Burlington Stores, Inc. — Q3 Fiscal 2023 Form 10-Q
Reporting period: Third quarter and first nine months ended October 28, 2023; comparisons are to the periods ended October 29, 2022. Burlington is an off-price retailer operating 977 stores in 46 states and Puerto Rico. The filing notes that results are seasonal and interim results are not necessarily indicative of the full year.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $2.285 billion | $2.036 billion | $6.588 billion | $5.945 billion |
| Net income | $48.6 million | $16.8 million | $112.2 million | $44.9 million |
| Diluted EPS | $0.75 | $0.26 | $1.73 | $0.68 |
| Gross margin | 43.2% | 41.2% | 42.4% | 40.4% |
| SG&A as % of sales | 36.2% | 35.7% | 35.8% | 35.2% |
Q3 net sales increased 12.2%; comparable-store sales rose 6%. Nine-month net sales increased 10.8%; comparable-store sales rose 5%. Management attributed stronger gross margin chiefly to better merchandise margins and lower freight costs. Higher store payroll and product sourcing costs increased SG&A as a share of sales.
Cash flow, nine months: Operating cash flow was $270.2 million, versus $9.6 million in the prior-year period. Investing cash outflow was $311.3 million and financing cash outflow was $222.3 million. Cash and cash equivalents were $615.9 million at quarter-end, down from $872.6 million at fiscal year-end. Working capital was $260.3 million.
Debt, liquidity and capital allocation
- Reported debt was $1.412 billion, including $1.398 billion of long-term debt net of current maturities. The balance includes $935.5 million of term loans, $453.2 million of convertible notes and $30.5 million of finance lease obligations.
- The term-loan rate was 7.4% at October 28, 2023, up from 5.1% a year earlier; $450 million of variable-rate exposure is hedged at a 2.16% swap rate through June 2028.
- No ABL revolver borrowings were outstanding; $824.0 million was available. Management said cash, operating cash flow and the ABL facility should fund expected needs and planned capital expenditures for at least 12 months.
- The company issued $297.1 million of 1.25% convertible notes due 2027, partly in exchange for 2025 notes. Debt-extinguishment losses were $13.6 million in Q3 and $38.3 million year to date.
- Capital expenditures were $317.2 million net of landlord allowances for the first nine months. Fiscal 2023 estimated capital expenditures were approximately $560 million net of allowances. The company repurchased $129.3 million of shares year to date and had $718.0 million remaining under its authorizations. It does not anticipate cash dividends in the near term.
Outlook, commentary and risks
Management planned approximately 80 net new stores in fiscal 2023; 65 had opened during the first nine months, including relocations. Its longer-term real-estate ambition is up to 2,000 stores. Management described initiatives focused on sales trends, leaner inventories, merchandising, store expansion and expense control. It did not provide a specific earnings or sales forecast in the supplied filing text.
The company acquired 64 Bed Bath & Beyond store leases and began paying rent before those stores opened. This added $9.6 million to Q3 SG&A and $12.3 million for the first nine months. Q3 net income included $7.0 million of related after-tax expense for the period; the nine-month amount was $9.1 million.
Management cited inflation and pressure on lower-income shoppers, economic and geopolitical uncertainty, weather and seasonality, competition and margin pressure, sourcing and labor costs, and execution of growth and inventory plans as risks. The company had $1.306 billion in outstanding purchase commitments for goods not yet received and $4.222 billion in future minimum operating-lease payments. It is party to labor-related and other litigation; management did not expect the ultimate resolution to materially adversely affect results, financial position, liquidity or capital resources.
Other notable items: Q3 other income included benefits from tax-credit sales and interest income. Long-lived asset impairment was $0.8 million in Q3, compared with $10.6 million a year earlier. The company reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Most important facts to verify
- Whether comparable-store sales and improved merchandise margins persist, and whether higher SG&A ratios constrain operating leverage.
- Execution and returns from store growth, including the opening schedule and costs associated with the acquired Bed Bath & Beyond leases.
- Cash generation and planned capital spending, alongside share repurchases and the company’s liquidity outlook.
- Exposure to variable interest rates, upcoming convertible-note obligations and the effect of debt transactions on reported earnings.
- Inventory, purchase commitments and lease obligations, particularly if consumer demand or operating forecasts weaken.