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Why Is Burlington Stores (BURL) Down 8.9% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Burlington Stores (BURL). Shares have lost about 8.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Burlington Stores due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Burlington Stores Posts Wider-Than-Expected Q1 Loss

Burlington Stores delivered soft results in first-quarter fiscal 2020, wherein it reported wider-than-expected loss per share with a sales miss. Both the top and the bottom line also declined year over year. Results were mainly hurt by COVID-19 that compelled the company to shut all stores effective Mar 22, till the end of the first quarter.

Nevertheless, management has begun the process of reopening stores on May 11, 2020, and as of now, 332 outlets have been re-opened. Moving ahead, it anticipates opening 402 stores as of May 29, 2020, while majority of the remaining outlets will be opened by mid-June.  It has been seeing higher traffic levels and sales in such stores, as customers are responding favorably to the company’s clearance strategy.

Let’s Introspect

The company delivered first-quarter adjusted loss (exclusive of management transition costs) of $4.76 per share, wider than the Zacks Consensus Estimate of a loss of $1.59. Also, the bottom line compared unfavorably with earnings of $1.26 recorded in the prior-year quarter. Significant sales decline and $272-million inventory charge against aged inventory due to extended store closures with respect to COVID-19 hurt the bottom line.

Total revenues came in at $801.5 million, down 50.9% year over year. Moreover, net sales plunged 51% year over year to $798 million, mainly owing to COVID-19. The Zacks Consensus Estimate is pegged at $925 million. Other revenues came in at $3.5 million, down 37.5% year over year.

Gross margin contracted significantly from 41% to 2% in the fiscal first quarter due to the aforesaid inventory charge for aged inventory. Further, this charge is anticipated to cover entire cost of markdowns to clear inventory in the fiscal second quarter.

Adjusted SG&A expenses, which excludes management transition costs of $3 million made in the quarter under review, was $390 million, down 8.9% year over year. However, SG&A includes product sourcing costs of $76 million.

Furthermore, adjusted operating loss (exclusive of management transition costs) was $499.2 million during the reported quarter, compared with operating income of $117.4 million recorded in the year-ago quarter.

Other Financial Aspects

Burlington Stores ended the reported quarter with cash and cash equivalents of $1,488.5 million, long-term debt of $2,304.1 million and shareholders’ equity of $279.1 million. Also, it had $151 million cash on its ABL facility.

Further, merchandise inventories were $625.9 million, down 30% from last year. The decline was mainly due to strict actions to reduce inventory receipts during the extended store-closure period and the aforesaid inventory charge. Meanwhile, pack and hold inventory constituted 22% of the total inventory by fiscal first-quarter end.

On Apr 16, 2020, the company concluded $1.1-billion debt offerings. These included high-yield senior secured notes of $300 million and convertible senior unsecured notes of $805 million, both maturing in April 2025.

During the quarter, the company bought back 243,573 shares for $50 million before the suspension of the share repurchase program announced on Mar 19. At the end of the reported quarter, the company had $348 million remaining under its share buyback program. It had fully diluted outstanding shares of 65.6 million at the end of fiscal first quarter. Notably, it bought back roughly 1.1 million shares from the end of the first quarter of fiscal 2019 till the suspension of its share repurchase program.

Outlook

Management did not issue sales and earnings view for fiscal 2020 due to volatility regarding the recovery of consumer demand. However, it now expects depreciation & amortization, exclusive of favorable lease costs, of nearly $230 million compared to the prior anticipation of $235 million. Interest expense, net of non-cash interest of $24 million on convertible notes, is now projected to be $80 million versus $45 million expected earlier.

For fiscal 2020, the company expects to introduce 64 new stores and relocate or shutter 26, with total 38 net new outlets. Nearly 16 new outlets have been shifted from fall 2020 to spring 2021. Previously, management estimated opening 80 stores with 54 net new outlets.

Furthermore, capital expenditures, net of landlord allowances, are envisioned to come at nearly $260 million versus a prior outlook of $400 million.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -340.44% due to these changes.

VGM Scores

Currently, Burlington Stores has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Burlington Stores has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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