Burlington Stores, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended February 3, 2024 (53 weeks), compared with the 52-week fiscal year ended January 28, 2023. This is an annual filing, not a standalone 2022 fourth-quarter report. Unless noted, amounts are U.S. dollars.
Business context
Burlington is a brick-and-mortar off-price retailer of branded apparel, footwear, home goods and related merchandise. It operated 1,007 stores at year-end, across 46 states, Washington, D.C. and Puerto Rico; more than 99% of net sales came from stores. Management’s long-term store target is 2,000.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $9.709 billion | $8.685 billion |
| Comparable-store sales | +4% | -13% |
| Gross margin | 42.5% | 40.4% |
| Net income | $339.6 million | $230.1 million |
| Diluted EPS | $5.23 | $3.49 |
| Adjusted EBITDA (non-GAAP) | $888.1 million | $700.7 million |
| Operating cash flow | $868.7 million | $596.4 million |
| Capital expenditures, net of landlord allowances | $522.5 million | $427.0 million |
Sales rose 11.8%; management attributed the increase to 80 net new stores since FY2022 year-end, 4% comparable-store growth and $138 million of sales from the extra fiscal week. Gross-margin expansion reflected improved merchandise margins and freight costs. SG&A rose to 33.9% of net sales from 33.1%, reflecting, among other items, higher incentive compensation, store payroll and product-sourcing costs. Store payroll was 8.2% of sales versus 8.0%.
Net cash increased $46.2 million to $925.4 million, compared with a $218.5 million decrease in FY2022. Year-end working capital was $298.2 million, down from $365.3 million. Inventory fell to $1.088 billion from $1.182 billion.
At year-end, debt included $933.4 million under the term loan, $156.2 million of 2.25% convertible notes due 2025, $297.1 million of 1.25% convertible notes due 2027, and $29.1 million of finance leases; there were no ABL borrowings. The company reported $708.8 million available under its $900 million ABL facility. The term-loan borrowing rate was 7.4%; a $450 million interest-rate swap hedges part of floating-rate exposure. Management estimated $63.1 million of FY2024 interest payments, net of the swap.
Material changes and unusual items
- FY2023 included a 53rd week; the additional week contributed $138 million of sales, so reported growth is not directly comparable with the prior 52-week year.
- Net income improved by $109.5 million. Results included $38.3 million of debt-extinguishment charges, primarily from transactions involving the 2025 convertible notes, and $6.4 million of long-lived-asset impairment charges, versus $21.4 million of impairments in FY2022.
- The company issued $297.1 million of 2027 convertible notes, including an exchange of $241.2 million principal of 2025 notes for $255.0 million principal of 2027 notes. It also exchanged $110.3 million principal of 2025 notes for $133.3 million cash. These transactions reduced 2025 notes outstanding but leave $156.2 million due in April 2025.
- Burlington acquired 64 Bed Bath & Beyond store leases; 32 stores opened in FY2023 and the remainder were planned for the first half of FY2024. Occupancy costs for unopened stores were $18.4 million in FY2023.
- The company repurchased 1.35 million shares for $231.9 million during FY2023. It does not anticipate paying a dividend in the near term.
Outlook, management commentary and risks
For FY2024, management planned approximately 100 net new stores and about $750 million of capital expenditures, net of expected landlord allowances. Its longer-term plan is to average about 100 net new stores annually through FY2028. Priorities include leaner store inventories, more responsive buying, investment in merchandising, improved supply-chain efficiency, markdown optimization and expense discipline. Management stated that operating cash flow, existing cash and the ABL facility should cover expected needs and planned capital expenditures for at least 12 months.
Management cited continuing uncertainty from inflation and pressure on the discretionary spending of lower-income core customers, alongside potential upside if inflation eases or value-consciousness broadens. Other material risks include weather and seasonality, retail competition and margin pressure, merchandise sourcing and inventory execution, labor and shrinkage costs, supply-chain disruption, cybersecurity, and interest-rate exposure. The company also has substantial lease commitments: $4.216 billion of undiscounted operating-lease payments and $1.305 billion of purchase commitments at year-end.
The company disclosed wage-and-hour, California PAGA and other legal proceedings, but stated it did not expect their final resolution to materially adversely affect results, financial position, liquidity or capital resources. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified timely inventory markdowns under the retail inventory method as a critical audit matter.
Important facts for investors to verify
- How much of sales and earnings growth reflects underlying comparable-store performance versus the extra fiscal week and new-store additions.
- Whether gross-margin improvement from merchandise margins and freight is sustainable as product-sourcing, labor, occupancy and other costs rise.
- The company’s plan to address the $156.2 million 2025 convertible-note balance, and the cash, dilution and refinancing implications of its convertible debt.
- Whether planned store growth and approximately $750 million of FY2024 capital spending can be funded while preserving liquidity and returns on investment.
- Execution and cost exposure from the Bed Bath & Beyond lease acquisitions, substantial lease obligations, inventory markdown judgments and potential future impairments.