Burlington Stores, Inc. — Form 10-Q Summary
Reporting-period note: The request metadata says “2021 Q3,” but the filing covers the quarter and nine months ended October 29, 2022 (Fiscal 2022). Comparisons are with periods ended October 30, 2021.
Business context and period
Burlington is an off-price retailer operating 893 stores in 46 states and Puerto Rico as of October 29, 2022. During the first nine months of Fiscal 2022, it opened 74 stores, including 17 relocations, and closed four stores. Results are seasonal and are not necessarily indicative of the full year.
Financial performance
| Metric | Quarter ended Oct. 29, 2022 | Nine months ended Oct. 29, 2022 |
|---|---|---|
| Total revenue | $2.041 billion, down 11.4% | $5.958 billion, down 11.2% |
| Net sales | $2.036 billion, down 11.5% | $5.945 billion, down 11.3% |
| Net income | $16.8 million; diluted EPS $0.26 | $44.9 million; diluted EPS $0.68 |
| Gross margin | 41.2%, versus 41.4% | 40.4%, versus 42.3% |
| Adjusted EBITDA (non-GAAP) | $122.6 million, versus $205.0 million | $358.6 million, versus $744.2 million |
| Operating cash flow | Not separately reported for the quarter | $9.6 million, versus $608.4 million |
Quarterly net income increased from $13.6 million despite lower sales, mainly because the prior-year quarter included an $86.4 million debt-extinguishment charge. Nine-month net income fell from $287.2 million, reflecting lower sales and gross margin, partly offset by smaller debt-extinguishment charges. Nine-month free cash flow was negative $329.5 million, calculated as operating cash flow less cash capital expenditures of $339.0 million.
Liquidity, debt and capital
Cash and cash equivalents were $428.6 million at October 29, 2022, down from $1.091 billion at January 29, 2022; restricted cash was $6.6 million. Cash, cash equivalents and restricted cash decreased $662.5 million in the first nine months. Current assets were $2.100 billion and current liabilities $1.878 billion. Inventory was $1.445 billion, up from $1.060 billion a year earlier.
Debt totaled $1.478 billion including finance lease obligations; reported long-term debt, net of current maturities, was $1.465 billion. The company had no ABL borrowings and $850 million available under its $900 million ABL facility. The term loan rate was 5.1% at period end; $450 million of variable-rate exposure was hedged at 2.19% through June 2028. Operating lease liabilities totaled $3.220 billion. The company repurchased $251.2 million of shares in the nine-month period and had $398.8 million remaining under its authorization.
Changes, outlook and risks
- Comparable sales declined 17% in both the quarter and nine-month period, following increases of 16% and 18%, respectively, in the comparable prior-year periods. Management attributed the declines to the strong prior-year comparisons, pressure on core customers and promotional activity that Burlington said it did not respond to quickly enough.
- Management cited higher markdowns and shortage as drivers of weaker merchandise margins; nine-month results were also pressured by freight costs. Product sourcing costs rose about 120 basis points of net sales in the quarter and 140 basis points year to date.
- Inventory rose 36% year over year, including an 8% increase in comparable-store inventory; reserve inventory was 31% of total inventory. Management intends to use reserve stock to respond to sales trends.
- Management expected Fiscal 2022 capital expenditures of approximately $510 million, net of about $15 million in landlord allowances, and planned 87 net new stores for the year. It identified a long-term opportunity to reach 2,000 stores. No earnings or comparable-sales guidance is provided in the supplied filing text.
- Management said available cash, operating cash generation and the ABL facility should fund expected needs and planned capital expenditures for at least the next 12 months, while noting there can be no assurance declines in comparable sales can be offset by savings.
- Key risks include inflation and consumer spending pressure, competition and promotional activity, supply-chain and freight costs, weather and seasonality, merchandise availability, execution of growth plans, indebtedness and debt-service needs. The filing reports ongoing labor and other litigation and states management does not expect its resolution to materially adversely affect the company; outcomes remain uncertain.
- Unusual items included $17.6 million of nine-month long-lived-asset impairments and $14.7 million of debt-extinguishment charges. A $245.5 million tax refund partly supported operating cash flow. The company also disclosed $1.157 billion in outstanding merchandise purchase commitments.
Most important facts to verify
- Confirm the intended period: the supplied filing is for Q3 2022, not Q3 2021.
- Assess whether the 17% comparable-sales decline and elevated inventory signal ongoing markdown, shrink or demand pressure.
- Review operating cash flow, working-capital needs and planned capital spending against declining cash balances and share repurchases.
- Check debt-service capacity, variable-rate exposure, lease obligations and continued availability of the ABL facility.
- Monitor execution of store-opening plans, gross-margin recovery, litigation developments and any updated full-year outlook.