC") program. Buckle Rewards members with a PLCC earn additional points under the Buckle Rewards program for every qualifying purchase on their PLCC card. Reported revenue is net of both current period reward redemptions and accruals for estimated future rewards earned under the Buckle Rewards program. A liability has been recorded for future rewards based on the Company's estimate of how many earned points will turn into rewards and ultimately be redeemed prior to expiration. As of January 28, 2023 and January 29, 2022, $ 10,137 and $ 10,640 was included in "accrued store operating expenses" as a liability for estimated future rewards. Effective July 1, 2022, the Company entered into a new five year agreement (the "Agreement") with the Bank, to continue providing guests with PLCC services. Each PLCC bears the Buckle brand logo and can only be used at the Company's retail locations and eCommerce platform. The Bank is the sole owner of the accounts issued under the PLCC program and bears full risk associated with guest non-payment. 32 As part of the Agreement, the Company receives a percentage of PLCC sales from the Bank, along with other incentive payments upon the achievement of certain performance targets. All amounts received from the Bank under the Agreement are recorded in net sales in the consolidated statements of income. Cash and Cash Equivalents - The Company considers all debt instruments with an original maturity of three months or less when purchased to be cash equivalents. Investments - Investments classified as short-term investments include securities with a maturity of greater than three months and less than one year. Available-for-sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity (net of the effect of income taxes), using the specific identification method, until they are sold. Held-to-maturity securities are carried at amortized cost. Trading securities are reported at fair value, with unrealized gains and losses included in earnings, using the specific identification method. Inventory - Inventory is valued at the lower of cost or net realizable value. Cost is determined using an average cost method that approximates the first-in, first-out (FIFO) method. Management makes adjustments to inventory and cost of goods sold, based upon estimates, to account for merchandise obsolescence and markdowns that could affect net realizable value, based on assumptions using calculations applied to current inventory levels within each different markdown level. Management also reviews the levels of inventory in each markdown group and the overall aging of the inventory versus the estimated future demand for such product and the current market conditions. The adjustment to inventory for markdowns and/or obsolescence reduced the Company’s inventory valuation by $ 6,295 and $ 5,604 as of January 28, 2023 and January 29, 2022, respectively. Property and Equipment - Property and equipment are stated on the basis of historical cost. Depreciation is provided using a combination of accelerated and straight-line methods based upon the estimated useful lives of the assets. The majority of property and equipment have useful lives of 5 to 10 years with the exception of buildings, which have estimated useful lives of 31.5 to 39 years. Leasehold improvements are stated on the basis of historical cost and are amortized over the shorter of the life of the lease or the estimated economic life of the assets. When circumstances indicate the carrying values of long-lived assets may be impaired, an evaluation is performed on current net book value amounts. Judgments made by the Company related to the expected useful lives of property and equipment and the ability to realize cash flows in excess of carrying amounts of such assets are affected by factors such as changes in economic conditions and changes in operating performance. As the Company assesses the expected cash flows and carrying amounts of long-lived assets, adjustments are made to such carrying values. Pre-Opening Expenses - Costs related to opening new stores are expensed as incurred. Advertising Costs - Advertising costs are expensed as incurred and were $ 19,227 , $ 16,880 , and $ 12,530 for fiscal years 2022, 2021, and 2020, respectively. Health Care Costs - The Company is self-funded for health and dental claims up to $ 200 per individual per plan year. The Company’s plan covers eligible employees, and management makes estimates at period end to record a reserve for unpaid claims based upon historical claims information. The accrued liability as a reserve for unpaid health care claims was $ 792 and $ 850 as of January 28, 2023 and January 29, 2022, respectively. 