Burlington Stores, Inc. — Form 10-K Summary
Period note: The request metadata says “2017 Q4,” but this filing is the annual report for the 52-week fiscal year ended February 2, 2019 (Fiscal 2018). The prior comparable fiscal year ended February 3, 2018 and had 53 weeks.
Business context and reporting period
Burlington is a U.S. off-price retailer of branded apparel, footwear, home goods and related merchandise. At year-end it operated 675 stores, including its online store, across 45 states and Puerto Rico. More than 99% of net sales came from stores. The company reported one operating segment.
Key financial metrics
| Metric | Fiscal 2018 | Prior period |
|---|---|---|
| Net sales | $6,643.1 million | $6,084.8 million |
| Total revenue | $6,668.5 million | $6,110.0 million |
| Comparable-store sales | +3.2% on a shifted 52-week basis | +3.4% |
| Gross margin rate | 41.8% | 41.5% |
| SG&A as a share of sales | 30.4% | 30.6% |
| Net income | $414.7 million | $384.9 million |
| Diluted EPS | $6.04 | $5.48 |
| Adjusted EBITDA (non-GAAP) | $792.2 million | $696.1 million |
| Operating cash flow | $639.7 million | $607.3 million |
Sales rose 9.2%; the filing attributes the increase to new and non-comparable stores and comparable-store growth, partly offset by the prior year’s extra week and closed stores. Because the fiscal years differ in length, the reported annual sales comparison is not strictly like-for-like. Gross-margin improvement reflected stronger merchandise margins, partly offset by higher freight costs. Net income growth was partly offset by higher SG&A, depreciation and income taxes.
Cash and restricted cash declined $26.9 million to $134.2 million. Cash used in investing was $298.5 million, including capital spending; cash used in financing was $368.1 million, including a $150 million term-loan prepayment and share repurchases. Year-end working capital was $2.3 million, versus a $47.0 million deficit a year earlier. Inventory increased 26.8% to $954.2 million; management cited pack-and-hold goods, new stores, accelerated tariff-affected receipts and higher comparable-store inventory. Inventory turns declined to 4.4 from 4.6, while comparable-store inventory turns improved approximately 7%.
Year-end debt included $956.7 million under the term loan and $32.7 million of capital leases; no ABL balance was outstanding. The company reported $543.3 million available under its $600 million ABL facility. Long-term debt, net of current maturities, was $983.6 million. Interest expense was $56.0 million. The filing also lists $3.37 billion of future minimum operating lease payments and $928.1 million of merchandise purchase commitments.
Material changes versus the prior period
- Gross margin improved 30 basis points and SG&A leverage improved 20 basis points; net income increased $29.9 million.
- Operating cash flow increased, but total cash and restricted cash fell because investing and financing outflows exceeded operating cash generation.
- The company prepaid $150 million of term debt and repriced the term loan, lowering its LIBOR margin to 2.00% and removing the LIBOR floor. It also extended the ABL maturity to June 2023.
- Inventory rose substantially, while the company expanded to 675 stores. Fiscal 2018 included 56 store openings excluding relocations; it opened 68 gross stores including 12 relocations and closed 10.
- The effective tax rate rose to 18.3% from 10.3%, primarily because Fiscal 2017 included a one-time tax benefit from U.S. tax reform.
Outlook, commentary, risks and unusual items
- Outlook: Management planned approximately 50 net new stores in Fiscal 2019, comprising about 75 gross openings and 25 relocations/closures, and approximately $310 million of capital expenditures net of landlord allowances. Its long-term store-base aspiration is 1,000 locations. The filing provides no specific earnings or sales guidance.
- Strategy: Priorities include fresh merchandise and inventory turnover, serving the core female customer, improving store and digital shopping experiences, disciplined store expansion, and operating-margin improvement.
- Risks: Management highlights retail competition and margin pressure; consumer spending and economic conditions; weather and seasonality; inventory forecasting and vendor availability; tariffs and overseas supply chains; labor costs; store leases and expansion execution; distribution disruption; cybersecurity, privacy and payment risks; and floating-rate debt. A one-percentage-point rate increase was estimated to add about $4 million of annual cash interest expense after hedging.
- Unusual items: Fiscal 2018 included $6.8 million of long-lived-asset impairment charges, $1.8 million of debt-extinguishment losses and $2.5 million of debt-amendment costs. Insurance recoveries produced a $3.3 million gain. These items and other adjustments are among the exclusions in the company’s non-GAAP measures.
- Contingencies and accounting: The company is involved in ordinary-course employment, consumer/privacy, product and other proceedings; it could not estimate reasonably possible losses beyond amounts accrued, but did not expect final resolution to materially affect its financial position or results. On adopting the new lease standard in Fiscal 2019, it expected to recognize approximately $2.1 billion of right-of-use assets and $2.2 billion of lease liabilities, with no material liquidity impact expected.
- Controls and audit: Management and Deloitte reported effective internal control over financial reporting; Deloitte issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Reconcile the request’s “2017 Q4” label with the filing’s actual fiscal year ended February 2, 2019, and account for the 52-week versus 53-week comparison.
- Review comparable-store sales on the shifted basis and assess whether the large inventory increase and lower total inventory turns signal markdown or demand risk.
- Examine the term-loan and ABL covenants, floating-rate exposure, hedge coverage, and the company’s capacity to fund debt service, capital spending and repurchases.
- Assess the substantial operating-lease commitments and the expected balance-sheet impact of lease-standard adoption.
- Review non-GAAP reconciliations and the recurring versus one-time effects of tax reform, impairments, debt costs and insurance gains; also monitor tariff exposure and legal contingencies.