Burlington Stores, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended October 28, 2017, compared with periods ended October 29, 2016. The filing is for 2017 Q3, although the request metadata says 2016 Q3. Fiscal 2017 is a 53-week year ending February 3, 2018.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $1,444.6 million | $1,349.0 million | $4,165.8 million | $3,898.6 million |
| Net sales | $1,438.2 million | $1,342.6 million | $4,147.9 million | $3,880.3 million |
| Comparable-store sales growth | 3.1% | 3.7% | 2.4% | 4.5% |
| Gross margin | 42.2% | 41.2% | 41.3% | 40.3% |
| SG&A as % of net sales | 33.4% | 33.6% | 32.3% | 32.5% |
| Net income | $44.9 million | $32.4 million | $144.1 million | $90.3 million |
| Diluted EPS | $0.65 | $0.45 | $2.04 | $1.25 |
| Adjusted EBITDA | $133.9 million | $109.6 million | $398.1 million | $329.6 million |
Q3 net margin was 3.1% of net sales versus 2.4% a year earlier; nine-month net margin was 3.5% versus 2.3%. Management attributed stronger earnings mainly to improved merchandise margin and lower effective taxes, partly offset by higher SG&A and depreciation. Adjusted EBITDA and other adjusted measures are non-GAAP metrics and exclude specified expenses.
Cash flow, balance sheet and capital
- Operating cash flow: $221.5 million for the nine months, down from $298.2 million. The decline was driven in part by inventory investment and changes in taxes and incentive compensation accruals.
- Investing cash flow: $188.4 million used, including $192.5 million of property and equipment purchases. Net capital expenditures after landlord allowances and property-insurance proceeds were $155.9 million.
- Financing and cash: $66.6 million used in financing; cash and cash equivalents fell $33.5 million to $48.1 million. Restricted cash was $27.8 million.
- Liquidity: $380.6 million available under the ABL revolving facility at October 28, 2017. Working capital was a $5.0 million deficit, compared with a $0.6 million deficit a year earlier.
- Debt: Total debt, including capital leases, was $1,296.2 million: $1,112.9 million under the term loan, $165.2 million drawn on the ABL facility, and $22.5 million in capital leases. The reported balance sheet shows $1,294.3 million of long-term debt net of current maturities and financing costs.
- Share repurchases: The company repurchased 2.55 million shares for $230.7 million during the nine months; $269.0 million remained under the $300 million authorization. No near-term cash dividend was anticipated.
Material changes and significant events
- Revenue grew 7.1% in Q3 and 6.9% for the nine months; comparable-store growth slowed versus the prior-year periods. Gross margin improved about 100 basis points in both comparisons.
- Share-based payment accounting adoption reduced the effective tax rate and increased EPS by approximately $0.04 for Q3 and $0.20 for the nine months, according to the filing.
- Weather-related incidents resulted in 80 stores being closed for at least one day during Q3. The company recorded $5.9 million of inventory losses and $9.7 million of property, equipment and cleanup-related losses. It reported $11.7 million of insurance proceeds received by October 31 and a $2.8 million receivable at quarter-end.
- Inventory was $903.7 million, up from $822.5 million a year earlier, partly reflecting new stores and a $33 million increase in pack-and-hold inventory. Comparable-store inventory was down 2%; management described the late-October increase in gift inventory as a timing issue and expected mid-to-high-single-digit comparable-store inventory reductions to continue.
- After quarter-end, on November 17, 2017, the company refinanced its term loan, reducing the LIBOR margin from 2.75% to 2.50% and extending maturity from August 2021 to November 2024. It expected approximately $3 million of extinguishment charges and $1 million of amendment costs in Q4.
Outlook, risks and contingencies
- Management said cash from operations, existing cash and ABL availability should fund expected needs and planned capital expenditures for at least 12 months. Fiscal 2017 capital expenditures were estimated at approximately $215 million net of about $55 million of landlord allowances and insurance recoveries.
- The company expected 48 store openings, including five relocations, and six closures for Fiscal 2017, or 37 net new stores; it stated a longer-term goal of at least 30 net new stores annually. These plans depend on securing suitable locations and lease terms.
- Management cited seasonality and weather, economic and consumer-spending conditions, competition and margin pressure, merchandise sourcing and delivery, debt service and covenants, and store-location availability as risks. It said it could not assure that savings initiatives would offset a sales decline.
- Operating leases represent substantial future commitments; $804.4 million of purchase commitments related to goods not yet received. The company was party to various employment, consumer/privacy, commercial and other legal matters; it could not estimate reasonably possible losses beyond accruals, but did not expect final resolution to materially harm results, financial position or liquidity.
- Management expected the forthcoming lease accounting standard to significantly increase reported assets and liabilities, but not materially affect liquidity. The filing reported no material change in risk factors from the prior Form 10-K and no material change in market-risk disclosures.
Important facts for investors to verify
- Confirm the intended period: the supplied filing is for Q3 2017, not Q3 2016.
- Assess the sustainability of comparable-store sales growth and gross-margin gains, particularly against weather effects and retail competition.
- Review operating cash conversion, inventory levels, capital spending and the financing of continued buybacks alongside available ABL capacity.
- Confirm collection and final accounting for weather-related insurance claims, and the realized costs and savings from the post-quarter term-loan refinancing.
- Separate GAAP earnings from adjusted measures and quantify the contribution of the share-based accounting tax benefit to reported EPS.