Burlington Stores, Inc. — Form 10-Q Summary
Period clarification: The filing is for the quarter ended November 2, 2013, not 2012 Q3 as stated in the request metadata. Unless noted, amounts below are in U.S. dollars; financial statement amounts are in millions.
Business context and reporting period
Burlington operated 521 retail stores, including its internet store, across 44 states and Puerto Rico. The company sells branded apparel, footwear, accessories, home goods and related merchandise through an off-price retail model. Results cover the three and nine months ended November 2, 2013, compared with periods ended October 27, 2012. Fiscal 2013 ends February 1, 2014. Management cautions that results are seasonal and interim results are not necessarily indicative of the full year.
Key financial metrics
| Metric | Three months | Nine months |
|---|---|---|
| Net sales | $1,064.5; up 10.0% | $3,093.2; up 9.9% |
| Total revenue | $1,072.9 | $3,117.3 |
| Comparable store sales | Up 3.9% | Up 5.0% |
| Gross margin as % of net sales | 39.0%, versus 38.6% | 38.0%, versus 37.5% |
| GAAP net loss | $(16.9), versus $(7.4) | $(47.4), versus $(42.6) |
| Adjusted EBITDA (non-GAAP) | $62.5, up 28.3% | $188.9, up 33.6% |
| Adjusted net loss (non-GAAP) | $(3.3), versus $(1.8) | $(10.8), versus $(22.8) |
Selling and administrative expense declined as a share of net sales: to 34.1% from 34.6% for the quarter, and to 32.9% from 33.6% year to date. Interest expense increased to $32.7 million for the quarter and $100.3 million for the nine-month period.
For the nine months, operating cash flow was $83.3 million, investing cash flow was $(352.8) million, and financing cash flow was $257.8 million. Capital expenditures were $122.2 million gross, or $103.1 million net of landlord allowances. Cash and cash equivalents were $31.6 million; restricted cash was $265.6 million, including $230.8 million placed with a trustee for note redemption. Working capital, as defined by the company, was $111.1 million.
At November 2, 2013, total debt was $1,715.7 million, including capital leases. This comprised a $1.0 billion senior secured term loan facility, $450 million of 10% senior notes due 2019, $350 million of senior notes due 2018, and $38 million drawn on the $600 million ABL facility. ABL availability was $521.2 million. The balance sheet classified $231.5 million as current maturities, largely reflecting the scheduled note redemption. Stockholders’ deficit was $215.8 million.
Material changes versus prior comparable periods
- Sales growth reflected both comparable-store gains and store expansion: the company opened 23 stores and closed two during the first nine months. Quarterly comparable sales increased $37.0 million; nine-month comparable sales increased $138.4 million.
- Gross margin improved, which management attributed to stronger merchandising margin and a lower shrink accrual rate. Management also cited its markdown system and inventory initiatives.
- Operating cash flow fell to $83.3 million from $313.2 million, principally due to working-capital changes, including inventory and accounts payable. Investing outflow rose substantially, largely because of the $230.8 million restricted deposit for note redemption.
- Net loss widened in the quarter despite better operating performance, as higher interest expense, a smaller tax benefit, and IPO/debt-related costs more than offset operating improvement. Year-to-date net loss also increased, while adjusted net loss improved.
- The October 2013 IPO sold 15.3 million shares at $17 per share and generated $237.4 million in net proceeds. The company also completed a reclassification and 11-for-1 stock split in connection with the offering.
Outlook, management commentary, risks and unusual items
- Management expected cash from operations, existing cash and ABL availability to fund expected requirements and planned capital expenditures for at least the next 12 months, while noting that this depended on future performance and economic conditions.
- Fiscal 2013 capital expenditures were estimated at $140–$150 million net of approximately $34 million in landlord allowances. The company planned no additional store openings for the remainder of Fiscal 2013; its longer-term goal was approximately 25 new stores annually.
- Management identified consumer spending and economic conditions, competition and margin pressure, weather and seasonality, merchandise sourcing and delivery, indebtedness, debt covenants, financing access, and litigation among relevant risks. The company reported compliance with debt covenants at November 2, 2013; its leverage and interest coverage ratios were 3.6 and 4.0, respectively.
- On November 7, 2013, after quarter-end, the company completed redemption of $221.8 million principal amount of the 2018 notes using the restricted deposit. It expected to record a $14.7 million extinguishment loss in the fourth quarter, including redemption premiums and write-offs of discount and financing costs.
- Other notable costs included $22.0 million of debt amendment and IPO costs and $9.0 million of stock-option modification expense for the nine months. The company also paid a $336 million special dividend in February 2013, funded with proceeds from the 2018 notes, and paid Bain Capital a $10.1 million advisory-agreement termination fee in connection with the IPO.
Most important facts for investors to verify
- Confirm the intended reporting year: this filing covers 2013 Q3, despite the request metadata specifying 2012 Q3.
- Review the November 7, 2013 note redemption and fourth-quarter $14.7 million expected loss, including its cash and debt effects.
- Assess debt service and refinancing risk, covenant headroom, floating-rate exposure, and the extent to which restricted cash is unavailable for general use.
- Reconcile GAAP losses with management’s non-GAAP adjusted measures and note the unusual IPO, debt-amendment, advisory and stock-option costs.
- Evaluate whether sales growth, margin improvement, inventory management and cash generation can continue through the seasonal holiday period; management gives no specific earnings guidance in the provided filing text.