Burlington Stores, Inc. quarterly report, Q2 FY2017

Burlington Stores, Inc. — Form 10-Q Summary

Business context and reporting period

The filing covers the quarter ended July 29, 2017, and the six months then ended, compared with periods ended July 30, 2016. This differs from the request metadata identifying “2016 Q2”; the filing itself is for fiscal 2017 Q2. Burlington operated 600 stores, including its internet store, in 45 states and Puerto Rico. Fiscal 2017 is a 53-week year ending February 3, 2018.

Key financial metrics

Metric	Three months ended July 29, 2017	Six months ended July 29, 2017
Net sales	$1,363.2 million	$2,709.8 million
Total revenue	$1,369.0 million	$2,721.2 million
Net income	$46.9 million; diluted EPS $0.66	$99.3 million; diluted EPS $1.40
Gross margin	40.7%	40.8%
Operating cash flow	Not presented quarterly	$72.2 million

• Compared with the prior-year periods, quarterly net sales rose 8.6%, comparable sales increased 3.5%, and net income rose from $20.4 million. For the six months, net sales rose 6.8%, comparable sales increased 2.0%, and net income rose from $57.9 million.
• Gross margin expanded approximately 110 basis points in the quarter and 90 basis points for the half-year, primarily due to lower markdowns and higher initial markups. SG&A was 32.1% of sales for the quarter and 31.7% for the half-year, modestly improved from the prior-year periods.
• Adjusted EBITDA, a non-GAAP measure, was $127.3 million for the quarter and $264.1 million for the half-year, increases of $28.2 million and $44.1 million, respectively. Management cautions that non-GAAP measures have limitations and are not substitutes for GAAP results.
• Six-month operating cash flow was $72.2 million versus $109.6 million a year earlier. Capital expenditures paid were $107.8 million; cash and cash equivalents declined $48.9 million to $32.6 million. Restricted cash was an additional $27.8 million.
• At July 29, 2017, total debt including capital leases was $1,278.3 million: $1,112.6 million under the term loan, $147.4 million drawn on the ABL facility, and $22.9 million in capital leases. The company reported $363.1 million available under the ABL facility. The term-loan borrowing rate was 4.0%.
• Current assets were $948.5 million and current liabilities $923.3 million; management reported a $2.6 million working-capital deficit excluding restricted cash. Stockholders’ deficit was $95.9 million.

Changes, outlook, risks and unusual items

• Net income growth reflected stronger gross margin and lower income-tax expense, partly offset by higher SG&A and depreciation. Adoption of share-based-payment accounting reduced the effective tax rate and increased EPS by $0.09 for the quarter and $0.16 for the half-year; management said the underlying estimated annual rate before discrete items was about 37%.
• The company repurchased 1.745 million shares for $160.8 million during the half-year. On August 16, 2017, the board authorized an additional $300 million repurchase program; this is subsequent to quarter-end. No near-term cash dividends were anticipated.
• Management forecast fiscal 2017 capital expenditures of approximately $210–$215 million net of about $40 million in landlord allowances. It expected 48 store openings, including five relocations, and six closures, excluding those relocations, for 37 net new stores. The company stated it expected operating cash, existing cash and ABL availability to fund requirements and planned capital spending for at least 12 months.
• Management’s stated growth target was at least 30 net new stores annually. It emphasized comparable-sales growth, inventory freshness and turnover, customer experience, e-commerce, and operating-margin improvement. No specific full-year earnings or comparable-sales guidance was provided in the supplied filing text.
• Inventory was $727.0 million, down from $745.0 million a year earlier; comparable-store inventory was down approximately 8%, and reported inventory turnover improved approximately 16% for the quarter. The company recorded $1.0 million of long-lived-asset impairments, primarily related to two stores.
• Key risks include retail competition and margin pressure, seasonality and weather, economic and consumer-spending changes, vendor and merchandise-delivery dependence, import risks, substantial debt and debt covenants, and execution of store expansion. The company disclosed wage-and-hour, consumer/privacy, and other litigation; it could not estimate reasonably possible losses beyond accruals, but did not expect final resolution to materially affect results, financial position, liquidity, or capital resources.
• Operating lease commitments included $500.5 million for 68 stores committed to open or relocate; purchase commitments for goods not yet received were $976.7 million. The forthcoming lease-accounting standard was expected to significantly increase reported assets and liabilities, though not materially affect liquidity, according to management.

Important facts for investors to verify

• Confirm the intended reporting period: the filing is for 2017 Q2, not 2016 Q2.
• Assess how much of EPS growth came from operating performance versus the new share-based tax accounting treatment and other tax items.
• Review cash conversion, working-capital needs, capital spending, and the effect of continued buybacks on liquidity and debt.
• Track comparable sales, gross-margin durability, inventory turnover, and execution of planned store openings amid seasonal and competitive risks.
• Review the complete debt agreements, lease commitments, litigation disclosures, and subsequent-event details for potential obligations or constraints.