Burlington Stores, Inc. — Form 10-Q Summary
Reporting-period note: The filing covers the quarter and six months ended July 30, 2022 (Fiscal 2022 Q2), not 2021 Q2 as stated in the request. Comparative periods ended July 31, 2021. Burlington operated 877 stores in 46 states and Puerto Rico at quarter-end.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Net sales | $1,983.9m | $2,212.8m | $3,909.5m | $4,403.5m |
| Net income | $12.0m | $102.6m | $28.1m | $273.6m |
| Diluted EPS | $0.18 | $1.50 | $0.42 | $4.01 |
| Gross margin | 38.9% | 42.2% | 39.9% | 42.7% |
| Adjusted EBITDA (non-GAAP) | $110.6m | $245.7m | $236.0m | $539.2m |
Q2 comparable-store sales fell 17%, versus 19% growth in the prior-year quarter; the first-half decline was 17%, versus 20% growth. Management attributed weaker sales to economic pressure on core customers and retail promotions. Lower sales and weaker gross margin drove the profit declines. Gross margin pressure reflected higher markdowns, increased inventory shortage and freight costs; product sourcing costs also rose as a share of sales.
Cash flow, liquidity and debt
- First-half operating cash flow was negative $152.9m, compared with positive $426.9m a year earlier. Working-capital movements, including higher inventory and lower accounts payable, contributed to the decline; the $245.5m tax refund partly offset it.
- First-half capital expenditures were $208.8m gross, or approximately $200.6m net of landlord allowances. Investing cash outflow was $186.4m. Financing cash outflow was $296.8m, including $200.1m of share repurchases.
- Cash and cash equivalents were $455.0m at July 30, 2022, down from $1,091.1m at January 29, 2022. Working capital was $320.5m, versus $593.4m at fiscal year-end and $853.8m a year earlier.
- Total debt, including finance lease obligations and net of financing costs, was $1,486.8m; long-term debt net of current maturities was $1,472.2m. The company had no ABL borrowings and reported $842.5m available under its $900m asset-based credit facility.
- The Term Loan borrowing rate was 4.4% at quarter-end. A $450m interest-rate swap hedges part of the variable-rate exposure. The ABL amendment increased commitments from $650m to $900m and moved its benchmark from LIBOR to SOFR-based rates.
Material changes, outlook and risks
- Inventory was $1,266.7m, up from $828.2m a year earlier. Reserve inventory represented 52% of total inventory, versus 31% a year earlier; comparable-store inventory declined 5.4%.
- The company opened 46 stores, including seven relocations, and permanently closed two in the first half. It planned 90 net new stores for Fiscal 2022 and described a long-term opportunity to reach 2,000 stores.
- Management estimated Fiscal 2022 capital expenditures of approximately $640m net of landlord allowances, including about $240m for stores and $255m for supply-chain initiatives. No earnings or sales guidance is provided in the supplied filing text.
- Management said cash from operations, existing cash and the ABL facility should fund expected requirements and planned capital expenditures for at least the next 12 months, while warning that sales declines could be difficult to offset.
- First-half share repurchases totaled $200.1m; $449.9m remained under the $500m authorization. The company did not anticipate cash dividends in the near term.
- Notable items included $14.7m of first-half debt-extinguishment charges from exchanging $64.6m principal of convertible notes for $78.2m cash; $7.0m of first-half long-lived asset impairments; and $5.5m of Q2 litigation-related charges ($10.5m in the first half), which were excluded from certain non-GAAP measures.
- Risks highlighted include inflation and pressure on consumers, freight and supply-chain costs, competition and markdowns, labor availability, weather and seasonality, COVID-19-related uncertainty, execution of store growth, and substantial debt-service obligations. The filing says ongoing legal matters are not expected to have a material adverse effect, though outcomes remain uncertain.
Key facts for investors to verify
- Confirm the sharp comparable-sales decline and whether sales and gross-margin trends recover.
- Track inventory levels, reserve inventory, markdowns, shortage and freight costs for signs of margin or cash-flow improvement.
- Assess liquidity and cash use against planned capital spending, store growth, debt service and ongoing buybacks.
- Review the assumptions behind management’s 90-store plan and $640m capital-expenditure estimate, and monitor whether execution changes.
- Evaluate the effect of variable interest rates, the SOFR transition and convertible-note obligations; confirm developments in litigation and store impairments.