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Why Is Burlington Stores (BURL) Down 5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Burlington Stores (BURL - Free Report) . Shares have lost about 5% in that time frame, outperforming the S&P 500.

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

Burlington Stores Beats on Q3 Earnings, Raises View

Burlington Stores, Inc. continued with its positive earnings and sales surprise streak for the fourth straight quarter. The company delivered adjusted earnings of $1.21 per share that outpaced the Zacks Consensus Estimate of $1.06 cents and surged significantly from 70 cents reported in the prior-year period. Higher sales, margin expansion, cost control, share repurchase activity and lower tax rate led to the improvement. The impressive performance prompted management to lift fiscal 2018 sales and earnings view.

Let’s Introspect

Burlington Stores long-term strategies include enhancement of assortments with primary focus on underpenetrated categories, particularly home, beauty and gifts, in order to make business less weather prone. With regards to the company’s marketing endeavors, it is experiencing favorable results from its multichannel engagement strategy. Further, the company intends to improve operating margin and lower the gap of the same compared with peers by augmenting sales, optimizing markdowns, focusing on SG&A expenses and effectively managing inventory.

Net sales came in at $1,634.5 million, increasing 13.7% year over year. The reported figure surpassed the consensus mark of $1,603 million. New and non-comparable stores contributed $128 million to sales. Other revenue came in at $6.5 million, up about 1% year over year.

We note comps rose 4.4% in the reported quarter, following an increase of 2.9% in the preceding quarter. The company had registered comps growth of 3.1% in the year-ago period. This was 23rd straight quarter of comps growth.

Gross margin increased about 20 basis points to 42.4% buoyed by improved merchandise margin, partially offset by rise in freight costs. Management expects freight costs to be up roughly 20 basis points for the year. Adjusted operating income increased 28.8% to $114.6 million, while adjusted operating margin (as a percentage of net sales) grew 80 basis points to 7% on account sturdy sales, leverage on fixed expenses, effective cost management and higher merchandise margins.

Adjusted EBITDA was up 21.7% to $163.1 million, while adjusted EBITDA margin, as a percentage of net sales, expanded 70 basis points to 10%.

Store Update

During the reported quarter, Burlington Stores opened 36 gross new outlets, relocated six outlets and closed two outlets. For fiscal 2018, the company plans to open 68 gross new stores and close or relocate 22 stores, thereby resulting in 46 net new stores for the year. Management also informed that the company opened three Toys “R” Us locations in the month of November and is also evaluating other sites. The company concluded the remodeling of 40 outlets.

Other Financial Aspects

Burlington Stores ended the reported quarter with cash and cash equivalents of $85.4 million, long-term debt of $1,089.1 million and shareholders’ equity of $193.4 million. Net capital expenditures for the first nine months of fiscal 2018 were $198 million. For fiscal 2018, the company continues to project net capital expenditures of approximately $275 million.

During the quarter, the company bought back 306,752 shares worth $50 million. At the end of the reported quarter, the company still had $357 million remaining under its share buyback program.

Outlook

For fiscal 2018, management expects total sales to increase in the band of 10.9-11.2%, excluding the impact of 53rd week in 2017. Comps growth is anticipated in the range of 3.4-3.7% compared with the prior year’s growth of 3.4%.

The company had earlier projected total sales to increase in the band of 10.1-10.6%, with comps growth in the range of 2.9-3.4%.

The company now envisions fiscal 2018 adjusted earnings in the range of $6.33-$6.37 per share, up from its earlier projection of $6.13-$6.20.

Adjusted earnings — excluding the estimated impact of 2017 Tax Reform, the accounting for share based compensation, and the revaluation of deferred tax liabilities, is expected to come in the band of $5.01-$5.05 per share.

Management anticipates adjusted operating margin to expand 40-50 basis points. Burlington Stores projects interest expense of approximately $58 million for the fiscal year.

The company expects fourth-quarter sales to increase in the band of 8-9% with comps growth of 2-3% compared with 5.9% increase witnessed in the year-ago period. The company forecasts adjusted earnings in the range of $2.71-$2.75 per share compared with $2.14 reported in the year-ago period.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Burlington Stores has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

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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