Burlington Stores, Inc. — Form 10-Q Summary
Period mismatch: The request metadata identifies 2019 Q3, but the supplied filing is for the quarter ended October 31, 2020, with comparisons to the quarter ended November 2, 2019. This summary covers the filing provided.
Business context and reporting period
Burlington is an off-price retailer of apparel, footwear, home goods and other merchandise. It operated 769 stores in 45 states and Puerto Rico at October 31, 2020. The filing reports the three and nine months ended October 31, 2020; fiscal 2020 is the 52-week year ending January 30, 2021. Results were substantially affected by the COVID-19 pandemic and are not necessarily indicative of full-year performance.
Financial performance and liquidity
| Metric | Three months ended October 31, 2020 | Three months ended November 2, 2019 | Nine months ended October 31, 2020 | Nine months ended November 2, 2019 |
|---|---|---|---|---|
| Net sales | $1,664.7 million | $1,774.9 million | $3,472.6 million | $5,059.9 million |
| Net income (loss) | $8.0 million | $96.5 million | $(372.5) million | $258.8 million |
| Diluted EPS | $0.12 | $1.44 | $(5.66) | $3.84 |
| Gross margin | 45.0% | 42.4% | 35.3% | 41.6% |
| Adjusted EBITDA | $113.5 million | $192.5 million | $(342.8) million | $530.7 million |
Third-quarter net sales declined 6.2% and comparable-store sales fell 11%. Nine-month net sales declined 31.4%; comparable-store sales for that period were not meaningful because of extended closures. Third-quarter gross margin improved on lower markdowns and higher markup, partly offset by freight costs. For the nine-month period, aged-inventory markdowns weighed on gross margin.
For the nine months, operating cash flow was $(116.9) million, versus $476.9 million provided in the prior-year period. Investing cash outflow was $215.3 million, including $214.4 million of property and equipment purchases. Financing provided $1,277.9 million, principally from new debt. Cash, cash equivalents and restricted cash ended at $1,355.3 million, up $945.6 million during the period.
At October 31, 2020, cash and cash equivalents were $1,348.7 million; working capital, as defined by the company excluding restricted cash, was $887.6 million. Reported long-term debt, net of current maturities, was $2,169.5 million; total debt including current maturities was $2,173.3 million. The company also reported $48.4 million of finance lease obligations and $2,690.1 million of operating lease liabilities. It had $250 million outstanding on its ABL facility and $292.4 million available. Interest expense was $27.5 million for the quarter and $70.5 million for the nine months.
Material changes and unusual items
- All stores were temporarily closed effective March 22, 2020; reopening began May 11, with substantially all stores reopened by the end of the second quarter. Closures and the disrupted reopening period drove the nine-month loss and cash-flow decline.
- The company recorded $271.9 million of inventory markdown reserves in the quarter ended May 2, 2020, included in cost of sales.
- In April 2020, the company issued $805 million of 2.25% convertible notes due 2025, and its subsidiary issued $300 million of 6.25% secured notes due 2025. It also drew $400 million on its ABL facility in March and repaid $150 million in the second quarter. The convertible notes’ carrying value was reduced by debt discount and financing costs.
- The CARES Act NOL carryback generated a reported nine-month income tax benefit of $253.3 million. The company estimated a $202.1 million federal tax refund, included in prepaid and other current assets.
- Long-lived-asset impairment charges were $5.6 million for the nine months, relating to 14 stores. A wage-and-hour matter was agreed to be settled for approximately $19.6 million plus employer payroll taxes, subject to final court approval.
- Rent payment deferrals of $45.6 million were included in other current liabilities, with payments due before the end of fiscal 2021. Share repurchases were suspended in March; the company had $348.4 million remaining under its authorization.
Outlook, management commentary and risks
Management said cash from operations, existing cash and the ABL facility should be sufficient for expected needs and planned capital expenditures for at least the next 12 months, while warning that renewed closures or prolonged sales weakness could undermine that outlook. The company did not provide a sales or earnings forecast in the supplied text. It estimated fiscal 2020 capital expenditures of approximately $245 million, net of about $45 million in landlord allowances, and planned 34 net new stores. Management described priorities including conservative inventory planning, expense control, merchandising investment, store growth and margin improvement.
Key uncertainties include the duration and resurgence of COVID-19, store traffic and consumer spending, supply-chain disruption, inventory markdowns, competition and promotional intensity, weather, and the company’s substantial debt and lease commitments. Management also cautioned that pandemic-related changes in estimates could lead to additional impairment charges or changes in tax valuation allowances.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is 2020 Q3, not 2019 Q3.
- Track comparable-store sales, store traffic and gross margin as pandemic effects and any restrictions evolve.
- Assess whether operating cash flow recovers and whether the estimated $202.1 million tax refund is received.
- Review debt-service capacity, ABL availability, convertible-note dilution and lease-payment obligations.
- Monitor the final approval and payment of the litigation settlement, deferred rent payments and any further store impairments.
- Distinguish GAAP results from management’s non-GAAP adjusted measures, which exclude specified expenses and other items.