Burlington Stores, Inc. — Form 10-Q Summary
Reporting period: Three months ended May 2, 2015, compared with the three months ended May 3, 2014. The supplied metadata labels this “2014 Q1,” but the filing reports first-quarter fiscal 2015 results. Burlington operated 546 stores, including an internet store, in 44 states and Puerto Rico.
Financial performance
| Metric | Q1 FY2015 | Q1 FY2014 | Change |
|---|---|---|---|
| Total revenue | $1,190.9 million | $1,135.9 million | +4.9% |
| Net sales | $1,183.1 million | $1,128.3 million | +4.9%; comparable sales +0.8% |
| Gross margin | 39.7% | 38.1% | +160 basis points |
| SG&A as a share of net sales | 31.9% | 30.8% | +110 basis points |
| Income before tax | $41.3 million | $19.6 million | Increased |
| Net income | $25.7 million | $11.8 million | +$13.9 million |
| Diluted earnings per share | $0.34 | $0.16 | Increased |
| Adjusted EBITDA (non-GAAP) | $101.4 million | $92.3 million | +$9.1 million |
| Adjusted net income (non-GAAP) | $31.4 million | $18.6 million | +$12.8 million |
Management attributed the gross-margin improvement primarily to lower markdowns. This was partly offset by higher product-sourcing costs, which increased approximately 80 basis points of net sales and contributed to higher SG&A. Net income also benefited from lower interest expense following the 2014 refinancing and debt repayments.
Cash flow, debt and liquidity
- Operating cash flow was a use of $21.9 million, versus cash provided of $43.5 million a year earlier. Inventory and prepaid-asset increases were significant cash uses.
- Investing activities used $43.0 million, principally for property and equipment. Financing activities provided $74.2 million, including $116.7 million of net ABL borrowings and a $50.0 million term-loan prepayment.
- Cash and cash equivalents were $34.7 million at quarter-end; restricted cash was a further $27.8 million. Working capital was $134.1 million, excluding restricted cash.
- Debt obligations totaled $1,317.2 million, including $25.3 million of capital lease obligations: $1,112.0 million under the term loan facility and $180.0 million drawn on the ABL. The ABL had $382.6 million available. The term-loan rate was 4.25% at May 2, 2015.
- The company prepaid $50.0 million of term debt on May 1; the prepayment offset scheduled quarterly payments through May 1, 2021. A $0.6 million non-cash debt-extinguishment loss was recorded.
Changes, outlook and notable items
- Sales growth included $49.2 million from new and non-comparable stores; comparable sales rose 0.8%. Management cited improved execution, partly offset by timing of tax refunds, weather-related closures and merchandise receipt issues.
- Inventory was $822.3 million, up from $707.6 million a year earlier. Management attributed the increase mainly to approximately $71 million more pack-and-hold inventory and new stores; comparable-store inventory was down approximately 11%, while comparable-store inventory turnover improved approximately 18%.
- The company opened five stores and closed one during the quarter, and continued to expect 25 net new stores in fiscal 2015. Estimated fiscal-year capital expenditures were $150–$160 million, net of approximately $40 million in landlord allowances.
- Management said cash from operations, existing cash and the ABL were expected to fund operating needs and planned capital expenditures for at least the next 12 months. No specific full-year sales or earnings guidance is provided in the supplied filing text. Results are seasonal and the quarter is not necessarily indicative of the full year.
- In June 2015, the board authorized up to $200 million of share repurchases over 24 months, funded from available cash. The company said it did not anticipate near-term cash dividends. The April secondary offering was by selling stockholders; Burlington received no proceeds and incurred $0.3 million in costs.
- A California Song-Beverly Credit Card Act case had resulted in a trial-court finding against the company. Burlington sought reconsideration following a subsequent appellate decision; the outcome and any penalty remained uncertain and could be material. The total legal accrual was $12.6 million, and the company could not estimate reasonably possible losses beyond accrued amounts.
- The quarter included $1.7 million of long-lived-asset impairment charges, primarily related to two stores. The company also disclosed a correction to the prior-year cash-flow presentation: $3.4 million of excess stock-compensation tax benefits was reclassified from operating to financing activities, reducing both reported operating cash flow and financing cash flow for the prior period by that amount.
Important facts for investors to verify
- Whether comparable-sales growth and gross-margin gains continue, given the quarter’s weather, timing and receipt-flow factors.
- Whether inventory growth, including pack-and-hold purchases, converts to sales without increased markdowns; monitor sourcing and SG&A costs.
- Debt-service capacity and interest-rate exposure: a 1-percentage-point rate increase was estimated to add about $5.0 million in annual cash interest after the new caps became effective.
- Developments in the California litigation, including any ruling on the company’s motion and potential penalties beyond the accrual.
- Execution and funding of the store-opening and capital-spending plans and the $200 million repurchase authorization, alongside available liquidity.