10-QPeriod: Q3 FY2023

Burlington Stores, Inc. Quarterly Report for Q3 Ended Oct 29, 2022

Filed November 22, 2022For Securities:BURL

Summary

Burlington Stores, Inc. reported a decrease in net sales for the third quarter and the first nine months of fiscal year 2022 compared to the same periods in the prior year. This decline was primarily driven by a significant decrease in comparable store sales, influenced by strong prior-year performance, economic pressures on consumers, and promotional activity in the retail environment. The company also experienced a decrease in gross margin rate due to higher markdowns and increased inventory shortage, although freight costs saw some relief. Despite the revenue challenges, the company continues to invest in growth initiatives, including expanding its store base with a smaller store prototype and enhancing merchandising capabilities. Management emphasizes operational flexibility, expense control, and opportunistic inventory purchasing to drive profitability. The company maintains a strong liquidity position with significant availability under its ABL Line of Credit, and it remains focused on its long-term strategy to reach 2,000 stores.

Financial Highlights

47 data points
Beta

Revenue

$2.04B

41.3% Gross Margin

Net Income

$16.78M

0.8% Net Margin

EPS (Diluted)

$0.26

Total Assets

$7.10B

Cash & Equivalents

$428.58M

Free Cash Flow

$32.24M

Financial Statements
Beta
Revenue$2.04B
Cost of Revenue$1.20B
Gross Profit$842.56M
SG&A Expenses$726.93M
Operating Expenses$2.02B
Net Income$16.78M
EPS (Basic)$0.26
EPS (Diluted)$0.26
Shares Outstanding (Basic)65.36M
Shares Outstanding (Diluted)65.50M

Key Highlights

  • 1Net sales for the nine months ended October 29, 2022, decreased by 11.3% to $5,945.5 million compared to the prior year, primarily due to a 17% decrease in comparable store sales.
  • 2Gross margin as a percentage of net sales decreased to 40.4% for the nine months ended October 29, 2022, from 42.3% in the prior year, attributed to lower merchandise margins and higher markdowns.
  • 3The company opened 74 new stores (including 17 relocations) in the first nine months of fiscal 2022, expanding its total store count to 893, and maintains a long-term target of 2,000 stores.
  • 4Inventory levels increased significantly by 36.4% to $1,445.1 million as of October 29, 2022, compared to the prior year, attributed to increased warehouse inventory and new store openings.
  • 5Net cash provided by operating activities significantly decreased to $9.6 million for the nine months ended October 29, 2022, compared to $608.4 million in the prior year, largely due to lower sales and changes in working capital.
  • 6The company repurchased $251.2 million of common stock during the nine months ended October 29, 2022, under its authorized share repurchase program, with $398.8 million remaining authorization as of the period end.
  • 7The company reported a net income of $44.9 million for the first nine months of fiscal 2022, a substantial decrease from $287.2 million in the same period of fiscal 2021, impacted by lower sales and profitability.

Frequently Asked Questions

The decrease in net sales was primarily driven by a significant decline in comparable store sales (-17% for the nine months ended Oct 29, 2022). This was attributed to strong prior-year performance, economic pressures on consumers, and increased promotional activity across the retail landscape. The opening of new stores partially offset this decline.

Profitability has been negatively impacted by lower net sales and a decrease in gross margin rate. The gross margin as a percentage of net sales declined due to decreased merchandise margins, primarily resulting from higher markdowns and increased inventory shortage, as well as increased freight costs for the nine-month period. Net income for the nine months ended October 29, 2022, was $44.9 million, a significant decrease from $287.2 million in the prior year.

Inventory increased significantly by 36.4% to $1,445.1 million as of October 29, 2022, compared to the prior year. This increase is attributed to higher inventory levels in warehouses, including reserve inventory, the opening of 61 net new stores since the prior year's comparable period, and an 8% increase in comparable store inventory. The company intends to use this reserve merchandise to chase sales trends.

Burlington continues to focus on strategic initiatives to drive profitability, including increasing comparable store sales through better sales trend analysis and opportunistic buying, operating with leaner inventories for faster turns, and investing in merchandising capabilities. They are also expanding their store base with a long-term goal of 2,000 stores, focusing on a market-centric and financially disciplined real estate strategy. Enhancing operating margins is pursued through improved operational flexibility, optimized markdowns, increased purchasing power, and expense control. The company believes its current liquidity and ABL Line of Credit are sufficient for future needs.