Burlington Stores Doubles Earnings on Margin Expansion

Retailer’s net sales jumps 9.7%, comp sales grows 5.4% during Q2 FY16

b1Branded apparel retailer Burlington Stores Inc. (NYSE: BURL) announced its Q2 FY16 and H1 FY16 financial results on August 25th, 2016. The Company reported revenue of $5.1 billion in FY15.

The New Jersey-based off-price retailer operates 570 stores, inclusive of an internet store, in 45 states and Puerto Rico, principally under the name Burlington Stores. The Company’s stores offer an extensive selection of in-season, fashion-focused merchandise at up to 65% off other retailers’ prices, including women’s ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear, accessories, home and coats. Read more about Burlington’s financial results below.

Q2 FY16 financial highlights

During Q2 FY16, Burlington Stores’ net sales jumped 9.7%, or $110.8 million, to $1,255.1 million. This growth includes a 5.4% increase in comparable store sales as well as an increase of $51.8 million from new and non-comparable stores. The comp sales growth of 5.4% is on top of a 5.6% increase in Q2 FY15. Gross margin expanded by 40 basis points to 39.6% during Q2 FY16, and more than offset a 15 basis point increase in product sourcing costs, which are included under selling, general, and administrative expenses (SG&A).

During Q2 FY16, SG&A excluding product sourcing costs, as a percentage of net sales, was 27.3%, an improvement of 110 basis points over the year-ago period. This increase was driven by greater leverage in store payroll, occupancy, utilities and includes a reversal of previously recorded benefits related expenses.

b2Higher sales and lower costs helped Burlington Stores improve net income, which jumped 87.1% to $20.4 million, or $0.28 per diluted share, during the reporting quarter. Adjusted net income soared 90.1% to $28.2 million, or $0.39 per share, versus $0.19 per share in the year-ago period. During Q2 FY16, adjusted EBITDA as a percentage of net sales rose 31.4%, or $23.7 million, to $99.1 million, due to sales growth, SG&A leverage and gross margin expansion.

H1 FY16 financial highlights

For H1 FY16, Burlington Stores’ net sales grew by a robust 9.0%, or $210.4 million, to $2,537.7 million. This increase includes a 4.9% growth in comparable store sales, as well as an increase of $104.4 million from new and non-comparable stores. The comparable store sales growth of 4.9% comes on top of a 3.1% increase in the year-ago period. Gross margin expanded by 40 basis points to 39.9% from 39.5%, which more than offset a 15 basis point increase in product sourcing costs, which are included under SG&A.

During H1 FY16, SG&A excluding product sourcing costs, as a percentage of net sales, was 27.0% versus 27.8% in the year-ago period. This increase was driven by improved leverage in store occupancy, marketing, and store payroll. Burlington Stores’ net income during H1 FY16 jumped 58.2% to $57.9 million, or $0.80 per diluted share. Adjusted net income during the reporting quarter grew to $69.9 million, or $0.97 per diluted share, versus $46.1 million, or $0.60 per diluted share, in the year-ago period.

During H1 FY16, adjusted EBITDA as a percentage of net sales jumped 24.4%, or $43.2 million, to $220.1 million, driven by sales growth coupled with SG&A leverage and gross margin expansion.

Other highlights

Inventories: Merchandise inventories were $745.0 million versus $802.3 million last year, primarily driven by a comparable store inventory decrease of 7%. Pack and hold inventory represented 27% of inventory at quarter end versus 28% last year.

b3Share repurchases: During Q2 FY16, Burlington Stores spent $25 million to repurchase 390,814 shares of its common stock, ending the period with approximately $125 million remaining in its share repurchase authorization.

Debt repricing: On July 29th, 2016, Burlington Stores took advantage of the favorable interest rates to re-price its senior secured term loan facility, which reduced the applicable interest rate margins for the Company. As a result of this transaction, the Company recognized a non-cash loss on the extinguishment of debt of $3.8 million and incurred fees of $1.3 million.

Guidance for Q3 FY16 and full year FY16

b4For Q3 FY16, Burlington Stores forecasts net sales to increase in the range of 7.1% to 8.1%, and comparable store sales to increase in the range of 2.5% to 3.5%. Adjusted net income per share is forecast in the range of $0.30 per share to $0.32 per share.

For full year FY16, the Company forecasts net sales to increase in the range of 7.8% to 8.3%, and comparable store sales to increase in the range of 3.6% to 4.1%. Interest expense is predicted at approximately $59 million, reflecting the term loan repricing. Adjusted net income per share is expected in the range of $2.92 per share to $2.96 per share, compared to the Company’s prior guidance of $2.68 per share to $2.78 per share.

Burlington Stores expects to open 25 net new stores during FY16.

Stock Performance

b5Burlington Stores’ stock ended the day at $83.73, slipping 0.31%, at the close on Tuesday, September 6th, 2016, having vacillated between an intraday high of $84.37 and a low of $82.04 during the session. The stock’s trading volume was at 1,587,339 for the day. The Company’s market cap was at $5.87 billion as of Tuesday’s close.

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