Burlington Stores, Inc. — Form 10-K Summary
Period clarification: The filing covers fiscal 2022, the 52 weeks ended January 28, 2023, with comparison to fiscal 2021 ended January 29, 2022. It is not a filing for “2021 Q4.” Amounts below are in U.S. dollars.
Business context and reporting period
Burlington is an off-price retailer selling branded apparel, footwear, accessories, home goods and other merchandise primarily through stores. At fiscal year-end it operated 927 stores in 46 states and Puerto Rico; more than 99% of net sales came from stores. The company reported one operating segment.
Financial performance and liquidity
| Metric | Fiscal 2022 | Fiscal 2021 |
|---|---|---|
| Net sales | $8.685 billion | $9.307 billion |
| Total revenue | $8.703 billion | $9.322 billion |
| Comparable store sales | -13% | +15% |
| Gross margin | 40.4% | 41.6% |
| Net income | $230.1 million | $408.8 million |
| Diluted earnings per share | $3.49 | $6.00 |
| Adjusted EBITDA (non-GAAP) | $700.7 million | $1.051 billion |
| Operating cash flow | $596.4 million | $833.2 million |
| Cash, cash equivalents and restricted cash, year-end | $879.2 million | $1.098 billion |
Fiscal 2022 cash used in investing activities was $423.1 million and cash used in financing activities was $391.7 million. Cash and restricted cash decreased $218.5 million during the year. Working capital was $365.3 million, down from $593.4 million.
At year-end, debt included $942.0 million under the senior secured term loan, $507.7 million of convertible notes and $33.4 million of finance lease obligations; there were no ABL borrowings. The $900 million ABL facility had $795.7 million available. Term-loan borrowing rate was 6.4%; a swap hedged $450 million of variable-rate exposure. Management said cash from operations, existing cash and the ABL facility should fund expected needs and planned capital expenditures for at least 12 months.
Material changes versus the prior year
- Net sales fell 6.7%, chiefly reflecting the 13% comparable-sales decline, partly offset by 87 net new stores since fiscal 2021 year-end.
- Gross margin declined 1.2 percentage points. Management attributed pressure to higher markdowns, increased inventory shortage and freight costs.
- Net income fell $178.7 million; Adjusted EBITDA fell $350.2 million. Lower sales and gross margin were principal drivers. Fiscal 2021 included a much larger debt-extinguishment loss ($156.0 million versus $14.7 million in fiscal 2022).
- Inventory rose to $1.182 billion from $1.021 billion. Comparable-store inventory increased 32%, which management said was intentional after lean inventories had hurt the fiscal 2022 first-quarter sales trend; comparable-store inventory remained below pre-pandemic levels.
- Operating cash flow declined $236.8 million. Management cited lower sales and margin and working-capital changes, including earlier vendor payments following an accounts-payable policy change.
- Capital expenditures, net of landlord allowances, were $428 million, versus $319 million. The company repurchased 1.76 million shares for $302.7 million.
Outlook, management commentary, risks and unusual items
- For fiscal 2023, Burlington planned approximately 90–100 gross new stores, or 70–80 net new stores, and approximately $560 million of capital expenditures, net of about $10 million in landlord allowances. Its long-term store target remained 2,000.
- Management’s stated initiatives include chasing sales trends more effectively, carrying leaner store inventories, investing in merchandising capabilities, improving store economics and customer experience, optimizing markdowns, and tightly managing expenses. The filing gives no clear fiscal 2023 sales, earnings or comparable-sales guidance.
- Key risks include inflation and pressure on lower-to-moderate-income consumers, intense retail promotions and competition, freight and supply-chain costs, weather and seasonality, labor availability and costs, inventory markdowns and shrinkage, and execution of store expansion and distribution investments.
- Fiscal 2022 included $14.7 million of pre-tax debt-extinguishment charges from exchanging $64.6 million principal of convertible notes for $78.2 million cash, and $21.4 million of long-lived-asset impairment charges. Management also reported increased inventory shrinkage and loss-prevention costs.
- After year-end, on March 7, 2023, the company agreed to exchange $110.3 million principal of convertible notes for $133.3 million cash. The notes mature in 2025 and may create cash, dilution or liquidity effects depending on conversion and settlement circumstances.
- Material commitments include $3.922 billion of future operating-lease payments and $1.049 billion of merchandise purchase commitments. The filing also describes ongoing labor, employment, privacy, product and other legal proceedings; management did not expect their resolution to have a material adverse effect, while noting litigation uncertainty.
- Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified inventory markdown timing as a critical audit matter, involving significant judgment in inventory valuation.
Important facts for investors to verify
- Whether sales and comparable-store trends recover, and whether planned leaner inventories and merchandising investments improve markdowns and gross margin.
- Whether increased inventory and reserve inventory can be sold at expected margins, given the auditor’s focus on markdown timing and the reported rise in shrinkage.
- Fiscal 2023 store-opening and capital-spending execution, including the return on new stores and supply-chain investments.
- Cash generation and liquidity after share repurchases, capital expenditures, scheduled debt service and the subsequent $133.3 million cash exchange of convertible notes.
- Exposure to variable interest rates, the LIBOR-to-SOFR transition for term-loan arrangements, and the potential cash or dilution consequences of convertible notes.
- Progress against management’s outlook and the effects of consumer pressure, promotions, freight, labor, weather and lease commitments.