Burlington Stores, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended October 29, 2016 (fiscal 2016 third quarter), with comparisons to October 31, 2015. This differs from the requested “2015 Q3” period. Financial statements are unaudited. Burlington operated 592 stores, including its internet store.
Financial performance
| Metric | Three months ended Oct. 29, 2016 | Three months ended Oct. 31, 2015 | Nine months ended Oct. 29, 2016 | Nine months ended Oct. 31, 2015 |
|---|---|---|---|---|
| Net sales | $1,342.6 million | $1,230.9 million | $3,880.3 million | $3,558.2 million |
| Total revenue | $1,349.0 million | $1,238.7 million | $3,898.6 million | $3,581.2 million |
| Net income | $32.4 million | $15.1 million | $90.3 million | $51.7 million |
| Diluted EPS | $0.45 | $0.20 | $1.25 | $0.68 |
| Gross margin as % of net sales | 41.2% | 39.8% | 40.3% | 39.6% |
| SG&A as % of net sales | 33.6% | 33.8% | 32.5% | 33.0% |
| Comparable-store sales growth | 3.7% | 2.8% | 4.5% | 3.0% |
Net sales rose 9.1% in both comparison periods. Management attributed the gains to comparable-store growth, new stores, and improved execution of its off-price model. Net income increased substantially, primarily on stronger gross margin; higher SG&A and income tax expense partly offset the improvement. Adjusted EBITDA, a non-GAAP measure, was $109.6 million for the quarter and $329.6 million for the nine months, versus $82.5 million and $259.4 million, respectively. Adjusted Net Income was $36.3 million and $106.1 million, versus $19.0 million and $65.3 million.
Cash flow, debt and liquidity
- For the nine months, operating cash flow was $286.5 million, compared with $103.7 million; cash used in investing was $137.5 million versus $149.5 million, and cash used in financing was $137.1 million versus cash provided of $49.3 million.
- Cash and cash equivalents were $32.8 million at October 29, 2016, with a further $27.8 million of restricted cash. Cash increased $11.9 million during the nine-month period. Working capital was a $0.6 million deficit, versus an $84.8 million surplus at October 31, 2015.
- Total debt was $1.305 billion, including $1.112 billion under the term loan and $174.3 million drawn on the ABL revolving facility. The company reported $383.7 million of ABL availability. The term loan borrowing rate was 3.50% after a July 2016 repricing.
- The July repricing reduced the LIBOR margin from 3.25% to 2.75% and the LIBOR floor from 1.00% to 0.75%. It generated a $3.8 million non-cash debt-extinguishment loss and $1.3 million of amendment fees.
- Cash paid for property and equipment was $137.6 million; capital spending net of landlord allowances was $119.8 million. The company reported stock repurchases of $150.0 million during the nine months.
Changes, outlook and risks
- Gross margin improved 140 basis points in the quarter and 70 basis points year to date, reflecting higher initial markups and lower markdowns. SG&A leverage also improved, although sourcing costs rose about 20 basis points as a share of sales.
- Inventory was $822.5 million, down from $934.0 million a year earlier. Management cited lower comparable-store and pack-and-hold inventory; comparable-store inventory turnover improved approximately 12% in the quarter.
- The company opened 29 stores and closed four during the first nine months. It expected one opening and one closing in the fourth quarter, for 25 net new Burlington Stores during fiscal 2016. Its longer-term goal was approximately 30 net new stores annually.
- Fiscal 2016 capital expenditures were estimated at approximately $160 million, net of about $30 million in landlord allowances. Management believed cash from operations, existing cash and ABL availability would meet expected requirements and planned capital spending for at least the next 12 months. No specific earnings or sales guidance was provided in the supplied text.
- The board authorized an additional $200 million share repurchase program on November 15, 2016, after quarter-end; the authorization runs through November 2018. The company did not anticipate paying cash dividends in the near term.
- Key risks include retail competition and margin pressure, seasonal and weather-sensitive sales, economic and consumer-spending conditions, vendor and merchandise-delivery dependence, store-location availability, substantial debt and floating interest rates, and litigation. The company could not estimate reasonably possible legal losses beyond accrued amounts and said outcomes could materially affect results.
- A 1-percentage-point rise in rates at current borrowing levels was estimated to add about $1.7 million of interest expense per quarter, or $6.8 million annually. Results are seasonal and interim performance is not necessarily indicative of the full fiscal year.
Important facts for investors to verify
- Confirm the intended reporting period: the filing covers fiscal 2016 Q3, not 2015 Q3.
- Review the drivers and sustainability of gross-margin improvement, comparable-store growth and inventory reductions, including any effects from weather and the fragrance-category transition.
- Assess cash generation against seasonal working-capital needs, planned capital spending, buybacks and debt service; distinguish unrestricted from restricted cash.
- Check the term-loan and ABL terms, available borrowing capacity, floating-rate exposure and the effect of ongoing repurchases on liquidity and leverage.
- Monitor legal proceedings and purchase commitments; the filing reports $706.5 million of commitments for goods not yet received and no estimable range of potential legal losses beyond accruals.