Burlington Stores, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three months ended April 29, 2017, compared with the three months ended April 30, 2016. Although the request identifies 2016 Q1, the filing is for fiscal 2017 Q1. Burlington operated 596 stores, including its internet store, in 45 states and Puerto Rico.
Key financial results
| Metric | Q1 FY2017 | Q1 FY2016 |
|---|---|---|
| Total revenue | $1,352.2 million | $1,288.9 million |
| Net sales | $1,346.5 million | $1,282.7 million |
| Comparable-store sales growth | 0.5% | 4.3% |
| Net income | $52.4 million | $37.5 million |
| Diluted EPS | $0.73 | $0.52 |
| Operating cash flow | $28.6 million | $33.4 million |
| Cash capital expenditures | $52.9 million | $30.4 million |
- Gross margin improved to 40.9% of net sales from 40.1%; SG&A improved to 31.3% from 31.4%. Net income margin rose to 3.8% from 2.9%.
- Management reported Adjusted EBITDA of $136.8 million, up $15.9 million, and Adjusted Net Income of $56.6 million, up $15.0 million. These are non-GAAP measures.
- Cash and cash equivalents were $29.6 million at April 29, 2017, plus $27.8 million of restricted cash. Working capital was a $60.4 million deficit, versus a $78.8 million surplus a year earlier.
- Total debt was $1,153.9 million, including $1,112.3 million under the term loan, $23.2 million drawn on the ABL facility, and $23.3 million of capital lease obligations. ABL availability was $514.4 million.
Changes and management commentary
- Revenue increased about 4.9%; net sales rose 5.0%. Comparable-store growth slowed to 0.5% from 4.3%, while new and non-comparable stores contributed $65.1 million in sales.
- Net income increased about 40%. Higher merchandise margins and lower interest expense supported results; higher SG&A and depreciation, and lower other income, partly offset the gains.
- Inventory fell to $725.5 million from $804.7 million a year earlier. Management cited lower comparable-store and pack-and-hold inventory and reported improved inventory turnover.
- Cash declined $52.0 million during the quarter, compared with a $7.2 million increase in the prior-year quarter. Lower operating cash flow, higher capital spending, share repurchases, and lower net ABL borrowings contributed to the change.
- Adoption of the employee share-based-payment accounting standard reduced the effective tax rate by approximately 660 basis points and increased quarterly EPS by $0.07. The reported effective tax rate was 30.4%, compared with 37.6%.
Outlook, risks and contingencies
- No earnings or comparable-sales forecast is provided. Management said cash from operations, existing cash and the ABL facility should fund expected needs and planned capital expenditures for at least 12 months, while noting this is not assured.
- Fiscal 2017 plans include 44 store openings, including six relocations, and eight closures, for 30 net new stores. Planned capital expenditures are approximately $200 million net of landlord allowances; approximately $105 million is for store projects and $45 million for supply-chain initiatives.
- The company repurchased 518,165 shares for $48.9 million during the quarter and had $150.7 million remaining under its repurchase authorization. It did not anticipate paying cash dividends in the near term.
- Risks highlighted include retail competition and margin pressure, seasonality and weather, economic and consumer-spending conditions, vendor and merchandise-delivery dependence, indebtedness and debt covenants, and the availability of suitable store locations. Management cautioned that first-quarter results are not necessarily indicative of the full fiscal year.
- Commitments included $792.2 million of purchase orders for goods not yet received and $410.3 million of minimum lease payments for 57 stores committed to open or relocate. The filing also reports operating lease commitments across future years.
- The company is involved in ordinary-course litigation, including wage-and-hour and consumer or privacy claims. It could not estimate reasonably possible losses beyond amounts accrued, but did not expect resolution to materially adversely affect its financial position, results, liquidity or capital resources.
Important facts for investors to verify
- Whether the modest 0.5% comparable-store sales increase continued or improved after the reporting period.
- How much of the earnings improvement reflects underlying operations versus the $0.07-per-share tax-accounting benefit.
- Whether gross-margin gains and inventory-turnover improvements persisted without materially increasing markdowns or sourcing costs.
- How planned store openings and capital expenditures affect cash generation, working capital and ABL usage.
- Debt-service capacity, lease and purchase commitments, and any material developments in litigation or other contingencies.