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Burlington Stores' (BURL) Q4 Earnings Miss, Revenues Rise Y/Y

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Burlington Stores, Inc. BURL reported lower-than-expected results for fourth-quarter fiscal 2021. Nevertheless, the top and the bottom line compared favorably with the respective year-ago tallies. Quarterly performance was primarily buoyed by the successful execution of the Burlington 2.0 initiative. Also, BURL’s store-related efforts, including smaller store prototype, have been on track for a while.

Lower-than-expected results for the fiscal fourth quarter coupled with a soft comparable-store sales (comps) and operating margin view for the first quarter and fiscal 2022 weighed on the stock. Consequently, shares of Burlington Stores have plunged 13% in the trading hours on Mar 3. Over the past six months, the stock has decreased 21.5%, wider than the industry's 15.4% decline.

Insight into the Headlines

Burlington Stores delivered adjusted earnings of $2.53 per share, lagging the Zacks Consensus Estimate of $3.22. However, the bottom line increased 3.7% from the year-ago quarter’s reported figure of $2.44 per share but decreased 21.2% from $3.21 recorded in fourth-quarter fiscal 2019.

Total revenues of $2,609 million climbed 14.3% from the last fiscal year’s reported figure and 18.1% from the fourth-quarter fiscal 2019 figure. Net sales increased nearly 18% from the fourth-quarter fiscal 2019 number to $2,603.5 million while Other revenues decreased 23.6% to $5.5 million. The Zacks Consensus Estimate stood higher at $2,781 million for the reported quarter.

Comps grew 6% from the fourth-quarter fiscal 2019 reading. Lower traffic and reduced spending per shopper mainly induced comps decline. Lower traffic in December was due to external factors, including the surge in the omicron variant and warm weather.

Margins

Gross margin was 39.8% in the reported quarter, down 230 basis points (bps) from the fourth-quarter fiscal 2019 actuals. Merchandise margins grew 30 bps, more than offset by a 260-bps rise in freight expense.

Adjusted SG&A as a rate of sales was 22.2%, improving 50 bps from the fourth-quarter fiscal 2019 actuals. Product sourcing costs included in SG&A came in at $159 million, up from $89 million seen in the fourth quarter of fiscal 2019. Product sourcing costs represent the processing goods expenses via supply chain and buying costs. Higher supply-chain costs mainly caused the deleverage.

Adjusted EBITDA decreased 12% from the fourth-quarter fiscal 2019 tally to $307 million. The metric also showed a decline from adjusted EBITDA of $280.2 million recorded in the fourth quarter of fiscal 2020.

Adjusted EBIT was $241 million, down 18% from the fourth-quarter fiscal 2019 reading. However, the metric showed a jump from the adjusted EBIT of $223.5 million witnessed during the third quarter of fiscal 2020. Adjusted EBIT margin fell 410 bps from the fourth-quarter fiscal 2019 finals.

Other Financial Aspects

This presently Zacks Rank #3 (Hold) Burlington Stores ended the reported quarter with cash and cash equivalents of $1,091.1 million, long-term debt of $1,541.1 million and stockholders’ equity of $760.4 million. It exited the fiscal fourth quarter with $1,685 million of liquidity, including $1,091 million of unrestricted cash and $594 million available under its ABL facility.

Burlington Stores ended the quarter with $1,555 million of outstanding total debt, comprising $957 million under its Term Loan Facility, $572 million of Convertible Notes and no borrowings under its ABL Facility. During the reported quarter, management extended the maturity of the ABL facility from June 2023 to December 2026, and increased the size from $600 million to $650 million and lowered applicable interest rate margins.

Merchandise inventories were $1021.7 million, up 31.4% from the fourth-quarter fiscal 2019 tally. Comparable store inventories fell 30% from the level recorded in the same quarter of fiscal 2019. Reserve inventory accounted for 50% of the total inventory at the end of the reported quarter.

Burlington Stores bought back 344,492 shares for $100 million under its share repurchase plan in the fiscal fourth quarter. As of Jan 29, 2022, BURL had $150 million remaining under the share repurchase authorization. In February, BURL’s board authorized repurchasing up to an additional $500 million, slated to be executed through February 2024.

BURL exited fiscal 2021 with 840 stores after opening 101 stores, relocating 17 and shutting down 5, thus adding 79 net new stores. Of the new stores, 48 were in the 30,000 square foot or smaller, representing the latest small store prototype. For fiscal 2022, management intends to open 120 stores, adding 90 net new stores. It aims to relocate or close 30 stores in the aforementioned period. About 80 of such stores will be opened in the smaller format. Over the next five years, 75% of the stores will be introduced in the small format.

Outlook

Management did not provide specific sales and earnings view for fiscal 2022 (the 52 weeks ending Jan 28, 2023) due to the prevalent pandemic uncertainty and the pace of recovery of customer demand. Burlington Stores anticipates witnessing significant freight and supply-chain cost pressures through the fiscal fourth quarter.

Management assumes a baseline comp decline in mid-single-digits for the full fiscal. This will cause an operating margin deleverage of nearly 150 bps. The estimate indicates that freight and supply-chain expenses will remain at high levels through the middle of the ongoing fiscal year and then start to abate.

For fiscal first quarter, comps are expected to decrease in mid-teens with the operating margin deleverage of 750 bps from the level reported in the first quarter of fiscal 2021. On a stack basis, the fiscal first quarter plan suggests comps growth of about 5% from the fiscal 2019 level and a deleveraged operating margin of 400 bps. This deleverage will be mainly due to increased freight and supply-chain expenses.

Capital expenditures, net of landlord allowances for fiscal 2022, are likely to be roughly $725 million.

3 Hot Stocks to Consider

Here are three better-ranked stocks, namely Capri Holdings CPRI, DICK'S Sporting Goods DKS and Dollar Tree DLTR.

Capri Holdings, a global fashion luxury group, currently flaunts a Zacks Rank #1 (Strong Buy). CPRI’s bottom line outperformed the Zacks Consensus Estimate by a wide margin in all the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Capri Holdings’ current financial-year sales and EPS suggests growth of 37.1% and 215.8%, respectively, from the corresponding year-ago period’s reported figures. CPRI has an expected EPS growth rate of 30.9% for three-five years.

DICK'S Sporting Goods, which operates as a sporting goods retailer, has a Zacks Rank #2 (Buy) at present. DKS has a trailing four-quarter earnings surprise of 104.2%, on average.

The Zacks Consensus Estimate for DICK'S Sporting Goods’ current financial-year sales and EPS suggests growth of 27.6% and 151.6% each from the respective year-ago period’s reported numbers. DKS has an expected EPS growth rate of 11.7% for three-five years.

Dollar Tree, the operator of discount variety retail stores, holds a Zacks Rank of 2 at present. DLTR has a trailing four-quarter earnings surprise of 8.8%, on average. DLTR has an expected EPS growth rate of 12.2% for three to five years.

The Zacks Consensus Estimate for DLTR’s current financial-year sales suggests growth of 3.4% from the year-ago period’s reported figure.


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