Burlington Stores, Inc. — Form 10-Q Summary
Reporting period: Second quarter and six months ended August 3, 2019; comparative periods ended August 4, 2018. Although the request metadata says 2018 Q2, the filing itself reports 2019 Q2. Financial statements are unaudited. Amounts below are in millions except per-share data.
Business context and performance
Burlington is an off-price retailer operating 691 stores, including its internet store, across 45 states and Puerto Rico. During the six-month period, it opened 27 stores, including seven relocations, and closed four stores.
| Metric | Three months 2019 | Three months 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $1,662.0 | $1,504.7 | $3,296.2 | $3,029.5 |
| Net sales | $1,656.4 | $1,498.6 | $3,284.9 | $3,017.1 |
| Comparable-store sales growth | 3.8% | 2.9% | 1.9% | 3.8% |
| Net income | $84.6 | $71.0 | $162.3 | $153.5 |
| Diluted EPS | $1.26 | $1.03 | $2.40 | $2.23 |
| Gross margin | 41.4% | 41.4% | 41.2% | 41.3% |
| SG&A as a percentage of net sales | 32.1% | 32.0% | 31.9% | 31.4% |
| Net margin | 5.1% | 4.6% | 5.0% | 5.0% |
Management-reported non-GAAP measures increased year over year: second-quarter Adjusted EBITDA was $170.3 million and Adjusted EBIT was $118.2 million; six-month Adjusted EBITDA was $338.3 million and Adjusted EBIT was $235.6 million. Adjusted net income was $91.4 million for the quarter and $176.9 million for six months. These measures exclude specified items and should not be treated as substitutes for GAAP results.
Cash flow, debt and liquidity
- Six-month operating cash flow was $229.4 million, versus $166.3 million a year earlier. Investing cash use was $164.0 million, primarily reflecting higher capital spending; financing cash use was $80.5 million. Cash, cash equivalents and restricted cash decreased $15.1 million to $119.1 million.
- Cash capital expenditures, net of landlord allowances, were $140.5 million for six months. The company estimated fiscal 2019 capital expenditures of approximately $310 million net of approximately $55 million in landlord allowances.
- At August 3, 2019, debt included $957.1 million under the term loan, $96.9 million drawn on the ABL facility and $31.5 million of finance lease obligations. The company reported $428.6 million available under the ABL facility. The term-loan rate was 4.3%; average ABL borrowings cost 3.7% during the six-month period.
- Unrestricted cash was $97.2 million; restricted cash was $21.9 million. Working capital was negative $151.7 million, which management said was primarily affected by adoption of lease accounting and lower inventory.
Material changes and unusual items
- Second-quarter net sales increased 10.5%; six-month net sales increased 8.9%. Growth reflected comparable-store sales and new or non-comparable stores. Comparable-store growth slowed in the first half versus the prior-year first half.
- Quarterly gross margin was unchanged, as improved merchandise margin was offset by higher freight costs. Six-month gross margin declined about 10 basis points, primarily due to freight costs. SG&A as a share of sales rose, in part because new lease accounting reclassified favorable lease costs from depreciation and amortization into SG&A.
- The company adopted ASC 842 lease accounting in fiscal 2019 without restating prior periods. At August 3, it reported approximately $2.2 billion of operating lease assets and $2.3 billion of operating lease liabilities. This substantially increased reported assets and liabilities and complicates balance-sheet comparisons with earlier periods.
- The company repurchased 1.14 million shares for $174.1 million in the six months. It had $124.3 million remaining under its existing authorization at August 3; a further $400 million authorization was approved in the third quarter, after the reporting date.
- An interest-rate swap hedges $450 million of term-loan exposure through December 2023. The filing reported a $13.5 million six-month net-of-tax loss in other comprehensive income related to interest-rate derivatives.
Outlook, commentary and risks
Management expected operating cash flow, existing cash and the ABL facility to fund expected requirements and planned capital expenditures for at least the next 12 months. It planned approximately 50 net new stores in fiscal 2019 and emphasized comparable-sales growth, inventory productivity, customer experience, e-commerce and expense control. The filing does not provide specific earnings or comparable-sales guidance.
Management identified seasonality and weather, economic and consumer-spending conditions, competitive pricing and margin pressure, merchandise availability, trade policy and tariffs, store-site availability, execution of growth plans, cyber risks, and substantial indebtedness as risks. The company had $1,173.5 million of purchase commitments for goods not yet received and $74.5 million of letters of credit. It reported various litigation matters, including labor and consumer-related claims, but could not estimate reasonably possible losses beyond accrued amounts; management did not expect final resolution to materially adversely affect the company. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the correct period: the filing is for the quarter ended August 3, 2019, not 2018 Q2.
- Assess comparable-sales momentum: quarterly growth improved, while six-month growth fell versus the prior-year period.
- Separate lease-accounting effects from underlying balance-sheet trends when comparing assets, liabilities, working capital and expenses.
- Monitor freight costs, SG&A growth, inventory turnover and the effect of store expansion on margins and cash generation.
- Review available borrowing capacity, debt service and planned capital spending alongside the company’s buybacks and purchase commitments.