33 Leases - The Company's lease portfolio is primarily comprised of leases for retail store locations. The Company also leases certain equipment and corporate office space. Store leases for new stores typically have an initial term of 10 years, with options to renew for an additional 1 to 5 years. The exercise of lease renewal options is at the Company's sole discretion and is included in the lease term for calculations of its right-of-use assets and liabilities when it is reasonably certain that the Company plans to renew these leases. Certain store lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Lease agreements do not contain any residual value guarantees, material restrictive covenants, or options to purchase the leased property. The Company records its lease liabilities at the present value of the lease payments not yet paid, discounted at the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term. As the Company's leases do not provide an implicit interest rate, the Company obtains an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company has elected to apply the practical expedient to account for lease components (e.g. fixed payments for rent, insurance, and real estate taxes) and non-lease components (e.g. fixed payments for common area maintenance) together as a single component for all underlying asset classes. Additionally, the Company elected as an accounting policy to exclude short-term leases from the recognition requirements. Consistent with guidance in the FASB Staff Q&A regarding lease concessions related to the effects of the COVID-19 pandemic, the Company made the election to treat all lease concessions as though the enforceable rights and obligations existed in each contract and, therefore, did not apply the lease modification guidance in ASC 842. Other Income - The Company’s other income is derived primarily from interest and dividends received on cash and investments. Income Taxes - The Company records a deferred tax asset and liability for expected future tax consequences resulting from temporary differences between the financial reporting and tax bases of assets and liabilities. The Company considers future taxable income and ongoing tax planning in assessing the value of its deferred tax assets. If the Company determines that it is more than likely that these assets will not be realized, the Company would reduce the value of these assets to their expected realizable value, thereby decreasing net income. If the Company subsequently determined that the deferred tax assets, which had been written down, would be realized in the future, such value would be increased, thus increasing net income in the period such determination was made. The Company records tax benefits only for tax positions that are more than likely to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 % likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. Financial Instruments and Credit Risk Concentrations - Financial instruments, which potentially subject the Company to concentrations of credit risk, are primarily cash, investments, and accounts receivable. The Company’s investments are primarily in tax-free municipal bonds, corporate bonds, or U.S. Treasury securities with short-term maturities. The majority of the Company’s cash and cash equivalents are held by Wells Fargo Bank, N.A. This amount, as well as cash and investments held by certain other financial institutions, exceeds federally insured limits. Concentrations of credit risk with respect to accounts receivable are limited due to the nature of the Company’s receivables, which include primarily employee receivables that can be offset against future compensation. The Company’s financial instruments have a fair value approximating the carrying value. Earnings Per Share - Basic earnings per share data are based on the weighted average outstanding common shares during the period. Diluted earnings per share data are based on the weighted average outstanding common shares and the effect of all dilutive potential common shares. Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 34 Recently Issued Accounting Pronouncements - The Company has considered all recent accounting pronouncements and concluded that there are no recent accounting pronouncements that may have a material impact on the Company's consolidated financial statements, based on current information. Supplemental Cash Flow Information - The Company had non-cash investing activities during fiscal years 2022, 2021, and 2020 of $( 1,098 ), $( 637 ), and $( 160 ), respectively. The non-cash investing activity relates to the change in the balance of unpaid purchases of property, plant, and equipment included in accounts payable as of the end of the year. The liability for unpaid purchases of property, plant, and equipment included in accounts payable was $ 2,454 , $ 1,356 , and $ 719 as of January 28, 2023, January 29, 2022, and January 30, 2021, respectively. Amounts reported as unpaid purchases are recorded as cash outflows from investing activities for purchases of property, plant, and equipment in the consolidated statement