Burlington Stores, Inc. — Form 10-Q Summary
Reporting period: Quarter ended May 5, 2018 (the filing’s comparable quarter ended April 29, 2017). Although the request metadata says “2017 Q1,” the filing covers 2018 Q1. Fiscal 2018 is a 52-week year ending February 2, 2019. Financial statements are unaudited.
Business context and results
Burlington is an off-price retailer of branded apparel, footwear, home goods and related merchandise. It operated 647 stores, including an internet store, in 45 states and Puerto Rico at quarter-end. It opened 24 stores, including five relocations, and closed one store during the quarter.
| Metric | Quarter ended May 5, 2018 | Prior comparable quarter | Change / context |
|---|---|---|---|
| Net sales | $1,518.4 million | $1,346.5 million | Up 12.8%; shifted comparable sales up 4.8% |
| Total revenue | $1,524.7 million | $1,352.2 million | Up $172.5 million |
| Gross margin | 41.2% | 40.9% | Up about 35 basis points |
| SG&A as a share of net sales | 30.8% | 31.3% | Improved about 45 basis points |
| Operating income | $114.5 million | $88.8 million | Calculated as income before tax plus interest expense and other income, net |
| Net income | $82.6 million | $52.4 million | Up $30.2 million; diluted EPS $1.20 vs. $0.73 |
| Adjusted EBITDA (non-GAAP) | $164.9 million | $136.8 million | Up $28.1 million |
| Adjusted EBIT (non-GAAP) | $119.8 million | $94.8 million | Up $24.9 million |
Cash flow, debt and liquidity
- Operating cash flow was $60.2 million, versus $28.6 million a year earlier. Investing activities used $57.9 million and financing activities used $58.5 million. Cash, cash equivalents and restricted cash together declined $56.2 million to $104.9 million.
- Cash and cash equivalents were $83.0 million; restricted cash and cash equivalents were $21.9 million. Working capital, excluding restricted cash, was a deficit of $12.6 million.
- Total debt was reported at $1,135.6 million, including $1,106.3 million under the Term Loan Facility, $11.8 million drawn on the ABL facility and $21.2 million of capital lease obligations. The term loan rate was 4.41% at quarter-end. The company had $533.2 million available under its ABL facility, which matures August 2019.
- Of the term loan balance, $800 million was effectively fixed at a 1.65% LIBOR rate, including swap premium, through May 2019. The company said it would assess hedging beyond that date and potential term-loan repricing.
- Capital expenditures, net of landlord allowances, were $51.7 million. The company estimated fiscal 2018 capital expenditures of approximately $250 million, net of about $60 million of landlord allowances and insurance recoveries.
Material changes and management commentary
- Management attributed higher earnings principally to stronger merchandise margin and sales growth, alongside a lower effective tax rate; increased SG&A partly offset these benefits. Merchandise margin gains were partly offset by higher freight costs.
- The effective tax rate was 17.4%, compared with 30.4%, primarily reflecting the Tax Cuts and Jobs Act. The company said its tax accounting remained provisional and expected to complete its analysis during fiscal 2018.
- Inventory was $786.6 million, up from $725.5 million a year earlier, reflecting store growth and higher pack-and-hold inventory. Comparable-store inventory was down 7%; inventory turnover improved about 8% overall and 12% on a comparable-store basis.
- The company repurchased 488,468 shares for $63.9 million under its authorization and had $153.3 million remaining. It does not anticipate cash dividends in the near term.
- Adoption of the new revenue standard did not change the timing or amount of revenue recognition for the vast majority of sales. It changed presentation of the sales-return reserve; at May 5, the return liability was $13.2 million and the related asset was $7.9 million.
Outlook, risks and contingencies
- Management planned 35–40 net new stores in fiscal 2018, including about 60 gross openings and 20–25 relocations and closings. It cited a longer-term goal of at least 30 net new stores annually. No earnings or revenue guidance is provided in the supplied filing text.
- Management believed operating cash flow, existing cash and the ABL facility would fund expected needs and planned capital expenditures for at least the next 12 months, while cautioning that sales declines may not be fully offset by savings.
- Key risks include seasonality and weather, consumer spending and economic conditions, competition and margin pressure, supply and import disruptions, vendor dependence, indebtedness and debt covenants, litigation, and the availability of suitable store locations. The company noted that second-half sales and net income are typically higher.
- Future minimum operating lease payments were disclosed as $260.5 million for the remainder of fiscal 2018, with substantial additional commitments thereafter. The company also had $994.5 million in purchase commitments for goods not yet received and commitments for 65 stores to open or relocate.
- The company is involved in ordinary-course litigation, including wage-and-hour and consumer/privacy claims. It could not estimate reasonably possible losses above amounts accrued, but believed final resolution would not materially harm results, financial position, liquidity or capital resources.
- The company expected adoption of the new lease accounting standard to significantly increase reported assets and liabilities, but not materially affect liquidity. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the intended reporting period: this filing is for the quarter ended May 5, 2018, not 2017 Q1.
- Review the shifted comparable-sales calculation and the impact of prior-year calendar shifts and weather-related store closures.
- Assess the sustainability of margin and earnings improvements, including freight costs, wage pressure, and the tax-rate benefit from the Tax Act.
- Monitor liquidity, ABL availability, debt maturities and rates, and the planned use of cash for repurchases, store growth and capital expenditures.
- Evaluate lease obligations, purchase commitments and litigation exposures; the filing does not quantify a reasonably possible loss range above accrued legal amounts.