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Burlington Stores (BURL) Up 12.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Burlington Stores (BURL - Free Report) . Shares have added about 12.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Burlington Stores due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Burlington Stores Q3 Earnings & Revenues Beat Estimates

Burlington Stores reported better-than-expected results for third-quarter fiscal 2020. However, both top and bottom lines declined year over year on adverse impacts of COVID-19. Nonetheless, the company saw early encouraging signs during the quarter with respect to Burlington 2.0 Off-Price Full Potential Strategy. This strategy helped the company with robust opportunistic buys and inventory levels.

Let’s Introspect

The company delivered third-quarter adjusted earnings of 29 cents per share that surpassed the Zacks Consensus Estimate of 19 cents. However, the bottom line compared unfavorably with earnings of $1.53 recorded in the prior-year quarter, mainly due to lower sales coupled with increased product sourcing costs with respect to disruptions related to the pandemic.

Total revenues were $1,667.2 million, which fell 6.4% year over year. We note that net sales plunged 6.2% year over year to $1,664.7 million, while other revenues declined 62.1% to $2.5 million. The Zacks Consensus Estimate was pegged at $1,546 million.

Further, comparable-store sales (comps) fell 11% as sales trends remained challenging in August owing to a deficiency in inventory levels and late back-to-school purchases. However, comps trends improved for the combined September and October period on recovering inventory levels and higher back-to-school demand. Comps were down 4% for the combined period.

Gross margin expanded 260 basis points (bps) to 45% in the fiscal third quarter, owing to reduced markdowns and higher markup, partly offset by increased freight costs.

Adjusted SG&A expenses were $495.5 million, up 1.9% year over year on higher store-related and corporate expenses, partly offset by lower marketing costs. The SG&A expenses include product-sourcing costs of $144 million, which comprise cost of processing goods via supply chain, and buying costs. Further, adjusted EBIT was $58.6 million during the reported quarter, down 58.1% from the year-ago quarter.

Other Financial Aspects

The company ended the reported quarter with cash and cash equivalents of $1,348.7 million, long-term debt of $2,169.5 million and shareholders’ equity of $286.6 million. Also, it had $292 million cash on its ABL facility, having $250 million outstanding at the end of the quarter.

Moreover, merchandise inventories were $867 million, down 14% from last year, while comparable store inventories fell 20%. The decline was due to the company’s conservative inventory plans on account of volatile consumer demand amid the pandemic.

Meanwhile, net capital expenditures were $188 million in the first nine months of fiscal 2020. Further, net cash used in operating activities were $116.9 million in the aforementioned period. For fiscal 2020, capital expenditures, net of landlord allowances, are now envisioned to be at nearly $245 million.

Store Update

In fiscal third quarter, the company introduced 30 net stores, bringing the overall count to 769. This also consisted of seven relocations.

For fiscal 2020, the company still anticipates opening 62 stores while relocating or shutting 28 stores. In the fiscal fourth quarter, it does not expect to open stores. However, it does anticipate closing eight stores, resulting in an estimated count of 761 outlets at the end of fiscal.

Outlook

Management did not issue sales and earnings view for fiscal 2020 due to the volatility regarding the pace of recovery of consumer demand. Management stated that the fourth quarter was off to a weak start with November-to-date comps declining low-double digits due to warmer temperatures on a year-over-year basis. Also, the resurgence in COVID-19 cases and related restrictions by government authorities might further affect the trend.

For fiscal fourth quarter, gross margin is likely to improve at a lower level than in fiscal third quarter as clearance levels are down year over year. Also, management projects continued deleveraged SG&A and product sourcing expenses for the fourth quarter.

Interest expense, excluding $24 million non-cash interest on convertible notes, is projected to be $75 million for the fiscal year.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -20% due to these changes.

VGM Scores

Currently, Burlington Stores has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Burlington Stores has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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