Burlington Stores, Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter and nine months ended November 1, 2014; comparisons are to the periods ended November 2, 2013. This differs from the request metadata’s “2013 Q3.” Burlington operated 539 stores, including an internet store, in 44 states and Puerto Rico.
Financial performance and position
| Metric | Quarter ended Nov. 1, 2014 | Nine months ended Nov. 1, 2014 |
|---|---|---|
| Total revenue | $1,166.1 million, up 8.7% | $3,353.1 million, up 7.6% |
| Net sales / comparable-store sales growth | $1,157.3 million / 5.2% | $3,329.1 million / 4.2% |
| Gross margin | 39.6%, versus 39.0% | 38.7%, versus 38.0% |
| Net loss | $34.2 million, versus $16.9 million | $28.9 million, versus $47.4 million |
| Adjusted net income (non-GAAP) | $11.9 million, versus a $3.3 million loss | $29.6 million, versus a $10.8 million loss |
| Adjusted EBITDA (non-GAAP) | $72.5 million, versus $62.5 million | $222.9 million, versus $188.9 million |
For the nine months, operating cash flow was $88.5 million, cash used in investing was $164.4 million, and cash used in financing was $27.7 million. Cash and cash equivalents declined $103.5 million to $29.4 million; restricted cash was $32.1 million. Working capital was $45.5 million, down from $111.1 million a year earlier. Cash paid for property and equipment was $164.5 million.
At November 1, total debt on the balance sheet, including capital leases, was $1.424 billion; long-term debt net of current maturities was $1.411 billion. Stockholders’ deficit was $167.9 million. The company reported $205.2 million drawn on its $600 million ABL facility and $346.3 million available. The term loan carried a 4.25% rate; management disclosed that a one-percentage-point rate increase, before caps, would add about $13.9 million of annual cash interest at the reported floating-debt balance.
Material changes and unusual items
- August refinancing replaced the prior term loans and redeemed the Senior Notes and remaining Holdco Notes. New Term B-3 loans had $1.2 billion principal and mature in 2021; the amended ABL matures in 2019. The refinancing reduced certain borrowing margins and removed specified financial performance covenants, while expanding permitted debt, investment and restricted-payment flexibility.
- The refinancing produced a $70.3 million third-quarter loss on debt extinguishment; including the April partial redemption, the nine-month charge was $74.0 million. This helped drive the quarterly GAAP net loss higher despite sales growth and improved gross margin. Nine-month net loss improved year over year.
- SG&A was 34.3% of net sales in the quarter, up from 34.1%, as higher product-sourcing costs offset store payroll and other leverage. For nine months, SG&A was 32.9% in both periods; product-sourcing costs increased as a share of sales.
- Inventory was $899.9 million, slightly below $902.4 million a year earlier. Comparable-store inventory was down 13.7%, while pack-and-hold inventory and new stores partly offset the decrease. Annualized comparable-store inventory turnover improved to 4.5 turns from 3.8.
Outlook, risks and contingencies
Management expected cash from operations, existing cash and the ABL facility to fund anticipated needs and planned capital expenditures for at least the next 12 months, while cautioning that economic or sales declines could challenge mitigation efforts. The company estimated fiscal 2014 capital expenditures of approximately $180 million net of about $40 million in landlord allowances, including store, distribution, IT and headquarters investments. It planned four additional Burlington store openings in the remainder of fiscal 2014 and stated a longer-term goal of approximately 25 net new stores annually. No specific earnings or sales guidance was provided in the filing text.
Key risks include consumer spending and economic conditions, competition and margin pressure, seasonality and weather, merchandise sourcing and delivery, substantial debt and floating-rate exposure, financing availability, lease and store-location execution, and litigation. The company disclosed a California customer-privacy class action involving credit-card transactions; trial was scheduled for January 20, 2015, and the potential exposure beyond recorded accruals was not estimable. Total accrued legal claims were $3.6 million. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Adjusted net income and Adjusted EBITDA are non-GAAP measures; the company cautions they are not substitutes for GAAP results and exclude items including debt-extinguishment losses, certain fees and other expenses.
Important facts for investors to verify
- Confirm the filing period and compare GAAP results with the company’s non-GAAP reconciliations, especially the large refinancing charge.
- Review the refinancing’s full terms, debt-service requirements, covenant flexibility, interest-rate caps and sensitivity to higher rates.
- Assess cash generation, ABL availability, seasonal inventory and working-capital needs alongside planned capital spending.
- Monitor comparable-store sales, gross-margin gains and sourcing-cost pressure as the store base expands.
- Check subsequent developments in the California privacy litigation and other legal matters, as potential losses beyond accruals were not estimated.