Burlington Stores, Inc. — Form 10-Q Summary
Period: Three months ended May 4, 2019, compared with the three months ended May 5, 2018. The request metadata says “2018 Q1,” but the filing covers the first quarter of fiscal 2019.
Business context and results
Burlington is an off-price retailer operating 684 stores, including an internet store, across 45 states and Puerto Rico. The company opened 17 stores, including six relocations, and closed two during the quarter. Results are seasonal and this quarter is not necessarily indicative of full-year performance.
| Metric | Q1 2019 | Q1 2018 | Change / context |
|---|---|---|---|
| Total revenue | $1,634.2 million | $1,524.7 million | Up 7.2% |
| Net sales | $1,628.5 million | $1,518.4 million | Up 7.3%; comparable sales up 0.1%, versus 4.8% |
| Gross margin | 41.0% | 41.2% | Down 20 basis points; freight costs pressured margin |
| SG&A as % of net sales | 31.8% | 30.8% | Up 100 basis points |
| Income before taxes | $94.0 million | $100.0 million | Down 6.0% |
| Net income | $77.8 million | $82.6 million | Down 5.8% |
| Diluted EPS | $1.15 | $1.20 | Down 4.2% |
| Adjusted EBITDA | $167.9 million | $164.9 million | Up $3.0 million; non-GAAP |
| Adjusted net income | $85.5 million | $87.0 million | Down $1.5 million; non-GAAP |
Cash flow, debt and liquidity
- Operating cash flow was $54.2 million, compared with $60.2 million. Capital expenditures were $83.8 million before landlord allowances; investing cash outflow was $83.9 million.
- Cash, cash equivalents and restricted cash declined $7.2 million to $126.9 million. Financing activities provided $22.4 million, including net ABL borrowing and share repurchases.
- Debt at May 4, 2019 included $956.9 million under the term loan, $150.0 million drawn on the ABL facility, and $32.3 million of finance lease obligations. ABL availability was $393.9 million.
- The company reported a $114.0 million working-capital deficit, primarily reflecting the newly recognized current lease liability. Management said operating cash flow, cash on hand and the ABL facility should fund expected requirements and planned capital expenditures for at least 12 months.
- The company spent $122.8 million repurchasing 841,460 shares and had $175.6 million remaining under its $300 million authorization. It does not anticipate cash dividends in the near term.
Material changes, outlook and risks
- Net sales growth was driven largely by new and non-comparable stores; comparable sales growth slowed to 0.1% from 4.8%. Inventory was $895.8 million, up from $786.6 million a year earlier; comparable-store inventory increased about 5%, while inventory turnover declined about 8%.
- SG&A rose 10.5% to $517.4 million. Management cited higher store costs, sourcing costs and store payroll, and the lease-accounting adoption’s reclassification of favorable lease cost. Lower interest expense and income tax expense partially offset operating cost pressure.
- Adoption of the new lease standard added approximately $2.1 billion of right-of-use assets and $2.3 billion of lease liabilities. Prior periods were not restated; management said the adoption did not materially affect liquidity.
- Fiscal 2019 plans include approximately 50 net new stores and about $310 million in capital expenditures, net of estimated landlord allowances, including approximately $60 million for supply-chain initiatives. These are plans, not guaranteed outcomes.
- Management highlighted risks from economic and consumer-spending conditions, competition and margin pressure, weather, merchandise sourcing and tariffs, execution of growth plans, debt-service requirements, cyber risks, and litigation. The company is party to ordinary-course legal matters, including wage-and-hour and consumer/privacy claims; it could not estimate reasonably possible losses beyond accrued amounts and did not expect resolution to materially affect the business.
- Management reported effective disclosure controls as of May 4, 2019 and no material changes to risk factors since the prior annual report.
Important facts for investors to verify
- Confirm the reporting-period discrepancy: the filing is for Q1 fiscal 2019, not Q1 2018.
- Track whether comparable sales recover and whether new-store growth can offset weak comparable performance.
- Assess margin and expense trends, including freight, sourcing, store payroll and occupancy costs; distinguish lease-accounting presentation changes from underlying operating changes.
- Monitor cash generation, capital spending, inventory turnover, ABL borrowings and liquidity, including the effect of lease obligations and share repurchases.
- Review execution of the planned store openings and distribution-center investment, and developments in litigation, tariffs and other stated risks.
- Use non-GAAP Adjusted EBITDA, Adjusted EBIT and Adjusted Net Income alongside—not instead of—GAAP results.