Burlington Stores, Inc. — Form 10-Q Summary
Period clarification: The request metadata says “2017 Q3,” but this filing covers the quarter and nine months ended November 3, 2018. The comparable quarter ended October 28, 2017. Fiscal 2018 is a 52-week year ending February 2, 2019.
Business context
Burlington is an off-price apparel and home-goods retailer. It operated 679 stores, including its internet store, in 45 states and Puerto Rico as of November 3, 2018. In the first nine months, it opened 65 stores, including 12 relocations, and closed three.
Financial performance
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Three months ended Nov. 3, 2018 | Comparable 2017 period | Nine months ended Nov. 3, 2018 | Comparable 2017 period |
|---|---|---|---|---|
| Total revenue | $1,641.0 | $1,444.6 | $4,670.4 | $4,165.8 |
| Net sales | $1,634.5 | $1,438.2 | $4,651.6 | $4,147.9 |
| Comparable sales, shifted basis | +4.4% | +3.1% | +4.0% | +2.4% |
| Net income | $76.8 | $44.9 | $230.4 | $144.1 |
| Diluted EPS | $1.12 | $0.65 | $3.35 | $2.04 |
| Gross margin | 42.4% | 42.2% | 41.7% | 41.3% |
| SG&A as % of net sales | 32.9% | 33.4% | 31.9% | 32.3% |
| Net margin | 4.8% | 3.1% | 5.0% | 3.5% |
For the quarter, management reported Adjusted EBITDA of $163.1 million, Adjusted EBIT of $114.6 million, and Adjusted Net Income of $82.9 million. Nine-month figures were $480.1 million, $339.1 million, and $248.8 million, respectively. These are non-GAAP measures; the filing provides reconciliations and cautions they should not be viewed as substitutes for GAAP results.
Cash flow, balance sheet and debt
- Nine-month operating cash flow was $375.4 million, versus $221.5 million a year earlier. Investing used $225.3 million, including $222.5 million of cash paid for property and equipment; financing used $203.9 million. Cash, cash equivalents and restricted cash declined $53.8 million to $107.3 million.
- At November 3, cash and cash equivalents were $85.4 million, restricted cash was $21.9 million, and inventory was $1,056.6 million. Working capital was negative $26.7 million.
- Total debt was $1,091.9 million, including $956.5 million of term loans, $105.0 million drawn under the ABL facility, and $33.4 million of capital lease obligations. The company reported $434.1 million available under its ABL facility.
- The company prepaid $150 million on its term loan in June and repriced the loan in November, reducing the LIBOR margin from 2.50% to 2.00% and the LIBOR floor from 0.75% to 0.00%. The ABL maturity was extended to June 2023. Interest-rate caps cover $800 million of term debt through May 2019.
- Capital expenditures, net of landlord allowances and insurance recoveries, were $197.8 million for the nine months. Fiscal 2018 estimated spending was approximately $275 million net of expected landlord allowances and insurance recoveries.
Changes, outlook and notable items
- Net sales increased 13.7% in the quarter and 12.1% for the nine months. Growth reflected new and non-comparable stores as well as positive comparable sales. Gross margin improved, while sourcing costs as a share of sales increased modestly.
- Management attributed higher net income primarily to improved gross margin and lower income tax expense, partly offset by higher SG&A and depreciation. The lower tax burden reflected the Tax Act and, for the nine-month period, a New Jersey tax-law change.
- Management expected to open three stores and close seven in the fourth quarter, for an estimated 675 stores at fiscal year-end. The filing does not provide a full-year earnings or revenue forecast.
- Management said cash from operations, existing cash and the ABL facility should cover expected requirements and planned capital expenditures for at least the next 12 months. It does not expect to pay cash dividends in the near term.
- Inventory rose year over year, partly due to store growth and earlier holiday-gifting receipts. Comparable-store inventory was down about 1%, or about 6% excluding the holiday product acceleration; pack-and-hold inventory was 18% of total inventory versus 15% a year earlier.
- The company recognized $2.4 million of debt-amendment costs and $0.5 million of debt-extinguishment loss in the quarter. Nine-month other income included a $1.9 million gain on insurance recovery from prior-year weather incidents.
- Risks highlighted include retail competition and margin pressure, seasonality and weather, economic and consumer-spending changes, vendor and supply disruptions, store-location availability, and substantial indebtedness. Litigation includes labor, consumer/privacy and other matters; the company could not estimate reasonably possible losses beyond accrued amounts but did not expect resolution to materially affect its financial position or results.
- Adoption of the new lease standard was planned for the beginning of Fiscal 2019. Burlington expected a significant increase in balance-sheet assets and liabilities, but did not expect a material liquidity impact.
Key investor verification points
- Confirm the reporting-period distinction: the filing is for 2018 Q3, despite the “2017 Q3” request metadata.
- Review the quality and sustainability of comparable-sales growth, gross-margin gains, and inventory turnover, including the calendar shift and holiday-gifting timing effects.
- Assess cash conversion and seasonal working-capital needs alongside planned store, supply-chain and technology investment.
- Track debt balances, ABL availability, interest-rate exposure after the May 2019 hedge expiry, and the impact of buybacks funded partly through cash and ABL borrowings.
- Consider the non-GAAP adjustments, tax-rate effects, lease-standard balance-sheet impact, and the uncertainty of legal contingencies when evaluating reported earnings and leverage.