of cash flows in the period they are paid. Additional cash flow information for the Company includes cash paid for income taxes during fiscal years 2022, 2021, and 2020 of $ 81,135 , $ 98,522 , and $ 34,106 , respectively. B. INVESTMENTS The following is a summary of investments as of January 28, 2023: Amortized Cost or Par Value Gross Unrealized Gains Gross Unrealized Losses Other-than- Temporary Impairment Estimated Fair Value Held-to-Maturity Securities: State and municipal bonds $ 20,997 $ 10 $ ( 15 ) $ — $ 20,992 Trading Securities: Mutual funds $ 20,871 $ — $ ( 247 ) $ — $ 20,624 The following is a summary of investments as of January 29, 2022: Amortized Cost or Par Value Gross Unrealized Gains Gross Unrealized Losses Other-than- Temporary Impairment Estimated Fair Value Held-to-Maturity Securities: State and municipal bonds $ 12,926 $ 1 $ ( 4 ) $ — $ 12,923 Trading Securities: Mutual funds $ 17,932 $ 1,420 $ — $ — $ 19,352 The amortized cost and fair value of debt securities by contractual maturity as of January 28, 2023 is as follows: Amortized Cost Fair Value Held-to-Maturity Securities Less than 1 year $ 20,997 $ 20,992 1 - 5 years — — Total $ 20,997 $ 20,992 As of January 28, 2023 and January 29, 2022, all of the Company's investments in held-to-maturity securities are classified in short-term investments. Trading securities are held in a Rabbi Trust, intended to fund the Company’s deferred compensation plan, and are classified in long-term investments. 35 C. FAIR VALUE MEASUREMENTS Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories: • Level 1 – Quoted market prices in active markets for identical assets or liabilities. Short-term and long-term investments with active markets or known redemption values are reported at fair value utilizing Level 1 inputs. • Level 2 – Observable market-based inputs (either directly or indirectly) such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or inputs that are corroborated by market data. • Level 3 – Unobservable inputs that are not corroborated by market data and are projections, estimates, or interpretations that are supported by little or no market activity and are significant to the fair value of the assets. As of January 28, 2023 and January 29, 2022, the Company held certain assets that are required to be measured at fair value on a recurring basis including its investments in trading securities. The Company’s financial assets measured at fair value on a recurring basis are as follows: Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets for Identical Assets Significant Observable Inputs Significant Unobservable Inputs January 28, 2023 (Level 1) (Level 2) (Level 3) Total Trading securities (including mutual funds) $ 20,624 $ — $ — $ 20,624 Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets for Identical Assets Significant Observable Inputs Significant Unobservable Inputs January 29, 2022 (Level 1) (Level 2) (Level 3) Total Trading securities (including mutual funds) $ 19,352 $ — $ — $ 19,352 Securities included in Level 1 represent securities which have publicly traded quoted prices. The carrying value of cash equivalents approximates fair value due to the low level of risk these assets present and their relatively liquid nature, particularly given their short maturities. The Company also holds certain financial instruments that are not carried at fair value on the consolidated balance sheets, including held-to-maturity securities. Held-to-maturity securities consist primarily of state and municipal bonds. The fair values of these debt securities are based on quoted market prices and yields for the same or similar securities, which the Company determined to be Level 2 inputs. As of January 28, 2023, the fair value of held-to-maturity securities was $ 20,992 compared to the carrying amount of $ 20,997 . As of January 29, 2022, the fair value of held-to-maturity securities was $ 12,923 compared to the carrying amount of $ 12,926 . 36 The carrying values of receivables, accounts payable, accrued expenses, and other current liabilities approximates fair value because of their short-term nature. From time to time, the Company measures certain assets at fair value on a non-recurring basis, specifically long-lived assets evaluated for impairment. These are typically store specific assets, which are reviewed for impairment when circumstances indicate impairment may exist due to the questionable recoverability of the carrying values of long-lived assets. If expected future cash flows related to a store’s assets are less than their carrying value, an impairment loss would be recognized for the difference between the carrying value and the estimated fair value of the store's assets. The fair value of the store's assets is estimated utilizing an income-based approach based on the expected cash flows over the remaining life of the store's lease. The amount of impairment