Burlington A Good Fit For Investors, Cowen Says After Q3 Print

Burlington Stores Inc BURL reported Wednesday with third-quarter results that arrived better than expected and helped push the stock higher by more than 10 percent.

What Happened

Burlington Stores said it earned $1.21 per share in Q3 on revenue of $1.63 billion versus expectations of $1.06 per share and $1.61 billion. The retailer revised its full year 2018 EPS outlook higher from a range of $6.13-$6.20 to a range of $6.33-$6.37. Same-store sales were higher by 4.4 percent in the quarter on a calendar-shifted basis.

Why It's Important

Burlington Stores' Q3 report signals that the stock remains a top idea into 2019 for six reasons, Cowen's John Kernan said in a Wednesday note. They are: 

• An EPS beat that came in "well above" management's own guidance of $1-$1.04.
• Same-store sales not only beat management's own guidance but resulted in a sequential improvement on its two-year stack from 5.3 percent in the first quarter to 7.5 percent.
• Inventory remains "plentiful" in time for the holiday season.
• Gross margin improvement did fall short at 17 basis points versus expectations for 40 basis points, while a freight headwind of 20 basis points partially offset the merchandise margin improvement of 40 basis points.
• Burlington's guidance may be conservative, as its fourth-quarter outlook implies a two-year stacked same-store sales trend of 7.9-8.9 percent versus 7.6 percent in Q3.
• The company benefited from remodels and a new store prototype.

What's Next

Burlington Stores is likely to be "blessed" in 2019 with low-double-digit EPS growth and the potential for further upside if same-store sales merely sustain their present levels, Kernan said.  

Cowen maintains an Outperform rating on Burlington Stores with an unchanged $195 price target.

The price target is based on a 15.3 times multiple on fiscal 2019 EV/EBITDA or 28 times 2019 EPS.

In the long run, the company has earnings potential of $12 per share on the basis successful current margin expansion initiatives and the eventual achievement of a low-double digit EBIT margin, according to the sell-side firm. 

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Photo courtesy of Burlington.