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Burlington Stores (BURL) Up 11% on Q4 Earnings & Revenue Beat

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Shares of Burlington Stores, Inc. BURL jumped 11.2% during the trading session on Mar 4, following the company’s better-than-expected results for fourth-quarter fiscal 2020. Moreover, the top line improved year over year. The robust quarterly performance was primarily buoyed by the successful execution of the core Burlington 2.0 initiative. In addition, management raised its long-term store target to 2,000 stores from 1,000, given the smaller store format enabled by the Burlington 2.0 strategy coupled with the accelerating retail disruption and industry-wide store closures.

Markedly, the Burlington 2.0 initiative is focused on offering great customer value by effectively managing liquidity, chasing sales, buying opportunistically, lean inventories, getting fast fresh receipts to the sales floor and making the store model flexible. One of the significant long-term enablers of delivering higher merchandise value is making investments toward buying and planning capabilities. Further, management is encouraged by a 25,000-square foot store prototype.

Over the past three months, shares of this off-price retailer have rallied 22.6% against the industry’s 6.9% drop.

Let’s Introspect

The company delivered fourth-quarter adjusted earnings of $2.44 per share that surpassed the Zacks Consensus Estimate of $2.12. However, the bottom line tumbled nearly 24% from adjusted earnings of $3.21 in the prior-year quarter.

Burlington Stores, Inc. Price, Consensus and EPS Surprise

 

Burlington Stores, Inc. Price, Consensus and EPS Surprise

Burlington Stores, Inc. price-consensus-eps-surprise-chart | Burlington Stores, Inc. Quote

Total revenues were $2,282.9 million, up 3.4% year over year and above the Zacks Consensus Estimate of $2,078 million. Further, net sales increased 3.5% year over year to $2,278.9 million, while Other revenues plunged 44.4% to $4 million.

Further, comparable-store sales (comps) were flat in the reported quarter. Notably, comps dropped 10% in November on unfavorable warm weather conditions. However, the comps trend improved thereafter but remained flat in December. Impressively, comps returned to positive with a 17% increase in January given normal weather and disbursement of federal stimulus payments.

Gross margin expanded 40 basis points (bps) to 42.5% in the fiscal fourth quarter owing to a 110-bp rise in merchandise margins stemming from lower markdowns, compensating for a 70-bp rise in freight costs.  

Adjusted SG&A expenses were $553.8 million, up about 11% year over year on elevated store-related and corporate expenses, partly offset by lower marketing costs. The SG&A includes product-sourcing costs that jumped 60.7% of $143 million, which comprise cost of processing goods via supply chain and buying costs. Further, adjusted EBIT was $223.5 million during the reported quarter, down nearly 24% from the year-ago quarter.

Other Financial Aspects

This Zacks Rank #3 (Hold) company ended the reported quarter with cash and cash equivalents of $1,380.3 million, long-term debt of $1,927.8 million and stockholders’ equity of $464.8 million. Also, it had $477-million cash on its ABL facility. In the reported quarter, it paid the outstanding $250 million on its ABL facility, with no outstanding ABL balances.

Moreover, merchandise inventories were $741 million, down 5% from last year, while comparable in-store inventories fell 16%. The decline was because of the company’s strategy of leaner in-store inventories. Further, Reserve Inventory, consisting of the entire inventory stored for release later in the season or in the subsequent season, accounted for 38% of total inventory at the end of the reported quarter.

On Mar 19, 2020, management suspended the share-repurchase program. At the end of the fiscal fourth quarter, Burlington Stores had a remaining authorization of $348 million. We note that the company operated 761 stores at the end of fiscal 2020.

Outlook

Management did not provide specific sales and earnings view for fiscal 2021 (the 52-weeks ending Jan 29, 2022) given the uncertainty regarding the pace of recovery of consumer demand amid the pandemic. It projects flat comps for fiscal 2021 versus fiscal 2019.

With respect to gross margin, management forecasts elevated freight costs to continue building pressure in fiscal 2021. However, higher merchandise margin is expected to offset freight costs. Further, EBIT margin is likely to decline 20-30 bps on a one-year basis or 40-60 bps over two years of expense growth. It expects 75 net new stores in fiscal 2021. It expects persistent cost pressure and deleverage from product sourcing costs in fiscal 2021 on higher supply-chain costs. Also, pandemic-related SG&A expenses cannot be ruled out.

Furthermore, capital expenditures, net of landlord allowances for fiscal 2021 are likely to be $470 million. In the fiscal year, management projects opening 100 new stores and closing or relocating 25 stores, resulting in 75 net new outlets.

It expects depreciation & amortization, exclusive of favorable lease costs, of nearly $260 million. Interest expense, excluding $32 million non-cash interest on convertible notes, is projected at about $80 million for the fiscal year. The effective tax rate for fiscal 2021 is envisioned at approximately 24-25%.

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