Burlington Stores, Inc. — FY2019 Form 10-K
Period clarification: Although the request identifies “2018 Q4,” this filing covers the 52-week fiscal year ended February 1, 2020 (FY2019), with comparison to the 52 weeks ended February 2, 2019 (FY2018). It also provides fourth-quarter results.
Business context and reporting period
Burlington is a U.S. off-price retailer of branded apparel, footwear, accessories and home goods. At year-end it operated 727 stores, including an online store, in 45 states and Puerto Rico. More than 99% of net sales came from stores. The company said it was winding down online merchandise sales; its website represented approximately 0.5% of FY2019 sales.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales | $7.261 billion | $6.643 billion |
| Total revenue | $7.286 billion | $6.668 billion |
| Comparable-store sales growth | 2.7% | 3.2% |
| Gross margin rate | 41.8% | 41.8% |
| SG&A as % of net sales | 30.7% | 30.4% |
| Net income | $465.1 million | $414.7 million |
| Diluted EPS | $6.91 | $6.04 |
| Operating cash flow | $891.7 million | $639.7 million |
Net sales grew 9.3%, including $503.3 million from new and non-comparable stores and $172.8 million from comparable-store sales, partly offset by closed-store and other adjustments. Gross margin dollars increased, while the gross margin rate was unchanged; higher freight costs offset improved merchandise margins. SG&A rose 30 basis points as a share of sales, partly reflecting a lease-accounting reclassification. Net margin was 6.4% in both years. Adjusted EBITDA, excluding management transition costs, was $883.9 million versus $792.2 million; this is a non-GAAP measure.
Fourth-quarter net sales were $2.201 billion and net income was $206.3 million, compared with $1.991 billion and $184.4 million, respectively, in the prior-year quarter.
Cash and restricted cash increased $275.5 million to $409.7 million. Investing cash use was $324.6 million and financing cash use was $291.6 million. FY2019 capital-expenditure cash spend, net of landlord allowances and insurance recoveries, was $268.9 million. Year-end inventory fell to $777.2 million from $954.2 million; management reported inventory turnover improved approximately 6% and comparable-store inventory turnover approximately 13%.
At year-end, the term loan balance was $957.5 million before related discounts and fees; finance lease obligations were $50.1 million. There was no ABL balance outstanding and $501.8 million of availability. The balance sheet reported $1.002 billion of long-term debt, net of current maturities. Working capital was a $51.1 million deficit, versus $2.3 million positive a year earlier; management attributed the change partly to lease-accounting adoption and lower inventory. The company recognized substantial operating lease liabilities under the new standard, including $2.624 billion of recorded operating lease liabilities at year-end.
Material changes, outlook and risks
- The company opened 76 stores, including 16 relocations, and closed eight; it ended the year with 727 stores. It plans approximately 54 net new stores in FY2020, and sees long-term potential to operate at least 1,000 stores.
- Management forecast approximately $400 million of FY2020 capital expenditures, net of estimated landlord allowances, including about $175 million for store projects and $80 million for supply-chain initiatives. It also planned a new California distribution center.
- Management’s operating priorities include leaner inventories, more responsive buying, investment in merchandising capabilities, expense discipline and store expansion. No specific FY2020 revenue or earnings guidance is provided in the supplied filing text.
- The company launched a private-label credit card program during FY2019. CEO Michael O’Sullivan was appointed in September 2019; management transition costs were included in the year’s results and non-GAAP reconciliations.
- COVID-19 was identified as a material uncertainty at the filing date: store traffic, consumer spending, store operations and overseas supply chains could be affected. The filing states that the duration and financial impact could not be reliably estimated.
- Other principal risks include retail competition and markdown pressure, weather and seasonality, opportunistic merchandise sourcing, lease and store-location economics, labor costs, distribution disruptions, cybersecurity and privacy regulation, and floating-rate debt. A one-percentage-point rate increase was estimated to add about $5.2 million in annual cash interest after the swap.
- Legal matters include wage-and-hour and other claims. The company said it could not reasonably estimate possible losses for two cited misclassification lawsuits; it believed resolution of other proceedings would not materially adversely affect results or financial position.
- FY2019 included $4.3 million of long-lived asset impairment charges and an $8.1 million gain on insurance recoveries. The February 26, 2020 term-loan repricing reduced applicable interest margins; it occurred after fiscal year-end.
- The company repurchased $299.9 million of shares in FY2019 and had $398.5 million remaining under its authorization at year-end. It did not anticipate near-term cash dividends.
Most important facts for investors to verify
- Confirm the period: this is FY2019, not a 2018 Q4 filing; distinguish full-year results from the fourth-quarter figures.
- Assess how COVID-19 affected subsequent sales, store operations, inventory and sourcing; those impacts were not quantified in this 10-K.
- Review the company’s cash generation against planned FY2020 capital spending, share repurchases and debt service, including its significant lease obligations.
- Track comparable-store sales, gross margin and inventory turnover to test whether leaner inventory and buying initiatives are improving performance.
- Review the full debt and lease disclosures, floating-rate exposure, and any material developments in litigation or uncertain tax positions.
- The auditor issued an unqualified opinion on the financial statements and internal controls; lease discount-rate estimates and inventory markdown timing were identified as critical audit matters.