Burlington Stores, Inc. — Form 10-Q Summary
Reporting period: Quarter ended October 31, 2015, with nine-month results compared with the periods ended November 1, 2014. The request metadata says 2014 Q3, but the filing itself is for 2015 Q3.
Business context
Burlington operated 566 stores, including an internet store, in 45 states and Puerto Rico. It sells branded apparel, footwear, accessories, home goods and other merchandise through an off-price retail model.
Financial performance
| Metric | Three months ended Oct. 31, 2015 | Three months ended Nov. 1, 2014 | Nine months ended Oct. 31, 2015 | Nine months ended Nov. 1, 2014 |
|---|---|---|---|---|
| Total revenue | $1,238.7 million | $1,166.1 million | $3,581.2 million | $3,353.1 million |
| Net sales | $1,230.9 million | $1,157.3 million | $3,558.2 million | $3,329.1 million |
| Comparable-store sales growth | 2.8% | — | 3.0% | — |
| Gross margin | 39.8% | 39.6% | 39.6% | 38.7% |
| SG&A as a percentage of net sales | 33.8% | 34.3% | 33.0% | 32.9% |
| Net income (loss) | $15.1 million | $(34.2) million | $51.7 million | $(28.9) million |
| Diluted earnings (loss) per share | $0.20 | $(0.46) | $0.68 | $(0.39) |
| Adjusted EBITDA (non-GAAP) | $82.5 million | $72.5 million | $259.4 million | $222.9 million |
For the nine months, operating cash flow was $103.7 million, investing cash outflow was $149.5 million and financing cash inflow was $49.3 million. Cash and cash equivalents ended at $28.8 million; restricted cash was an additional $27.8 million. Capital expenditures were $153.7 million before $18.5 million of landlord allowances.
At October 31, 2015, total debt was $1.414 billion, including $1.112 billion under the term loan and $276.2 million drawn on the ABL facility. The company reported $278.2 million of ABL availability. Current assets were $1.145 billion and current liabilities were $1.033 billion. Stockholders’ deficit was $121.9 million.
Changes versus prior comparable periods
- Third-quarter net sales rose 6.4%; nine-month net sales rose 6.9%. Management attributed comparable-sales growth mainly to improved execution of the off-price model.
- Gross margin increased 20 basis points in the quarter and 90 basis points year to date. Management cited lower markdowns for the nine-month improvement; product sourcing costs partly offset it.
- SG&A leverage improved by 50 basis points in the quarter but worsened by 10 basis points year to date, with higher sourcing costs contributing to the latter.
- Results improved substantially against prior periods that included debt-extinguishment losses of $70.3 million for the prior-year quarter and $74.0 million for the prior-year nine-month period. Current-period nine-month debt-extinguishment loss was $0.6 million.
- Interest expense declined to $14.8 million for the quarter and $44.2 million year to date, primarily reflecting refinancing and term-loan repayments, partly offset by higher ABL borrowings.
- Inventory was $934.0 million, up from $899.9 million a year earlier. Management cited new stores and higher pack-and-hold inventory, partly offset by a 7% decrease in comparable-store inventory.
Outlook, commentary and risks
- Management expected one net new store in the fourth quarter, bringing Fiscal 2015 net openings to 25. It estimated Fiscal 2015 capital expenditures at approximately $160 million, net of about $35 million in landlord allowances.
- Management believed operating cash, existing cash and the ABL facility would fund expected cash needs and planned capital expenditures for at least the next 12 months. This is a forward-looking assessment, not a guarantee.
- The company highlighted retail seasonality and weather sensitivity, economic and consumer-spending uncertainty, competition and margin pressure, vendor and merchandise-delivery dependence, substantial debt and floating-rate exposure, and litigation risks.
- A one-percentage-point interest-rate increase was estimated to add $6.0 million in annual cash interest expense, after considering the interest-rate caps.
- A California Song-Beverly credit-card privacy case had a proposed maximum settlement of $29.4 million, including fees and administration costs. The court had granted preliminary approval; the company said claims could result in a lower payment. Other litigation losses beyond accruals could not be estimated clearly.
- The company repurchased $123.0 million of shares during the nine months and had $77.0 million remaining under its existing authorization. On November 24, 2015, it announced an additional $200 million authorization. It did not anticipate near-term cash dividends.
- The filing reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the reporting-period mismatch in the request: the source filing covers the quarter ended October 31, 2015, not 2014 Q3.
- Review the reconciliation and limitations of Adjusted EBITDA and Adjusted Net Income, which are non-GAAP measures.
- Assess debt-service capacity, ABL availability, floating-rate exposure and the effect of further share repurchases on liquidity.
- Track the final approval, claims and cash cost of the California settlement, along with other legal contingencies.
- Compare inventory growth, markdown trends, sourcing costs and comparable-store sales with subsequent filings.
- Consider seasonality: management stated that results for the interim periods were not necessarily indicative of the fiscal year.