related to long-lived assets was immaterial for all periods presented. D. LEASES The Company's lease portfolio is primarily comprised of leases for retail store locations. The Company also leases certain equipment and corporate office space. Store leases for new stores typically have an initial term of 10 years, with options to renew for an additional 1 to 5 years. The exercise of lease renewal options is at the Company's sole discretion and is included in the lease term for calculations of its right-of-use assets and liabilities when it is reasonably certain that the Company plans to renew these leases. Certain store lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Lease agreements do not contain any residual value guarantees, material restrictive covenants, or options to purchase the leased property. The Company records its lease liabilities at the present value of the lease payments not yet paid, discounted at the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term. As the Company's leases do not provide an implicit interest rate, the Company obtains an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company has elected to apply the practical expedient to account for lease components (e.g. fixed payments for rent, insurance, and real estate taxes) and non-lease components (e.g. fixed payments for common area maintenance) together as a single component for all underlying asset classes. Additionally, the Company elected as an accounting policy to exclude short-term leases from the recognition requirements. Lease expense is included in cost of sales in the consolidated statements of income. The components of total lease cost are as follows: Fiscal Years Ended January 28, 2023 January 29, 2022 January 30, 2021 Operating lease cost $ 94,546 $ 94,384 $ 97,450 Variable lease cost (a) 29,114 26,298 18,243 Total lease cost $ 123,660 $ 120,682 $ 115,693 (a) Includes variable payments related to both lease and non-lease components, such as contingent rent payments based on performance and payments related to taxes, insurance, and maintenance costs. Also includes payments related to short-term leases with periods of less than twelve months. 37 Supplemental cash flow information related to leases is as follows: Fiscal Years Ended January 28, 2023 January 29, 2022 January 30, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 97,547 $ 99,989 $ 96,930 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 125,554 $ 83,087 $ 32,937 The Company uses its incremental borrowing rate as the discount rate to determine the present value of lease payments. As of January 28, 2023, the weighted-average remaining lease term was 4.9 years and the weighted-average discount rate was 4.7 %. The table below reconciles undiscounted future lease payments (e.g. fixed payments for rent, insurance, real estate taxes, and common area maintenance) for each of the next five fiscal years and the total of the remaining years to the operating lease liabilities recorded on the consolidated balance sheet as of January 28, 2023: Fiscal Year Operating Leases (a) 2023 $ 101,332 2024 78,126 2025 53,260 2026 38,815 2027 24,978 Thereafter 47,300 Total lease payments 343,811 Less: Imputed interest 40,026 Total operating lease liability $ 303,785 (a) Operating lease payments exclude $ 23,580 of legally binding minimum lease payments for leases signed, but not yet commenced. E. PROPERTY AND EQUIPMENT January 28, 2023 January 29, 2022 Land $ 2,491 $ 2,491 Building and improvements 42,758 42,751 Office equipment 10,897 11,466 Transportation equipment 21,100 21,067 Leasehold improvements 175,068 166,662 Furniture and fixtures 179,866 173,943 Shipping/receiving equipment 29,446 29,510 Construction-in-progress 4,695 5,338 Total $ 466,321 $ 453,228 38 F. FINANCING ARRANGEMENTS The Company has available an unsecured line of credit of $ 25,000 with Wells Fargo Bank, N.A. for operating needs and letters of credit. The line of credit agreement has an expiration date of July 31, 2023 and provides that $ 10,000 of the $ 25,000 line is available for letters of credit. Borrowings under the line of credit provide for interest to be paid at a rate based on SOFR. The Company has, from time to time, borrowed against these lines of credit. There were no bank borrowings as of January 28, 2023 or January 29, 2022. The Company had outstanding letters of credit totaling $ 3,277 and $ 2,735 as of January 28, 2023 and January 29, 2022, respectively. G. INCOME TAXES The provision for income taxes consists of: Fiscal Years Ended January 28, 2023 January 29, 2022 January 30, 2021 Current income tax expense: Federal $ 68,003 $ 69,228 $ 35,837 State 11,285 14,088 6,269 Deferred income tax expense (benefit) 1,142 ( 381 ) ( 1,298 ) Total $ 80,430 $ 82,935 $ 40,808 Total income tax expense for the year varies from the amount which would be provided by applying the statutory income tax rate to