A month has gone by since the last earnings report for Burlington Stores (BURL). Shares have lost about 1.3% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.
Burlington Stores Q2 Loss Narrower Than Expected
Burlington Stores reported narrower-than-expected loss per share in second-quarter fiscal 2020. However, both top and bottom lines declined year over year. Although sales were robust on pent-up demand and clearance markdowns as stores reopened, the sales trend declined significantly in the second half of June.
The company delivered second-quarter adjusted loss of 56 cents per share, narrower than the Zacks Consensus Estimate of a loss of $1.11. Further, the bottom line compared unfavorably with earnings of $1.36 recorded in the prior-year quarter. Significant sales decline on account of store closures and disruptions with respect to COVID-19 hurt the bottom line.
Total revenues were $1,012.3 million, which fell 39.1% year over year. Further, net sales plunged 39% year over year to $1,009.9 million, mainly owing to adverse impacts of COVID-19. Other revenues came in at $2.4 million, down 57.9% year over year. The Zacks Consensus Estimate stood at $1,167 million.
Further, sales in the re-opened stores fell 14% from the date of re-opening to the end of the reported quarter. Sales in re-opened stores consists of sales in stores those were opened before the end of fiscal second quarter. These reports of the sales increase or decrease of such stores for the days they were operational in the current period are compared to sales for the same number of days in the year-ago period.
Gross margin expanded 440 basis points (bps) to 45.8% in the fiscal second quarter, owing to low levels of clearance inventory in the back half that led to reduced markdowns. Further, the clearance markdowns in the quarter were compensated with the markdown reserve created in the previous quarter.
Adjusted SG&A expenses were $402 million, down 8.8% year over year. This decline was owing to lower store payroll, marketing and corporate costs. The SG&A includes product-sourcing costs of $72 million. Further, adjusted EBIT was negative $63 million during the reported quarter, compared with $11.2 million recorded in the year-ago quarter.
Other Financial Aspects
The company ended the reported quarter with cash and cash equivalents of $1,077.1 million, long-term debt of $2,161.2 million and shareholders’ equity of $262.3 million. Also, it had $120 million cash on its ABL facility. In the reported quarter, management repaid $150 million on its $600 million ABL facility, and $250 million was outstanding at the end of the quarter. Moreover, the company had base value of $805 million of convertible notes and $300 million of senior secured notes as of Aug 1.
Moreover, merchandise inventories were $607.6 million, down 26% from last year. The decline was due to faster-than-anticipated clearance sell-through in the first half of second quarter, delay in inventory replenishment, and conservative inventory plans on account of volatile consumer demand amid the pandemic. Further, pack-and-hold inventory accounted for 26% of total inventory at the end of the reported quarter, down from 29% at the end of the year-ago quarter.
Meanwhile, net capital expenditures were $121 million in the first half of fiscal 2020. Further, net cash used in operating activities were negative $473 million in the first half.
On Mar 19, 2020, management suspended the share-repurchase program. At the end of fiscal second quarter, Burlington Stores had remaining authorization of $348 million. From the end of second-quarter fiscal 2019 through the suspension of the share-repurchase program, Burlington Stores bought back about 0.8 million shares.
In fiscal second quarter, the company introduced three stores, bringing the overall count to 739.
Management did not issue sales and earnings view for fiscal 2020 due to the volatility regarding the pace of recovery of consumer demand. As uncertainty related to COVID-19 continues and back-to-school being delayed, management assumes comp sales to be down nearly 20% for fiscal third quarter. Further, the in-store inventories are expected to stay well below prior-year levels. Management expects them to be down approximately 20-25% on a comp-store basis by the end of fiscal third quarter. Total inventories are likely to remain almost flat year over year on increased reserve inventory.
It continues to expect depreciation & amortization, exclusive of favorable lease costs, of nearly $230 million. Interest expense, excluding $24 million and non-cash interest on convertible notes, is still projected to be $80 million for the fiscal year. Furthermore, capital expenditures, net of landlord allowances, are envisioned to be at nearly $260 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -81.8% due to these changes.
At this time, Burlington Stores has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Burlington Stores has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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