Burlington Stores, Inc. — Form 10-Q Summary
Period clarification: The filing covers the three months ended April 30, 2016, compared with the three months ended May 2, 2015. This differs from the requested “2015 Q1” period label.
Business context and reporting period
Burlington operated 570 stores, including its internet store, in 45 states and Puerto Rico. The off-price retailer sells branded apparel, footwear, accessories, home goods and other merchandise. The company cautions that its business is seasonal and first-quarter results are not necessarily indicative of the full fiscal year.
Financial performance and liquidity
| Metric | Three months ended April 30, 2016 | Comparable 2015 period |
|---|---|---|
| Total revenue | $1,288.9 million | $1,190.9 million |
| Net sales | $1,282.7 million | $1,183.1 million |
| Gross margin | 40.1% | 39.7% |
| SG&A as a percentage of net sales | 31.4% | 31.9% |
| Net income | $37.5 million | $25.7 million |
| Diluted earnings per share | $0.52 | $0.34 |
| Adjusted EBITDA (non-GAAP) | $121.0 million | $101.4 million |
| Operating cash flow | $30.4 million provided | $21.9 million used |
Cash and cash equivalents were $28.1 million at April 30, 2016. Working capital was $78.8 million, excluding restricted cash. Total debt, including capital leases and before current maturities, was approximately $1.352 billion; the term loan borrowing rate was 4.25%. The ABL facility had $222.2 million outstanding and $339.3 million available.
Capital expenditures were $30.4 million in cash-flow statement terms; management reported $27.9 million net of landlord allowances. The company repurchased $50.0 million of shares during the quarter.
Material changes versus the prior comparable period
- Net sales increased 8.4%, including 4.3% comparable-store sales growth. New stores and stores not yet included in comparable sales also contributed to growth.
- Gross margin improved by approximately 35 basis points, while SG&A declined 50 basis points as a share of sales. Management cited improved occupancy and advertising leverage, partly offset by higher product-sourcing costs.
- Net income rose $11.8 million. Management attributed the improvement primarily to higher gross margin.
- Inventory was $804.7 million, down from $822.3 million a year earlier; comparable-store inventory was down approximately 9%, and comparable-store inventory turnover improved approximately 7%.
- Operating cash flow improved from a use of $21.9 million to generation of $30.4 million. Cash increased $7.2 million during the quarter.
- Debt was higher than at January 30, 2016, principally reflecting a $54.8 million net increase in ABL borrowings. The company also used ABL borrowings for share repurchases and working capital.
Outlook, commentary and risks
- Management expected approximately 25 net new Burlington stores in fiscal 2016 and estimated capital expenditures of $150–$160 million, net of approximately $30 million in landlord allowances.
- The company said cash from operations, existing cash and the ABL facility should fund expected needs and planned capital expenditures for at least the next 12 months. This is management’s expectation, not a guarantee.
- Management reported no expectation of near-term cash dividends. The share-repurchase authorization had $149.6 million remaining at quarter-end.
- Key risks cited include seasonality and weather, consumer spending and economic conditions, competition and margin pressure, vendor and merchandise-delivery dependence, substantial indebtedness and debt covenants, and the availability of suitable store locations.
- Pending litigation includes wage-and-hour, consumer/privacy and other claims. The company could not estimate reasonably possible losses beyond accrued amounts and said outcomes could materially affect results.
- Unusual items included $3.1 million of increased other income, primarily from sales of state tax credits. Adjusted EBITDA and Adjusted Net Income are non-GAAP measures and exclude specified items; they should not be viewed as substitutes for GAAP results.
Important facts for investors to verify
- Confirm the reporting-period label: the filing is for the quarter ended April 30, 2016, despite the request’s “2015 Q1” metadata.
- Review the drivers and sustainability of comparable-store sales growth and gross-margin improvement, including the effects of weather, merchandise mix and fragrance sales transitioning to an owned category.
- Assess debt service, seasonal ABL borrowing needs and available borrowing capacity alongside the company’s planned capital spending and share repurchases.
- Check the assumptions behind store-opening and capital-expenditure plans and monitor execution against them.
- Review subsequent developments in legal proceedings and any changes to the company’s assessment of potential losses.