Burlington Stores, Inc. — Form 10-Q Summary
Reporting period: Quarter ended July 30, 2016, with six-month results compared with the periods ended August 1, 2015. The request metadata says “2015 Q2,” but the filing itself reports fiscal 2016 Q2.
Business context and results
Burlington operated 570 stores, including an internet store, in 45 states and Puerto Rico. The retailer sells branded apparel, footwear, accessories, home goods, and other merchandise through an off-price model. Amounts below are in millions except per-share data.
| Metric | Three months ended July 30, 2016 | Three months ended August 1, 2015 | Six months ended July 30, 2016 | Six months ended August 1, 2015 |
|---|---|---|---|---|
| Net sales | $1,255.1 | $1,144.2 | $2,537.7 | $2,327.3 |
| Total revenue | $1,260.7 | $1,151.6 | $2,549.6 | $2,342.5 |
| Gross margin | 39.6% | 39.2% | 39.9% | 39.5% |
| SG&A as % of net sales | 32.4% | 33.4% | 31.9% | 32.6% |
| Net income | $20.4 | $10.9 | $57.9 | $36.6 |
| Diluted EPS | $0.28 | $0.14 | $0.80 | $0.48 |
| Adjusted EBITDA (non-GAAP) | $99.1 | $75.4 | $220.1 | $176.8 |
Financial position, cash flow, and debt
- Six-month operating cash flow was $103.1 million, versus cash used of $0.7 million in the prior-year period. Investing activities used $75.7 million; financing activities used $17.8 million. Cash increased $9.6 million to $30.5 million.
- At July 30, 2016, total debt was $1.353 billion, including $1.112 billion under the term loan and $223.3 million under the ABL revolver. The company reported $311.5 million available under the ABL facility and $27.8 million of restricted cash.
- Working capital was $65.3 million, excluding restricted cash. Merchandise inventory was $745.0 million, down from $802.3 million a year earlier.
- Six-month cash capital expenditures were $75.9 million gross, or $66.3 million net of landlord allowances. Fiscal 2016 capital spending was estimated at approximately $160 million net of approximately $30 million in landlord allowances.
Material changes and unusual items
- Comparable sales increased 5.4% in the quarter and 4.9% for the six months; net sales rose 9.7% and 9.0%, respectively. Management attributed comparable-sales growth primarily to improved execution of the off-price model.
- Gross margin expanded about 40 basis points in both periods, driven by higher initial markups, partly offset by higher markdowns and shortage rates. SG&A leverage improved, including from store payroll and occupancy efficiencies; product sourcing costs increased about 15 basis points as a share of sales.
- Inventory was down about 7% on a comparable-store basis year over year, and comparable-store inventory turnover improved approximately 15% in Q2.
- On July 29, 2016, Burlington repriced its term loan, reducing the LIBOR margin from 3.25% to 2.75% and the LIBOR floor from 1.00% to 0.75%. The transaction generated a $3.8 million non-cash debt-extinguishment loss and $1.3 million in fees.
- Q2 and six-month results included a $1.4 million litigation accrual. The fragrance business shifted from a leased-department model to an owned category, moving sales from other revenue to net sales.
Outlook, commentary, and risks
- Management expected approximately 25 net new Burlington stores in fiscal 2016 and planned approximately $160 million of net capital expenditures. No specific revenue, earnings, or comparable-sales guidance was provided in the filing text.
- Management said cash from operations, existing cash, and ABL availability should fund expected cash needs and planned capital spending for at least the next 12 months, while noting this depends on performance and economic conditions.
- Key risks include retail competition and margin pressure, seasonal and weather-driven sales, consumer-spending weakness, vendor and merchandise-delivery risks, substantial debt and floating-rate exposure, and execution of store-growth plans. A 1 percentage-point rate increase was estimated to add approximately $1.9 million of interest expense per quarter at the reported borrowing levels.
- The company faced wage-and-hour, consumer/privacy, and other litigation; it could not estimate reasonably possible losses beyond amounts accrued and warned outcomes could materially affect results. It stated there had been no material changes to the risk factors in its latest Form 10-K.
- The company did not anticipate near-term cash dividends. It reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the reporting-period discrepancy in the request metadata: the filing covers Q2 2016, not Q2 2015.
- Review comparable-sales trends, the durability of margin improvements, and whether inventory-turnover gains continue.
- Assess debt-service capacity, variable-rate sensitivity, ABL availability, and the effects of the term-loan repricing.
- Verify execution and funding of the store-opening and capital-spending plans, alongside the $764.8 million of outstanding merchandise purchase commitments.
- Track litigation developments and the assumptions underlying management’s liquidity outlook; the filing does not provide a clear estimate of potential legal losses beyond accrued amounts.