Burlington Stores, Inc. — Form 10-Q Summary
Period clarification: The request metadata says 2021 Q1, but the supplied filing is for the three months ended April 30, 2022 (fiscal Q1 2022), compared with the three months ended May 1, 2021. Fiscal 2022 ends January 28, 2023. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context
Burlington is an off-price retailer operating 866 stores in 46 states and Puerto Rico at April 30, 2022. It opened 33 stores, including five relocations, and permanently closed two during the quarter.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Net sales | $1,925.6 | $2,190.7 | Down 12.1%; comparable sales down 18% versus up 20% |
| Total revenue | $1,929.7 | $2,193.3 | Down approximately 12.0% |
| Gross margin | 41.0% | 43.3% | Down 2.3 percentage points; higher freight and labor costs cited |
| SG&A as % of sales | 35.3% | 30.3% | Higher mainly from store-cost deleverage and product-sourcing costs |
| Net income | $16.2 | $171.0 | Basic EPS $0.24 vs. $2.58; diluted EPS $0.24 vs. $2.51 |
| Adjusted EBITDA | $125.4 | $293.5 | Non-GAAP; down $168.1 |
| Adjusted EBIT | $59.1 | $237.9 | Non-GAAP; down $178.8 |
| Adjusted net income | $36.1 | $175.9 | Non-GAAP; down $139.9 |
| Operating cash flow | $(172.3) | $223.4 | Shift to cash use, driven in part by working capital and inventory |
| Capital expenditures, cash paid | $106.9 | $71.7 | Reported investing cash outflow; net of landlord allowances, Q1 spend was $99.7 |
Cash, cash equivalents and restricted cash fell by $464.0 million during the quarter to $633.6 million, including $627.1 million of unrestricted cash. Working capital was $445.2 million, compared with $1,002.8 million at May 1, 2021.
Merchandise inventory was $1,257.1 million, up from $767.6 million a year earlier. Management attributed the increase primarily to higher reserve inventory, new stores and a 2% increase in comparable-store inventory.
At April 30, 2022, debt included $948.5 million under the term loan and $507.7 million principal of convertible notes; finance lease obligations were $42.8 million. There were no ABL borrowings, and $597.5 million was available under the $650 million facility. The term loan rate was 2.8%; the company had a $450 million interest-rate swap at a blended 2.19% through June 2028.
Material changes and unusual items
- Sales declined amid an 18% comparable-sales decrease. Management cited government stimulus comparisons and lower-than-optimal inventory early in the quarter.
- Cost of sales rose to 59.0% of net sales from 56.7%. Product-sourcing costs increased approximately 180 basis points as a percentage of sales, with industry supply-chain disruption, freight and labor costs cited as pressures.
- The company paid $78.2 million to exchange $64.6 million principal of convertible notes, recording a $14.7 million debt-extinguishment loss.
- Q1 included $2.5 million of long-lived-asset impairment charges and $5.0 million of charges for certain litigation matters. These items were excluded in management’s non-GAAP adjusted measures; those measures are not substitutes for GAAP results.
- The company repurchased $99.1 million of stock under its authorization. It had $550.9 million remaining in repurchase authorization at quarter-end.
- The filing reports receipt of $177.4 million of a CARES Act tax refund and a further $68.1 million receivable included in prepaid and other current assets.
Outlook, management commentary and risks
Management said cash from operations, existing cash and the ABL facility should fund expected needs and planned capital expenditures for at least the next 12 months, while cautioning that weaker sales could not necessarily be offset by savings. The filing does not provide a specific sales or earnings forecast.
- Fiscal 2022 capital expenditures were estimated at approximately $730 million net of about $15 million in landlord allowances, including approximately $255 million for stores and $290 million for supply-chain initiatives.
- Management planned approximately 90 net new stores in fiscal 2022, comprising about 120 gross openings and about 30 relocations and closures. Its long-term store opportunity estimate is 2,000 locations.
- The company cited continuing uncertainty from COVID-19, inflation and consumer spending, supply-chain disruption and freight costs, labor availability, competition and margin pressure, weather, and merchandise sourcing.
- Operating leases carry substantial commitments: $3,728.0 million of future minimum operating-lease payments, plus $485.8 million of commitments for 85 stores not yet occupied. Purchase commitments for goods not yet received were $1,452.3 million.
- The company is party to employment-related class or collective actions and other legal proceedings. Management said it did not expect their ultimate resolution to materially adversely affect results, financial position, liquidity or capital resources.
- The company stated it did not anticipate cash dividends in the near term. Disclosure controls were deemed effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Confirm the reporting period: this filing covers Q1 fiscal 2022, not Q1 2021.
- Track whether comparable sales and gross margin recover, particularly as freight, labor and sourcing costs evolve.
- Assess inventory growth and reserve-inventory levels against sales trends, markdowns and cash generation.
- Review the pace and funding of planned capital spending, store expansion and share repurchases alongside available liquidity.
- Monitor debt service, variable-rate exposure, convertible-note obligations and the timing and collection of the remaining $68.1 million tax refund.
- Consider lease, purchase-commitment and litigation exposures, and distinguish GAAP results from management’s non-GAAP adjusted measures.