earnings before income taxes. The primary reasons for this difference (expressed as a percent of pre-tax income) are as follows: Fiscal Years Ended January 28, 2023 January 29, 2022 January 30, 2021 Statutory rate 21.0 % 21.0 % 21.0 % State income tax effect 2.7 3.3 2.9 Other 0.3 0.3 — Effective tax rate 24.0 % 24.6 % 23.9 % 39 Deferred income tax assets and liabilities are comprised of the following: January 28, 2023 January 29, 2022 Deferred income tax assets (liabilities): Inventory $ 4,257 $ 3,673 Stock-based compensation 4,276 3,157 Accrued compensation 5,197 4,796 Deferred payroll taxes (a) — 623 Accrued store operating costs 2,886 3,006 Unrealized (gain)/loss on securities 59 ( 341 ) Gift certificates redeemable 889 921 Deferred rent liability 98 110 Property and equipment ( 17,118 ) ( 13,514 ) Operating lease right-of-use assets ( 65,141 ) ( 62,139 ) Operating lease liabilities 72,908 69,202 Capitalized research and development costs 41 — Net deferred income tax asset $ 8,352 $ 9,494 (a) Relates to the liability for deferred payment of the employer's portion of Social Security taxes, as provided for under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted on March 27, 2020. As of January 28, 2023 and January 29, 2022, respectively, the net deferred income tax assets of $ 8,352 and $ 9,494 are classified in "other assets." There were no unrecognized tax benefits recorded in the Company’s consolidated financial statements as of January 28, 2023 or January 29, 2022. Fiscal years 2019 through 2022 remain subject to potential federal examination. Additionally, fiscal years 2018 through 2022 are subject to potential examination by various state taxing authorities. H. RELATED PARTY TRANSACTIONS Included in "other assets" is a note receivable of $ 1,425 as of January 28, 2023 and $ 1,395 as of January 29, 2022, respectively, from a life insurance trust fund controlled by the Company’s Chairman. The note was created over three years , beginning in July 1994, when the Company paid life insurance premiums of $ 200 each year for the Chairman on a personal policy. The note accrues interest at 5 % of the principal balance per year and is to be paid from the life insurance proceeds. The note is secured by a life insurance policy on the Chairman. I. COMMITMENTS AND CONTINGENCIES Litigation - From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. As of the date of these consolidated financial statements, the Company was not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material effect on the Company's consolidated results of operations and financial position. J. EMPLOYEE BENEFITS The Company has a 401(k) profit sharing plan covering all eligible employees who elect to participate. Contributions to the plan are based upon the amount of the employees’ deferrals and the employer’s discretionary matching formula. The Company may contribute to the plan at its discretion. The total expense under the profit sharing plan was $ 1,840 , $ 1,935 , and $ 1,640 for fiscal years 2022, 2021, and 2020, respectively. The Buckle, Inc. Deferred Compensation Plan covers the Company’s officers. The plan is funded by participant contributions and a specified annual Company matching contribution not to exceed 6 % of the participant’s compensation. The Company’s contributions were $ 615 , $ 314 , and $ 199 for fiscal years 2022, 2021, and 2020, respectively. 40 K. STOCK-BASED COMPENSATION The Company has several stock option plans which allow for granting of stock options to employees, executives, and directors. The Company has not granted any stock options since fiscal 2008 and there are currently no stock options outstanding. The Company also has a restricted stock plan that allows for the granting of non-vested shares of common stock to employees and executives and a restricted stock plan that allows for the granting of non-vested shares of common stock to non-employee directors. As of January 28, 2023, 646,918 shares were available for grant under the Company’s various restricted stock plans, of which 584,107 shares were available for grant to executive officers. Compensation expense was recognized during fiscal 2022, 2021, and 2020 for equity-based grants, based on the grant date fair value of the awards. The fair value of grants of non-vested common stock awards is the stock price on the date of grant. Information regarding the impact of compensation expense related to grants of non-vested shares of common stock is as follows: Fiscal Years Ended January 28, 2023 January 29, 2022 January 30, 2021 Stock-based compensation expense, before tax $ 11,640 $ 9,273 $ 6,174 Stock-based compensation expense, after tax $ 8,846 $ 6,992 $ 4,698 Non-vested shares of common stock granted during each of the past three fiscal years were granted pursuant to the Company’s 2005 Restricted Stock Plan and the Company’s 2008 Director Restricted Stock Plan. Shares granted