Burlington Stores, Inc. — Form 10-Q Summary
Period: The filing covers the quarter and six months ended August 2, 2014, in fiscal 2014. The request metadata says “2013 Q2,” but the filing itself is for 2014 Q2. Burlington operated 523 stores, including its internet store, in 44 states and Puerto Rico.
Financial performance
| Metric | Three months ended August 2, 2014 | Six months ended August 2, 2014 |
|---|---|---|
| Total revenue | $1,051.1 million, up 8.2% | $2,187.0 million, up 7.0% |
| Comparable-store sales | Up 4.7% | Up 3.6% |
| Gross margin as a percent of net sales | 38.2%, versus 37.7% | 38.1%, versus 37.5% |
| SG&A as a percent of net sales | 33.5%, versus 33.9% | 32.1%, versus 32.3% |
| Net income (loss) | $(6.5) million, versus $(25.0) million | $5.3 million, versus $(30.6) million |
| Adjusted EBITDA, non-GAAP | $58.1 million, versus $46.9 million | $150.4 million, versus $126.5 million |
For the six-month period, operating cash flow was $51.6 million, capital expenditures were $94.6 million, and cash declined $103.7 million to $29.3 million. Working capital was $70.2 million. Merchandise inventory was $711.5 million, down from $748.3 million a year earlier; comparable-store inventory turnover improved to 4.4 turns from 3.6.
At August 2, total debt was $1.373 billion, including $1.250 million of current maturities; long-term debt, net of current maturities, was $1.372 billion. The company had no ABL borrowings outstanding and reported $447.6 million of availability. Restricted cash was $32.1 million.
Changes versus the prior comparable period
- Revenue and comparable-store sales increased in both the quarter and six-month period. Management attributed comparable-sales gains primarily to improved execution of its off-price model.
- Gross margin improved, more than offsetting higher product-sourcing costs. SG&A improved as a share of sales, with store payroll leverage among the contributors.
- Six-month net income turned positive; the quarter nevertheless remained loss-making. Lower interest expense helped, reflecting prior debt repayments and refinancing-related rate reductions.
- Six-month operating cash flow fell to $51.6 million from $57.9 million, while investing outflows increased with capital spending. Cash use also reflected debt repayments.
Outlook, commentary, risks and unusual items
- Management planned approximately 20 net new stores for the remainder of fiscal 2014, following three openings and one closure in the first half. It estimated fiscal-year capital expenditures of approximately $180 million, net of about $40 million of landlord allowances.
- The company said operating cash, existing cash and ABL availability were expected to fund planned needs for at least the next 12 months, while cautioning that weaker sales or ineffective cost actions could adversely affect performance.
- On August 13, 2014, after quarter-end, Burlington refinanced its debt: a new $1.2 billion term loan replaced the prior term loan, it redeemed the $450 million 10% notes and remaining Holdco notes, and it drew $217 million under the amended ABL. The new term loan matures in 2021; the amended ABL matures in 2019. The company expected a $70.3 million debt-extinguishment loss in Q3, including $45.1 million of redemption premiums. These subsequent transactions are not reflected in the August 2 balance sheet.
- The refinancing removed specified financial performance covenants and expanded debt and restricted-payment flexibility. It also increased floating-rate debt; management estimated a one-percentage-point rate increase would add about $14.1 million of annual cash interest before caps. New interest-rate caps were entered into August 19, 2014.
- A $3.0 million legal accrual was established in Q2. A California consumer-privacy class action was scheduled for trial on December 1, 2014; the company denied liability and said it could not estimate potential exposure beyond recorded accruals.
- Management highlighted retail risks including economic and consumer-spending weakness, competition and margin pressure, weather and seasonality, supply disruptions, litigation, and substantial indebtedness. Sales and income are seasonal, with the majority typically generated from September through January.
- Adjusted Net Income and Adjusted EBITDA are non-GAAP measures; the filing cautions they should not be viewed as substitutes for GAAP results or cash flow.
Important facts for investors to verify
- Confirm the reporting period: the filing is for the quarter ended August 2, 2014, despite the “2013 Q2” request metadata.
- Review the completed post-quarter refinancing, resulting debt and interest costs, and the expected $70.3 million Q3 extinguishment loss.
- Track cash generation against planned capital spending and store expansion, and assess whether liquidity remains adequate through seasonal working-capital demands.
- Monitor comparable-store sales, gross margin, inventory turnover, and the effect of sourcing and supply-chain costs on margins.
- Follow the California litigation and other contingencies, including the limits of the company’s estimate of potential losses.