01—Abstract
Summary
Summary of the 10-K filed March 20, 2018. Cited figures are marked; the original filing is the authoritative source.
Burlington Stores (BURL) closed fiscal 2017 (53 weeks ended February 3, 2018) with net sales of $6.08 billiona, up 9.3% year over year, driven by a 3.4% comparable store sales increase, 37 net new stores, and the extra week.
Gross margin expanded roughly 70 basis points to 41.5%, and SG&A leveraged 40 basis points to 30.6% of sales. Net income rose to $384.9 millionb from $215.9 million, but the increase was flattered by a one-time roughly $93 million tax benefit from the 2017 Tax Act. Adjusted EBITDA reached $696.1 million, up 19%, and the company's effective tax rate fell to 10.3%.
The balance sheet improved meaningfully. Total debt was $1.13 billionc, consisting mainly of a $1.1 billion term loan that was repriced and extended to 2024, and the $600 million ABL facility was undrawn at year end. Working capital moved to a deficit of $47 million from $96 million, and stockholders' equity turned positive at $86.8 million from a deficit.
Management repurchased $282.5 milliond of stock during the year and has $217.2 million remaining under its authorization. Operating cash flow was $607 million, while capital expenditures of $268 million funded store growth and supply chain work. Looking ahead, management plans 35-40 net new stores in fiscal 2018 and a long-term target of 1,000 stores, with capital spending guided to about $250 million.
Key risks include the sustainability of the tax benefit, which is provisional, and exposure to weather, vendor concentration, and inventory management in an off-price model. Floating-rate debt is partly hedged through interest rate caps that expire in May 2019.
02—Key points
Key Highlights
- Net sales rose 9.3% to $6,084.8 million, with comparable store sales up 3.4% and the 53rd week contributing about $82 million.
- Gross margin improved about 70 basis points to 41.5%, driven by merchandise margin gains, and Adjusted EBITDA grew 19% to $696.1 million.
- Net income of $384.9 million (diluted EPS $5.48) was boosted by a one-time ~$93 million Tax Act benefit, and the effective tax rate fell to 10.3%.
- Stockholders' equity moved to a positive $86.8 million from a deficit of $49.8 million, while total debt was reduced to $1.13 billion.
- Management repurchased $282.5 million of stock in fiscal 2017 and retains $217.2 million under its $300 million authorization through August 2019.
- The company opened 48 stores and closed 6 in fiscal 2017, ending with 629 stores, and plans 35-40 net new stores in fiscal 2018 toward a long-term goal of 1,000.
- Weather-related incidents closed 82 stores for at least one day, causing about $23 million in losses, of which $11.7 million was recovered from insurance.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed March 20, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $6.11B$5.57B | +9.8% |
| Cost of Revenue | $3.56B$3.30B | +7.9% |
| Gross Profit | $2.55B$2.27B | +12.4% |
| SG&A Expenses | $1.86B$1.72B | +8.1% |
| Operating Expenses | $5.68B$5.26B | +8.1% |
| Net Income | $384.85M$215.87M | +78.3% |
| EPS (Basic) | $5.64$3.06 | +84.3% |
| EPS (Diluted) | $5.48$3.01 | +82.1% |
| Shares Outstanding (Basic) | 68.29M70.48M | −3.1% |
| Shares Outstanding (Diluted) | 70.29M71.72M | −2.0% |
05—Questions
Frequently Asked Questions
How much of the net income improvement came from operations versus the tax reform benefit?
Pre-tax income rose to $429.0 million from $333.2 million, an increase of about $96 million, driven by gross margin expansion and SG&A leverage. The one-time tax benefit of roughly $93 million from remeasuring deferred taxes at the lower 21% rate lowered the effective tax rate by 21.1 points. Because the benefit is largely non-recurring, investors should expect a higher normalized tax rate in future years.
Is Burlington's debt load a concern for investors?
Leverage is moderate and improving. Total debt was about $1.13 billion, and the term loan was repriced lower (LIBOR plus 2.50%) and extended to November 2024. Minimum debt service is roughly $55 million a year, which is well covered by operating cash flow of $607 million. The main sensitivity is floating-rate exposure: a one-point rate rise would add about $3.2 million in annual interest after the caps, and the caps expire in May 2019.
What drove the comparable store sales growth and can it continue?
Management attributes the 3.4% comparable store sales increase to improved execution of the off-price model, including better in-season buying, fresher inventory, and a sharper focus on its core female customer. Comparable store inventory fell about 7% while turnover improved about 9%. Risks to sustaining this include weather dependence, competition from full-price retailers that are discounting, and the need to keep buying opportunistically from vendors that have no long-term contracts.
What are the main risks to the growth plan?
Growth depends on finding suitable real estate, negotiating favorable leases (most leases have 10-year initial terms), and managing the operational strain of opening many stores each year. Lease obligations total about $3.0 billion in minimum future payments. The company also depends on a small number of distribution centers, relies on vendors that produce mostly overseas, and faces tariff and trade-policy uncertainty that could raise merchandise costs.
How much capital will Burlington need in fiscal 2018?
Management estimates capital expenditures of about $250 million net of landlord allowances and insurance recoveries, including roughly $120 million for store expenditures and about $35 million for supply chain initiatives. Cash on hand was $133 million at year end, and the $455.8 million of ABL availability provides additional liquidity. Management states that cash from operations and existing resources should cover needs for at least the next twelve months.
06—Continue