Burlington Stores, Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter and six months ended July 31, 2021 (fiscal 2021 Q2), with comparisons to August 1, 2020. This differs from the request metadata’s “2020 Q2.” Burlington operated 792 stores in 45 states and Puerto Rico at quarter-end.
Financial performance
- Revenue: Q2 net sales were $2.213 billion, up 119.1% year over year; six-month net sales were $4.403 billion, up 143.6%. These comparisons are heavily affected by store closures in the prior-year period. Against fiscal 2019, comparable-store sales rose 19% in Q2 and 20% for the first half.
- Profit: Q2 net income was $102.6 million, or $1.50 diluted EPS, versus a $46.8 million loss, or $0.71 loss per share. Six-month net income was $273.6 million, or $4.01 diluted EPS, versus a $380.5 million loss, or $5.79 loss per share.
- Margins: Gross margin was 42.2% in Q2 versus 45.8% a year earlier; for the first six months it was 42.7% versus 26.4%. The prior-year first-half margin included a $271.9 million inventory markdown reserve, while the prior-year Q2 benefited from those earlier markdown reserves. Q2 net margin was 4.7%; first-half net margin was 6.3%.
- Cash flow: First-half operating cash flow was $426.9 million, versus cash used of $473.0 million in the prior-year period. Investing used $141.6 million, including $147.2 million of property-and-equipment spending; financing used $321.2 million. Cash, cash equivalents and restricted cash totaled $1.351 billion at period-end.
- Debt and liquidity: Balance-sheet debt was $1.788 billion, including finance lease obligations and net of deferred financing costs; current maturities were $14.1 million. The company had $955 million of Term B-6 loans, $805 million principal of 2.25% convertible notes, no ABL borrowings, and $533.6 million of ABL availability. Current assets were $2.664 billion and current liabilities $1.803 billion.
Changes, outlook and risks
- Results improved sharply from the prior-year period, when COVID-19 closures materially disrupted sales and operations. The filing attributes the rebound to reopened stores, sales growth, and 53 net new stores versus the end of prior-year Q2.
- Q2 included a $31.4 million debt-extinguishment loss, primarily from redeeming $300 million of 6.25% secured notes for $323.7 million and refinancing the term loan. The term-loan amendment extended maturity to June 2028 and increased the LIBOR margin to 2.00%. The company also entered a new interest-rate swap covering $450 million at a blended 2.19% through 2028.
- Early adoption of ASU 2020-06 changed convertible-note accounting and reduced reported interest expense by $7.7 million in Q2 and $15.3 million for the first half; management reported diluted EPS benefits of $0.07 and $0.12, respectively.
- Management said cash from operations, existing cash and ABL availability should fund expected needs and planned capital expenditures for at least 12 months. Fiscal 2021 capital spending was estimated at approximately $510 million net of landlord allowances. The company planned 75 net new stores for the year and cited a long-term opportunity to reach 2,000 stores. These are plans, not guarantees.
- Management identified continuing COVID-19 effects, supply-chain delays, higher freight and labor costs, inflation, competition, weather, merchandise availability, consumer spending, and execution of growth plans as risks. It expected supply-chain cost pressures to continue through the remainder of the fiscal year and potentially beyond. The business is seasonal, with higher sales and income generally in the second half.
- After quarter-end, on August 18, 2021, the board authorized a new $400 million share-repurchase program through August 2023. The company said it did not anticipate cash dividends in the near term. It also disclosed $1.960 billion of purchase commitments for goods not yet received and approximately $3.407 billion of future minimum operating-lease payments.
Key facts for investors to verify
- Use the correct fiscal period: this is fiscal 2021 Q2, not 2020 Q2; assess sales and margins against fiscal 2019 as well as the pandemic-affected prior year.
- Track gross-margin performance as freight, labor and sourcing costs rise, and assess whether the company’s lean-inventory and markdown initiatives offset those pressures.
- Monitor cash generation, capital spending, ABL availability, debt service and the effects of the secured-note redemption and term-loan refinancing.
- Review execution against store-opening plans and the $510 million fiscal-year capital-spending estimate, alongside the substantial lease and merchandise purchase commitments.
- Assess COVID-19, supply-chain and consumer-demand developments, as well as the impact of the new repurchase authorization on liquidity.