Burlington Stores Shares Sink Following Negative Research By Spruce Point

Spruce Point noted that Burlington Stores stock gained more than 300 percent since its initial public offering and has been a major beneficiary from low income shoppers hunting for bargains. However, behind the scenes the company's management team is making use of "aggressive financial and accounting tactics to engineer beat and raise quarters."

IPO Wasn't What It Seemed

Jumping back to the company's IPO, Spruce Point noted that Burlington Stores' touted the advantages of its large stores, but today the company's story "keeps changing," as management is now talking down its optimal size format to 40,000 to 50,000 square feet from the original 80,000 square feet.

Sales Growth Issues

Spruce Point further argued that recent sales growth rates have "rapidly diverged from accounts receivables growth" and this type of divergence is a "classic red flag."

In addition, the retailer bought-in its fragrance category, which allowed it to further boost comps.

Gross Margin Concerns

The short report continued that Burlington Stores presents its gross margin in a non-standard way by excluding store occupancy costs and depreciation of certain fixed assets.

The company used to disclose its occupancy costs in its SG&A line but made changes to its disclosures and is now "completely obscuring occupancy costs making it hard to evaluate trends."

Bottom Line

Bottom line, Spruce Point's recent store visits "left us with the impression that stores were unoptimized."

At last check, Burlington was down 2.07 percent at $71.11.