01—Abstract
Summary
Summary of the 10-K filed March 20, 2019. Cited figures are marked; the original filing is the authoritative source.
Burlington Stores (BURL) closed fiscal 2018 (52 weeks ended February 2, 2019) with net sales of $6,643.1 milliona, up 9.2% year over year, and net income of $414.7 million versus $384.9 million in fiscal 2017 (a 53-week year that included a one-time tax benefit of roughly $93 million from the Tax Act).
Comparable store sales rose 3.2% on a shifted basis, gross margin expanded about 30 basis points to 41.8%, and SG&A leveraged 20 basis points to 30.4% of net sales. Adjusted EBITDA rose $96.1 million to $792.2 millionb and Adjusted EBIT rose $82.1 million to $600.4 million, though these are non-GAAP measures that exclude items such as net favorable lease amortization and interest. Growth is being driven by store expansion.
The company opened 68 stores (including 12 relocations), closed 10, and ended the year with 675 stores, adding 46 net new stores. Management plans roughly 50 net new stores in fiscal 2019 (about 75 gross openings) and sees a long-term potential of 1,000 stores. Capital expenditures are expected to be about $310 millionc in fiscal 2019, and the company repurchased $218.7 million of stock during the year, with $298.4 million remaining under its authorization.
Investors should weigh several watch items. Inventory rose 27% to $954.2 milliond, outpacing sales growth, with pack-and-hold inventory at 30% of the total and comparable store inventory up about 1.8%; inventory turnover slowed to 4.4 turns from 4.6. Operating cash flow was $639.7 million, but free cash flow after capex was roughly $344 million.
Term loan debt stood at $956.7 million at a 4.5% borrowing rate, with the company hedged on $800 million through May 2019 and a new $450 million swap starting in mid-2019. The company also flagged tariff exposure on Chinese-sourced goods, a large operating lease commitment of about $3.4 billion, and a stock price range of $109.62 to $180.27 during the year.
02—Key points
Key Highlights
- Net sales grew 9.2% to $6.64 billion, with comparable store sales up 3.2% on a shifted basis, driven by new store contributions of $476.7 million.
- Gross margin improved about 30 basis points to 41.8%, led by strong merchandise margins that offset a 20 basis point rise in freight costs.
- Net income rose 7.8% to $414.7 million, but the prior year included a one-time Tax Act benefit of roughly $93 million, so the underlying improvement is larger than the headline figure suggests.
- Adjusted EBITDA increased $96.1 million to $792.2 million; Adjusted EBIT increased $82.1 million to $600.4 million (non-GAAP).
- The store base reached 675 stores after 68 openings and 10 closures, with plans for about 50 net new stores in fiscal 2019 and a long-term target of 1,000 stores.
- Inventory rose 27% to $954.2 million, ahead of sales growth, with comparable store inventory up about 1.8% and inventory turnover declining to 4.4x from 4.6x.
- The company returned capital through $218.7 million of buybacks in fiscal 2018 and has $298.4 million remaining authorization, while the Term Loan was repriced 50 basis points lower in November 2018.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed March 20, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $6.64B$6.11B | +8.7% |
| Cost of Revenue | $3.87B$3.56B | +8.7% |
| Gross Profit | $2.77B$2.55B | +8.8% |
| SG&A Expenses | $2.02B$1.86B | +8.3% |
| Operating Expenses | $6.16B$5.68B | +8.4% |
| Net Income | $414.75M$384.85M | +7.8% |
| EPS (Basic) | $6.21$5.64 | +10.1% |
| EPS (Diluted) | $6.04$5.48 | +10.2% |
| Shares Outstanding (Basic) | 66.81M68.29M | −2.2% |
| Shares Outstanding (Diluted) | 68.68M70.29M | −2.3% |
05—Questions
Frequently Asked Questions
How did Burlington's core profitability trend in fiscal 2018?
Operating performance improved. Gross margin rose to 41.8% from 41.5%, and SG&A fell to 30.4% of sales from 30.6%. Adjusted EBIT grew to $600.4 million from $518.3 million. Reported net income growth of 7.8% understates the trend because fiscal 2017 included a one-time tax benefit of about $93 million.
Is inventory growth a concern for investors?
It warrants attention. Inventory increased 26.8% to $954.2 million, faster than net sales growth of 9.2%. Management attributes this to pack-and-hold buying, new stores, tariff-related early receipts, and weaker-than-expected comparable store sales. Inventory turnover fell to 4.4x from 4.6x, so markdown risk and margin pressure should be monitored.
How leveraged is the company and what are its debt costs?
Debt is moderate and declining. Term Loan principal was $956.7 million at February 2, 2019, with a 4.5% borrowing rate after the November 2018 repricing. The ABL revolver was undrawn at year end, with $543.3 million available. The company is hedged on $800 million of the term loan through May 2019 and has a new $450 million swap effective May 2019, which reduces exposure to rate increases. Operating lease obligations of about $3.4 billion are a major off-balance-sheet commitment.
What is the growth outlook for fiscal 2019?
Management plans about 50 net new stores (roughly 75 gross openings plus 25 relocations or closings) and capital expenditures of about $310 million, net of landlord allowances. It also expects to open a Riverside, California distribution center around fiscal 2020. Comparable store sales growth and the success of new store productivity remain key variables.
What are the main risks highlighted in the filing?
The filing emphasizes tariff and trade policy exposure, since most merchandise is produced overseas and the impact of tariffs on Chinese goods is uncertain. It also cites reliance on opportunistic buying with no long-term vendor contracts, dependence on power-center traffic, cybersecurity and privacy compliance (including the California Consumer Privacy Act effective in 2020), and the planned LIBOR phase-out by the end of 2021.
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