Buckle shares fall after Goldman says 'Sell'

SAN FRANCISCO - Shares of teen apparel retailer The Buckle Inc. dropped Thursday after Goldman Sachs initiated coverage of the stock with a "Sell" rating and warned that it sees red flags that indicate the retailer's performance could soon decline.

"We believe consensus estimates and the stock price do not fully reflect Buckle's near-term earnings risk and long-term growth prospects," Goldman Sachs analyst Nicole Shevins told investors in a research report Thursday, setting a 6-month target price of $27.

Shares fell $1.61, or 5.3 percent, to $28.66 in afternoon trading.

Shevins pointed to limited opportunities for Buckle's growth, such as little remaining square footage expansion potential and operating margins that are at peak levels and well above other specialty retailers in Buckle's category.

Shevins also said red flags have emerged that had historically preceded negative earnings results. For example, she said that in the past profit declined following a drop in the company's men's business. Shevins said earnings could turn negative in the first half of 2010.

The company last month reported that sales at its stores open at least a year rose 5.1 percent in its September period, just shy of expectations. The company also reported a 4.3 percent rise in sales at stores open at least a year in October, instead of the 5.3 percent increase Wall Street was expecting.

Sales at stores open at least a year are considered a key measure of retailer performance because they measure growth at existing stores rather than at newly opened ones. Buckle currently operates 405 retail stores in 41 states. Year to date, total sales have risen 15 percent to $623.8 million.

Shevins said that in the past, the stock has sold off sharply when sales comparisons turn negative.

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