Burlington Stores, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the 13 weeks ended April 29, 2023 (Fiscal 2023 Q1), compared with the 13 weeks ended April 30, 2022. It does not cover 2022 Q1 as specified in the request metadata.
Business context and reporting period
Burlington is an off-price retailer of branded merchandise. It operated 933 stores in 46 states and Puerto Rico at quarter-end. Fiscal 2023 is a 53-week year ending February 3, 2024; the company cautions that first-quarter results may not indicate full-year performance because the business is seasonal.
Key financial metrics
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Net sales | $2,132.8 million | $1,925.6 million | +10.8% |
| Comparable-store sales | +4% | -18% | Improved |
| Gross margin | 42.3% | 41.0% | +1.3 percentage points |
| SG&A | $755.6 million | $680.3 million | +11.1% |
| Net income | $32.7 million | $16.2 million | +102.4% |
| Diluted EPS | $0.50 | $0.24 | Higher |
| Operating cash flow | $(78.0) million | $(172.3) million | Cash use narrowed |
| Capital expenditures, cash paid | $95.7 million | $106.9 million | Lower |
Gross margin improvement primarily reflected lower freight costs, partly offset by weaker merchandise margins and higher markdowns. Product sourcing costs increased about 60 basis points as a share of net sales. Store payroll remained 8.1% of net sales.
At April 29, 2023, cash and cash equivalents were $532.4 million; merchandise inventory was $1,231.1 million; and working capital was $265.4 million, versus $445.2 million a year earlier. Cash, including restricted cash, declined $340.2 million during the quarter. Total debt was $1,364.2 million, including $939.8 million of term loans, $397.4 million of convertible notes, and $32.5 million of finance lease obligations. The ABL facility had no borrowings and $839.8 million available. Operating lease liabilities totaled $3,245.4 million.
Material changes versus the prior comparable period
- Sales growth reflected a 4% comparable-store sales increase and incremental sales from new stores; 67 net stores had been added since Q1 FY2022.
- Net income and management’s non-GAAP Adjusted EBITDA increased, with the company citing higher sales and improved gross margin. Adjusted EBITDA was $157.3 million versus $125.4 million; Adjusted Net Income was $55.0 million versus $36.1 million. These are non-GAAP measures and exclude specified items.
- Interest expense rose to $19.3 million from $14.6 million, mainly due to higher variable rates; the term-loan rate was 7.0% at quarter-end versus 2.8% a year earlier.
- Cash used in operations improved year over year, primarily from stronger sales and margins and working-capital changes. Financing cash use included $133.7 million of convertible-note principal payments and $53.4 million of treasury-share purchases.
- Inventory was $1,231.1 million, down from $1,257.1 million a year earlier but up from $1,182.0 million at fiscal year-end. Reserve inventory was 44% of total inventory versus 50% a year earlier.
Outlook, commentary, risks and unusual items
- Plans: Management estimated FY2023 capital expenditures of approximately $560 million net of landlord allowances, including about $285 million for stores and $120 million for supply-chain initiatives. It planned approximately 70–80 net new stores, including 90–100 gross openings. No full-year earnings or sales guidance is provided in the supplied filing text.
- Strategy: Priorities include pursuing sales trends with opportunistic in-season buying, managing leaner store inventories, investing in merchandising capabilities, expanding stores, and controlling expenses and markdowns.
- Debt transactions: The company exchanged $110.3 million principal amount of 2.25% convertible notes for $133.3 million cash, recording a $24.6 million pre-tax debt-extinguishment loss. The comparable prior-year exchange generated a $14.7 million loss. The notes mature in April 2025. A May 11, 2023 amendment was to transition the term-loan benchmark from LIBOR to Term SOFR effective July 1, 2023.
- Capital allocation: The company repurchased 245,414 shares for $51.4 million under its $500 million authorization; $295.9 million remained at quarter-end. It did not anticipate cash dividends in the near term.
- Risks and commitments: Management identified inflation, pressured consumer spending, competition and margin pressure, supply-chain and sourcing costs, weather and seasonality, labor costs, merchandise availability, and execution of growth initiatives as risks. Purchase commitments for goods not yet received were $1,341.2 million; future minimum operating-lease payments were $3,965.1 million. The company is party to labor-related class or collective actions and other proceedings, but said their resolution was not expected to have a material adverse effect. It also reported $0.8 million of long-lived-asset impairment charges and said further charges could result if store projections are not achieved.
- Management stated that cash, operating cash generation and the ABL facility should fund expected needs and planned capital expenditures for at least the next 12 months, while cautioning that adverse economic conditions or weaker sales could affect performance. The filing reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the reporting-period mismatch: this filing covers Q1 FY2023, not Q1 FY2022.
- Track whether comparable-store sales growth and gross-margin improvement persist, particularly given markdown and sourcing-cost pressures.
- Assess cash generation against planned capital spending, share repurchases, lease commitments and remaining convertible-note obligations.
- Monitor variable-rate debt costs, the SOFR transition, and available ABL capacity.
- Evaluate execution of store-opening and merchandising plans and the potential effects of inflation, consumer weakness, seasonality and litigation.