under the 2005 Plan are typically "performance based" and vest over a period of four years , only upon certification by the Compensation Committee of the Board of Directors that the Company has achieved its pre-established performance targets for the fiscal year. Certain shares granted under the 2005 Plan, however, are "non-performance based" and vest over a period of four years without being subject to the achievement of performance targets. Shares granted under the 2008 Director Plan vest 25 % on the date of grant and then in equal portions on each of the first three anniversaries of the date of grant. A summary of the Company’s stock-based compensation activity related to grants of non-vested shares of common stock for the fiscal year ended January 28, 2023 is as follows: Shares Weighted Average Grant Date Fair Value Non-Vested - beginning of year 590,462 $ 32.20 Granted 367,050 36.54 Forfeited ( 3,085 ) 31.08 Vested ( 296,933 ) 30.09 Non-Vested - end of year 657,494 $ 35.58 As of January 28, 2023, there was $ 10,237 of unrecognized compensation expense related to grants of non-vested shares. It is expected that this expense will be recognized over a weighted average period of approximately 2.0 years. The total fair value of shares vested during fiscal 2022, 2021, and 2020 was $ 12,411 , $ 10,125 , and $ 6,834 respectively. 41 L. EARNINGS PER SHARE The following table provides a reconciliation between basic and diluted earnings per share: Fiscal Years Ended January 28, 2023 January 29, 2022 January 30, 2021 Net Income Weighted Average Shares (a) Per Share Amount Net Income Weighted Average Shares (a) Per Share Amount Net Income Weighted Average Shares (a) Per Share Amount Basic EPS $ 254,626 49,269 $ 5.17 $ 254,820 48,994 $ 5.20 $ 130,139 48,755 $ 2.67 Effect of Dilutive Securities: Non-vested shares — 362 ( 0.04 ) — 391 ( 0.04 ) — 258 ( 0.01 ) Diluted EPS $ 254,626 49,631 $ 5.13 $ 254,820 49,385 $ 5.16 $ 130,139 49,013 $ 2.66 (a) Shares in thousands . M. REVENUES The Company is a retailer of medium to better-priced casual apparel, footwear, and accessories for fashion-conscious young men and women. The Company operates its business as one reportable segment. The Company sells its merchandise through its retail stores and e-Commerce platform. The Company operated 441 stores located in 42 states throughout the United States as of January 28, 2023. Revenue for fiscal 2020 was significantly affected by the impacts of COVID-19. The Company temporarily closed all of its brick and mortar stores beginning March 18, 2020 to protect the health and welfare of its guests, teammates, and communities. The Company began the process of reopening certain stores the week of April 26, 2020, following all appropriate federal, state, and local reopening guidelines. The store closings had a significant impact on the Company's revenue during the first half of fiscal 2020, with total revenue down $ 73,692 or 18.2 % compared to the first half of fiscal 2019. With a strong second half of the year, however, total sales for the 52-week period ended January 30, 2021 were up $ 1,024 or 0.1 % compared to the 52-week period ended February 1, 2020. The Company's online store remained open without interruption and experienced significant growth. For the full fiscal year ended January 30, 2021, the Company's online store grew by $ 79,759 or 72.0 %. During fiscal years 2022, 2021, and 2020, online revenues accounted for 17.1 %, 17.1 %, and 21.1 %, respectively, of the Company's net sales. No sales to an individual customer or country, other than the United States, accounted for more than 10.0% of net sales. The following is information regarding the Company’s major product lines, stated as a percentage of the Company’s net sales: Fiscal Years Ended Merchandise Group January 28, 2023 January 29, 2022 January 30, 2021 Denims 39.3 % 39.6 % 40.1 % Tops (including sweaters) 29.7 30.2 30.1 Accessories 10.0 9.3 9.0 Footwear 9.2 9.7 10.2 Sportswear/Fashions 5.5 5.9 5.8 Outerwear 2.1 1.9 1.9 Casual bottoms 1.1 0.9 0.9 Youth 3.1 2.5 2.0 Total 100.0 % 100.0 % 100.0 % 42 Effective July 1, 2022, the Company entered into a new five year agreement (the "Agreement") with Bread Financial and Comenity Bank (collectively the "Bank"), to provide guests with private label credit cards ("PLCC"). Each PLCC bears the Buckle brand logo and can only be used at the Company's retail locations and eCommerce platform. The Bank is the sole owner of the accounts issued under the PLCC program and bears full risk associated with guest non-payment. As part of the Agreement, the Company receives a percentage of PLCC sales from the Bank, along with other incentive payments upon the achievement of certain performance targets. All amounts received from the Bank under the Agreement are recorded in net sales in the consolidated statements of income. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.