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Burlington Stores' (BURL) Q2 Earnings Top, Revenues Miss

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Shares of Burlington Stores, Inc. (BURL - Free Report) tumbled 9.2% in the trading hours on Aug 26 despite the company reporting solid earnings for second-quarter fiscal 2021. The bottom line beat the Zacks Consensus Estimate and compared favorably year over year.

However, the top line missed the consensus estimate but improved year over year. CEO Michael O’Sullivan stated: “The environment remains uncertain, and the trend is difficult to predict. We will continue to manage our business flexibly so we can chase the trend or pull back if necessary. In addition, we are seeing a huge imbalance between supply and demand in global logistics systems. This is driving up freight and supply chain expenses and it will put significant pressure on our margins for the balance of the year.”

Quarterly performance was primarily buoyed by the successful execution of the Burlington 2.0 initiative. Also, the company’s store-related efforts including smaller store prototype have been on track for sometime now. It inaugurated 16 outlets with 30,000 square feet or less in the spring season. Markedly, the initial results from these stores are very encouraging.

Insight Into the Headlines

The company delivered second-quarter adjusted earnings of $1.94 per share that surpassed the Zacks Consensus Estimate of $1.52. The bottom line showed a sharp turnaround from the year-ago quarter’s loss of 56 cents per share and also increased from earnings of $1.36 reported for second-quarter fiscal 2019.

Total revenues of $2,215.9 million soared 118.9% year over year and about 34% from the level registered in second-quarter fiscal 2019. We note that net sales skyrocketed 119.1% year over year to $2,212.8 million while Other revenues jumped 29.2% to $3.1 million. The Zacks Consensus Estimate stood at $2,222 million for the reported 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

Comparable-store sales (comps) grew 19% from the second-quarter fiscal 2019 reading. Solid pent-up demand coupled with the residual impacts of the federal stimulus payments distributed in March and gains from the robust execution of the 2.0 strategy aided comps. The company’s entire key merchandise categories comfortably outperformed management expectations and comp store sales across all regions of the country performed impressively.

Margins

Gross margin was 42.2% in the reported quarter, up 80 basis points (bps) from second-quarter fiscal 2019 figure despite a 120-bps increase in freight expenses. Gains from higher merchandise margin, primarily boosted by lower markdowns, aided gross margin. We note that the company had recorded a gross margin of 45.8% during the second quarter of fiscal 2020.

Adjusted EBITDA rose nearly 44% from the level recorded in the second quarter of fiscal 2019 to $245.7 million. The metric also showed a meaningful rebound from the adjusted EBITDA loss of $8.8 million reported for the second quarter of fiscal 2020.

Adjusted EBIT increased 54.7% from the second-quarter fiscal 2019 tally to $182.9 million. The metric also sees a sharp reversal of the adjusted EBIT loss of $63.2 million during the second quarter of fiscal 2020.

Other Financial Aspects

This presently Zacks Rank #2 (Buy) company ended the reported quarter with cash and cash equivalents of $1,344.3 million, long-term debt of $1,774.3 million and stockholders’ equity of $675.7 million. It exited the fiscal second quarter with $1,878 million in liquidity including $534 million available under its ABL facility.

Merchandise inventories were $828.2 million, up 36.3% from the last fiscal year level and 0.5% from second-quarter fiscal 2019 tally. Comparable store inventories fell 7% from the same-quarter fiscal 2019 figure. Reserve inventory accounted for 31% of the total inventory at the end of the reported quarter.

Burlington Stores did not buy back shares in the fiscal second quarter under its previous share repurchase authorization that expired on Aug 14, 2021. Nonetheless, the company’s board authorized the repurchase of up to $400 million, which is to be executed through August 2023.

Store Update

During the first half of fiscal 2021, Burlington Stores opened 31 net stores. It expects to launch 44 net stores in the second half, mainly in the third quarter. In fiscal 2021, it anticipates opening 100 stores while relocating or shutting down 25 outlets. We note that the company operated 792 stores at the end of the fiscal second quarter in 45 states alongside Puerto Rico.

For the current fiscal year, management projects opening 100 stores and closing or relocating 25 stores, thereby unveiling 75 net outlets.

Outlook

Management did not provide any specific sales and earnings view for fiscal 2021 (the 52-week period ending Jan 29, 2022) due to the prevalent uncertainty stemming from the ongoing pandemic. The company continues witnessing significant incremental freight and supply-chain cost pressures. For the rest of fiscal 2021, management anticipates a similar double-digit decline in comp store consumer demand and the inventory.

For the second half, it expects the current baseline comp sales to increase 10%. Given solid second-quarter comp sales, the company forecasts comp store sales growth of 14% for fiscal 2021, up from the previous projection of a 7% increase. Higher new store and non-comp sales along with the revised fiscal year’s comp baseline assumption will lead to nearly 28% sales growth in fiscal 2021.

Considering the comp sales planning assumption for the fall season as well as higher freight and supply-chain cost challenges, management expects flat EBIT margins for fiscal 2021. It predicts majority of the deleveraging impacts of freight and supply-chain expenses to be temporary.

Capital expenditures, net of landlord allowances for fiscal 2021, are likely to be roughly $510 million.

Zacks Investment Research
Image Source: Zacks Investment Research

Price Performance

In the past three months, the stock has dipped 1.6% against the industry's rise of 12.8%.

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