01—Abstract
Summary
Summary of the 10-K filed March 16, 2017. Cited figures are marked; the original filing is the authoritative source.
Burlington Stores (BURL) closed fiscal 2016 (52 weeks ended January 28, 2017) with a strong year of profitability gains.
Net sales rose 9.2% to $5,566.0 milliona, driven by a 4.5% comparable store sales increase and 30 net new stores. Net income more than doubled from roughly $150.5 million to $215.9 million, and Adjusted EBITDA reached $584.6 million, up $100.5 million. Gross margin expanded roughly 80 basis points to 40.8%, reflecting stronger merchandise margins, which more than offset a roughly 20 basis point increase in product sourcing costs.
Store payroll also improved to 8.5% of sales. Cash generation was the standout. Operating cash flow was $602.4 millionb versus $327.5 million a year earlier, helped by inventory reduction (comparable store inventory down about 9%) and higher payables.
The company used that cash to repay $167.4 millionc of net ABL borrowings, repriced its $1.2 billion term loan to lower margins (LIBOR plus 2.75%), and repurchased $200 million of stock under its prior program, with a new $200 million authorization approved in November 2016. Total debt was $1,130.5 million, and the ABL line of credit was undrawn at year end with $427.8 million available.
Key watch items include a stockholders' deficit of $49.8 milliond, a working capital deficit of $96.3 million, roughly $1.1 billion of floating-rate term debt with a 1.0% interest rate cap, and a fiscal 2017 plan to open about 30 net new stores with capital expenditures near $200 million. The filing also flags competition from full-price department stores adopting off-price formats, reliance on vendors without long-term contracts, and uncertainty around tariffs and healthcare policy following the November 2016 elections.
02—Key points
Key Highlights
- Net sales grew 9.2% to $5,566.0 million, with comparable store sales up 4.5% and 30 new stores opened in fiscal 2016.
- Net income rose to $215.9 million from $150.5 million, and diluted EPS reached $3.01 versus $1.99.
- Adjusted EBITDA increased $100.5 million to $584.6 million; Adjusted Net Income reached $232.3 million.
- Gross margin expanded about 80 basis points to 40.8%, driven by stronger merchandise margins and inventory discipline.
- Operating cash flow nearly doubled to $602.4 million, and inventory fell to $701.9 million from $783.5 million.
- Total debt was reduced to $1,130.5 million, with no ABL borrowings outstanding and $427.8 million of availability at year end.
- The board authorized a new $200 million share repurchase program through November 2018, with $199.6 million remaining at year end.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed March 16, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $5.57B$5.10B | +9.2% |
| Cost of Revenue | $3.30B$3.06B | +7.8% |
| Gross Profit | $2.27B$2.04B | +11.2% |
| SG&A Expenses | $1.72B$1.60B | +7.9% |
| Operating Expenses | $5.26B$4.89B | +7.5% |
| Net Income | $215.87M$150.48M | +43.5% |
| EPS (Basic) | $3.06$2.03 | +50.7% |
| EPS (Diluted) | $3.01$1.99 | +51.3% |
| Shares Outstanding (Basic) | 70.48M74.11M | −4.9% |
| Shares Outstanding (Diluted) | 71.72M75.44M | −4.9% |
05—Questions
Frequently Asked Questions
How profitable was Burlington Stores in fiscal 2016 compared with the prior year?
Net income increased to $215.9 million from $150.5 million, a gain of about 43%. Diluted EPS rose to $3.01 from $1.99. The improvement came mainly from higher gross margin (40.8% vs. 40.0%) and lower interest expense, partly offset by higher SG&A and taxes. The effective tax rate fell to 35.2% from 37.0%, largely because of a Puerto Rico valuation allowance release.
Is the company's balance sheet risky given its debt and stockholders' deficit?
Leverage remains meaningful. Total debt is $1,130.5 million, mostly a floating-rate term loan maturing in 2021, and the company has a stockholders' deficit of $49.8 million and a working capital deficit of $96.3 million. These are partly structural for retailers that rely on vendor payables and have had prior recapitalizations. Offsetting factors include $602 million of operating cash flow, an undrawn $600 million ABL facility, and a 1.0% interest rate cap on $800 million of notional principal. A one-point rate increase would add about $4.8 million of annual interest expense.
What is management's growth plan for the coming year?
The company plans to open about 30 net new Burlington stores in fiscal 2017 and eventually reach roughly 1,000 stores long term, while continuing to refresh and remodel existing locations. Capital expenditures are estimated at about $200 million net of landlord allowances, including roughly $105 million for stores and $45 million for supply chain. Management also cites a focus on comparable store sales through product freshness, a sharper focus on the core female customer, and expansion of e-commerce.
What are the main risks to the business highlighted in the filing?
Key risks include weak consumer spending and macro conditions, competition from full-price department stores and off-price peers, and dependence on opportunistic buying from vendors with no long-term contracts. Seasonality is significant because the second half of the year drives a disproportionate share of profit. The filing also flags weather exposure, reliance on overseas production and import policy (including potential tariffs after the 2016 elections), healthcare cost uncertainty under the Affordable Care Act, lease obligations of about $2.6 billion, and cybersecurity and payment-related risks.
How is the company returning capital to shareholders?
Burlington does not pay a dividend and does not expect to in the near term; it prioritizes capital expenditures and debt management. Instead, it returns capital through share repurchases. In fiscal 2016 it bought back 2,797,088 shares for $200.0 million, completing its prior $200 million authorization. In November 2016 the board approved another $200 million program, with $199.6 million remaining at year end. Credit agreement covenants restrict subsidiaries' ability to pay dividends to the parent.
06—Continue