Burlington Stores, Inc. — Form 10-Q Summary
Period clarification: Although the request metadata says 2017 Q2, this filing covers the unaudited quarter and six months ended August 4, 2018, compared with periods ended July 29, 2017. Burlington is an off-price retailer with 651 stores, including its internet store, as of quarter-end.
Financial performance and position
| Metric | Three months ended August 4, 2018 | Six months ended August 4, 2018 |
|---|---|---|
| Total revenue | $1,504.7 million | $3,029.5 million |
| Net sales | $1,498.6 million | $3,017.1 million |
| Net income | $71.0 million | $153.5 million |
| Diluted EPS | $1.03 | $2.23 |
| Gross margin | 41.4% | 41.3% |
| SG&A as a share of net sales | 32.0% | 31.4% |
| Adjusted EBITDA (non-GAAP) | $152.1 million | $317.1 million |
| Adjusted EBIT (non-GAAP) | $104.7 million | $224.5 million |
For the six-month period, operating cash flow was $166.3 million, investing cash flow was negative $125.2 million, and financing cash flow was negative $90.7 million. Cash, cash equivalents and restricted cash totaled $111.5 million at period-end, down $49.6 million from the start of the fiscal year. Cash and cash equivalents excluding restricted cash were $89.6 million.
At August 4, 2018, total debt was $1,158.4 million, including $957.2 million under the term loan, $170.3 million drawn on the ABL facility and $34.1 million of capital lease obligations. ABL availability was $367.9 million. Working capital was positive $32.0 million. Merchandise inventory was $843.9 million.
Changes versus the prior comparable periods
- Quarterly revenue increased 9.9% and net income rose from $46.9 million to $71.0 million; six-month revenue increased 11.3% and net income rose from $99.3 million to $153.5 million.
- Comparable sales increased 2.9% for the quarter and 3.8% for the half year on a shifted-calendar basis. The comparable-sales figures for the prior periods were 3.5% and 2.0%, respectively.
- Gross margin expanded about 70 basis points for the quarter and 50 basis points for the half year, primarily on higher merchandise margin, partly offset by freight costs. SG&A leverage improved modestly.
- Effective tax rates fell to 10.5% for the quarter and 14.3% for the half year, compared with 25.6% and 28.2%. Management attributed the decrease mainly to federal tax-law changes and a one-time deferred-tax revaluation associated with New Jersey tax-law changes.
- Operating cash flow increased from $72.2 million to $166.3 million, which management attributed mainly to stronger operating results and lower income-tax payments.
Outlook, commentary, risks and unusual items
- Management expected 43 net new stores in fiscal 2018, including 67 gross openings and 24 relocations and closings; it opened 29 stores, including six relocations, and closed one during the first half. The company estimated fiscal-year capital expenditures of about $275 million net of landlord allowances and insurance recoveries.
- Management said operating cash flow, existing cash and the ABL facility should fund expected requirements and planned capital spending for at least the next 12 months. This is an outlook, not a guarantee; the company warned that weaker sales or economic conditions could adversely affect results and cash generation.
- In June 2018, Burlington prepaid $150 million of term debt and recorded a $1.4 million debt-extinguishment loss. It amended its ABL facility, extending maturity to June 2023. Interest rates had risen year over year; $800 million of term debt was hedged through May 2019.
- During the half year, the company repurchased 799,264 shares for $110.4 million. The board authorized an additional $300 million repurchase program on August 15, 2018, after quarter-end; $106.7 million remained under the earlier authorization at August 4. The company did not anticipate near-term cash dividends.
- Insurance proceeds related to prior-year weather incidents included a $1.9 million gain. The company reported $1,101.5 million of purchase commitments for goods not yet received and substantial operating lease commitments, including commitments for 75 stores to be opened or relocated. It said adoption of the new lease standard was expected to significantly increase reported assets and liabilities, but not materially affect liquidity.
- Risks cited include retail competition and margin pressure, seasonality and weather, consumer spending and economic conditions, sourcing and delivery disruptions, indebtedness and debt covenants, availability of store locations, and litigation. The company could not estimate reasonably possible legal losses beyond amounts accrued, but did not expect resolution of current matters to have a material adverse effect.
Important facts for investors to verify
- Confirm the period and shifted-calendar basis used for comparable sales; the filing is for Q2 2018, not Q2 2017.
- Assess whether gross-margin and expense improvements are sustainable, including freight, sourcing, wage and depreciation pressures.
- Evaluate inventory growth, pack-and-hold levels, store expansion and the timing of receipts against sales trends.
- Review cash needs and capital allocation alongside debt, ABL borrowings, planned capital expenditures, purchase commitments and share repurchases.
- Separate recurring tax performance from the Tax Act effects and one-time New Jersey deferred-tax revaluation; management said its Tax Act accounting was still subject to completion and possible adjustment.
- Consider the scale of lease commitments and the expected balance-sheet impact of the new lease accounting standard, as well as the uncertain outcomes of legal proceedings.