Burlington Stores, Inc. — Form 10-Q Summary
Period clarification: The request metadata says “2018 Q3,” but the supplied filing is for the quarter ended November 2, 2019, with comparisons to November 3, 2018. Fiscal 2019 is expected to end February 1, 2020. Figures below are in U.S. dollars; financial-statement amounts are rounded to millions unless stated otherwise.
Business context and reporting period
Burlington is an off-price retailer of branded apparel, footwear, home goods and other merchandise. It reported 726 stores, including its internet store, across 45 states and Puerto Rico as of November 2, 2019. Results are seasonal; management cautions that interim results are not necessarily indicative of the full fiscal year.
Financial performance
| Metric | Three months ended Nov. 2, 2019 | Three months ended Nov. 3, 2018 | Nine months ended Nov. 2, 2019 | Nine months ended Nov. 3, 2018 |
|---|---|---|---|---|
| Net sales | $1,774.9 million | $1,634.5 million | $5,059.9 million | $4,651.6 million |
| Total revenue | $1,781.6 million | $1,641.0 million | $5,077.8 million | $4,670.4 million |
| Net income | $96.5 million | $76.8 million | $258.8 million | $230.4 million |
| Diluted EPS | $1.44 | $1.12 | $3.84 | $3.35 |
| Comparable-store sales growth | 2.7% | 4.4% | 2.2% | 4.0% |
| Gross margin as % of net sales | 42.4% | 42.4% | 41.6% | 41.7% |
| SG&A as % of net sales | 32.9% | 32.9% | 32.3% | 31.9% |
- Quarterly net sales rose 8.6%; nine-month net sales rose 8.8%. New and non-comparable stores contributed substantially to growth, alongside positive comparable-store sales.
- Quarterly net income increased about 25.5%, and nine-month net income increased about 12.3%. Management attributed the improvement mainly to higher gross-margin dollars, partly offset by higher SG&A.
- Quarterly gross-margin percentage was unchanged. For the nine months, it declined approximately 10 basis points, primarily due to freight costs and inventory write-offs, partly offset by improved merchandise margin.
- Nine-month SG&A increased 9.9% and rose 40 basis points as a share of sales. Lease-accounting reclassification increased the reported ratio; product-sourcing and certain marketing costs improved as a share of sales.
- Adjusted results, which are non-GAAP and exclude specified items, were $103.8 million adjusted net income, $193.8 million adjusted EBITDA and $141.2 million adjusted EBIT for the quarter, each excluding management transition costs. Nine-month figures were $280.8 million, $532.1 million and $376.8 million, respectively.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $476.9 million, compared with $375.4 million in the prior-year period. Capital expenditures were $259.7 million before landlord allowances and insurance recoveries; net cash used in investing was $256.0 million.
- Cash, cash equivalents and restricted cash increased $12.9 million during the nine months, to $147.1 million combined. Cash and cash equivalents alone were $140.5 million at November 2, 2019.
- Net cash used in financing was $207.9 million, including $236.0 million of treasury-share purchases in the cash-flow statement.
- Total debt was $985.7 million, including $957.3 million under the term loan and $30.8 million of finance-lease obligations. There were no ABL borrowings at quarter-end; $540.8 million was available under the revolving facility. The term-loan rate was 3.9%.
- Operating-lease liabilities totaled $2.552 billion, including $293.8 million current. The company adopted the new lease standard in fiscal 2019, recognizing approximately $2.3 billion in right-of-use assets and $2.6 billion in lease liabilities; prior periods were not restated. This materially affects balance-sheet comparability.
- Working-capital deficit was $199.1 million, versus a $26.7 million deficit a year earlier. Management said lease-standard adoption was a primary driver and stated that liquidity was sufficient for expected needs for at least the next 12 months.
Changes, outlook and notable items
- Comparable-store sales growth slowed from 4.4% to 2.7% in the quarter and from 4.0% to 2.2% for the nine months, despite overall sales growth from store expansion.
- The company opened 72 stores, including 15 relocations, and closed six during the nine months. It planned 51 net new stores for fiscal 2019, based on approximately 76 gross openings and 25 relocations and closures.
- Management estimated fiscal 2019 capital expenditures of approximately $310 million, net of about $55 million in landlord allowances, including roughly $175 million for stores and $60 million for supply-chain initiatives. The filing gives no specific full-year sales or earnings guidance.
- In the quarter, Burlington received $12.5 million in insurance proceeds for earlier weather-related events and recognized an $8.1 million gain in other income. It also recorded $3.1 million of fiscal-year losses tied mainly to merchandise at weather-damaged, temporarily closed stores.
- Michael O’Sullivan became CEO in September 2019. The company recorded $1.3 million of management-transition costs for the nine months, primarily sign-on and duplicative compensation costs; adjusted measures exclude these costs.
- The company repurchased 1.365 million shares for $216.9 million during the nine months and had $481.6 million remaining under its authorizations. It did not anticipate cash dividends in the near term.
- Management cited risks including economic and consumer-spending conditions, competition and margin pressure, weather, tariffs and trade policy, merchandise sourcing, store-location availability, cyber incidents, litigation and debt-service obligations. It could not estimate reasonably possible legal losses beyond accruals, but did not expect resolution of current matters to have a material adverse effect.
Important facts for investors to verify
- Confirm the intended reporting period: this filing covers Q3 2019, not Q3 2018.
- Review comparable-store sales, inventory turnover and margin trends; comparable-store sales growth was lower year over year.
- Assess the effects of lease-standard adoption on reported assets, liabilities, expenses and period-to-period comparisons.
- Track the planned store openings and capital spending against actual execution and returns.
- Evaluate cash generation alongside share repurchases, lease commitments, debt service and the company’s use of its revolving-credit availability.
- Consider that adjusted earnings measures exclude specified costs and are not substitutes for GAAP results; the filing also reports an insurance-recovery gain in other income.