Burlington Stores, Inc. — Form 10-K Summary
Period note: The supplied filing is the annual report for the 52-week fiscal year ended January 28, 2017 (Fiscal 2016), not a 2015 Q4 filing. It also reports unaudited quarterly results, including the quarter ended January 28, 2017.
Business context
Burlington is an off-price retailer of branded apparel, footwear, accessories, home goods and related merchandise. At year-end it operated 592 stores, including its online store, in 45 states and Puerto Rico. The company opened 30 stores and closed five during Fiscal 2016.
Financial performance and liquidity
| Metric | Fiscal 2016 | Fiscal 2015 |
|---|---|---|
| Net sales | $5,566.0 million | $5,098.9 million |
| Total revenue | $5,591.0 million | $5,129.8 million |
| Comparable sales growth | 4.5% | 2.1% |
| Gross margin rate | 40.8% | 40.0% |
| SG&A as a percentage of net sales | 31.0% | 31.3% |
| Net income | $215.9 million | $150.5 million |
| Diluted earnings per share | $3.01 | $1.99 |
| Adjusted EBITDA (non-GAAP) | $584.6 million | $484.0 million |
| Cash from operations | $602.4 million | $327.5 million |
Fiscal 2016 net income was 3.9% of net sales. The gross-margin improvement was attributed primarily to stronger merchandise margins; product-sourcing costs rose by about 20 basis points of sales and partly offset the gain. Adjusted EBITDA and Adjusted Net Income are non-GAAP measures and exclude specified costs; they should not be viewed as substitutes for GAAP results.
Cash and cash equivalents ended the year at $81.6 million, up $60.7 million. Investing activities used $180.4 million and financing activities used $361.4 million. Working capital was a $96.3 million deficit, versus $18.6 million of positive working capital a year earlier. Inventory fell to $701.9 million from $783.5 million; inventory turns improved to 4.2 from 3.7.
Total debt, including capital leases, was $1,130.5 million. The term loan carried $1,112.0 million including original issue discount and matures in August 2021; the company had no ABL borrowings and reported $427.8 million of availability. It estimated approximately $43.4 million of interest payments for Fiscal 2017. Operating lease commitments totaled $2,576.2 million.
Changes and notable items
- Net sales increased 9.2%, driven by new and non-comparable stores and 4.5% comparable-sales growth. The fragrance business transition from leased departments to an owned category also affected the presentation of sales and other revenue.
- Net income rose by $65.4 million. The company cited stronger gross margin, partly offset by higher SG&A, depreciation and income tax expense. The effective tax rate declined to 35.2% from 37.0%, primarily reflecting release of a Puerto Rico valuation allowance.
- The July 2016 term-loan repricing lowered the LIBOR margin from 3.25% to 2.75% and the LIBOR floor from 1.00% to 0.75%. It produced a $3.8 million non-cash debt-extinguishment loss and $1.3 million of amendment fees.
- Fiscal 2016 included a $5.1 million inventory-shortage adjustment gain; the prior year included a $3.5 million loss. These adjustments affected quarterly gross margin.
- The company repurchased $200 million of stock during Fiscal 2016 and authorized another $200 million program, with $199.6 million remaining at year-end. It did not expect to pay cash dividends in the near term.
For the quarter ended January 28, 2017, net sales were $1,685.7 million and net income was $125.6 million, compared with $1,540.8 million and $98.8 million, respectively, in the prior-year quarter. The filing notes quarterly results are unaudited and not necessarily indicative of future periods.
Outlook, risks and contingencies
Management planned approximately 30 net new stores in Fiscal 2017 and estimated capital expenditures of approximately $200 million net of landlord allowances. Its stated priorities included improving comparable sales, inventory freshness and turnover, customer experience and e-commerce, and expanding the store base while emphasizing store-level returns. The filing does not provide a numerical sales or earnings forecast.
Key risks include seasonality and weather sensitivity, competition and markdown pressure, execution of the off-price buying and inventory model, access to desirable store sites, vendor and overseas supply-chain disruption, labor costs, e-commerce and cybersecurity risks, and substantial debt-service obligations. The company cited $651.5 million of outstanding purchase commitments and $70.0 million of insurance reserves. It was involved in employment, consumer/privacy and other legal proceedings; it could not estimate reasonably possible losses beyond accrued amounts, but management did not expect final resolution to materially affect the company.
Management and the independent auditor reported effective internal control over financial reporting; the auditor gave an unqualified opinion on the financial statements.
Most important facts for investors to verify
- Confirm the intended period: this filing covers Fiscal 2016 ended January 28, 2017, rather than 2015 Q4.
- Assess whether comparable-sales growth and stronger merchandise margins are sustainable, particularly given weather, competition and markdown risks.
- Review cash generation alongside the working-capital deficit, debt service, lease commitments and planned capital spending.
- Evaluate the assumptions and exclusions underlying Adjusted EBITDA and Adjusted Net Income, and the effects of inventory-shortage adjustments and tax benefits.
- Track execution of the 30-store expansion plan, inventory turnover, e-commerce investment and the remaining share-repurchase authorization.
- Monitor legal contingencies, insurance reserves, vendor commitments and floating-rate debt exposure.