Market Overview

Burlington Stores, Inc. Reports Third Quarter 2017 Results above Guidance and Increases Full Year 2017 Outlook

Share:
  • On a GAAP basis, total sales rose 7.1%, net income increased
    38%, and EPS increased 44%
  • On a Non-GAAP basis,
    • Comparable store sales increased 3.1%
    • Adjusted EBITDA increased 22% to $134 million, up 115 basis
      points
    • Adjusted EPS rose 37% to $0.70
  • Increasing outlook for FY17 Adjusted EPS to $4.23-$4.27, up from
    $4.11-$4.18

Burlington Stores, Inc. (NYSE:BURL), a nationally recognized off-price
retailer of high-quality, branded apparel at everyday low prices, today
announced its results for the third quarter ended October 28, 2017.

Tom Kingsbury, CEO, stated, "We are pleased to report strong third
quarter results, driven by a 3.1% comparable store sales increase, which
was on top of a 3.7% comparable increase in last year's third quarter.
Our overall 7.1% sales growth, along with our 115 basis point Adjusted
EBITDA margin improvement, enabled the Company to drive a 37% increase
in Adjusted EPS in the third quarter, well ahead of our guidance. I
would like to thank our store, supply chain and corporate teams for
contributing to these strong results."

Fiscal 2017 Third Quarter Operating Results:

  • Total sales increased 7.1% over the prior year period to $1,438
    million. This growth was driven by an incremental $60 million from new
    and non-comparable stores, as well as a 3.1% increase in comparable
    store sales. Consistent with the Company's policy regarding weather
    related incidents, the comparable store sales calculation excludes 19
    stores which were closed for 7 or more days within a month during the
    third quarter. The impact of these store closures, which is reflected
    in the total sales results for the third quarter, reduced the
    incremental contribution from new and non-comparable sales by $17
    million.
  • Gross margin expanded by 100 basis points over last year's
    levels to 42.2% driven primarily by increased merchandise margin. In
    addition, product sourcing costs as a percent of sales were flat on a
    rate basis to the prior year's quarter. Product sourcing costs are
    included in selling, general and administrative expenses (SG&A).
  • SG&A, less product sourcing costs, as a percentage
    of sales was 28.3%, representing a 20 basis point improvement compared
    with the Fiscal 2016 third quarter.
  • The effective tax rate on a GAAP basis improved 120 basis
    points to 33.8% driven primarily by the adoption of the new
    share-based compensation accounting, which contributed 430 basis
    points of improvement. Exclusive of the accounting change for
    share-based compensation, the effective tax rate was 38.1% compared
    with 35.0% during last year's third quarter.
  • Net income increased 38% over the prior year period to $45
    million, or $0.65 per share vs. $0.45 last year, and Adjusted Net
    Income increased 34% to $49 million, or $0.70 per share, vs. $0.51
    last year. These improvements were driven primarily by top line
    growth, gross margin expansion, tight expense control, share
    repurchases since the end of the third quarter last year, and the $2.9
    million benefit, or $0.04 per share, from the accounting change for
    share-based compensation.
  • Fully diluted shares outstanding amounted to 69.5 million at
    the end of the quarter compared with 71.6 million at the end of last
    year's third quarter. The decrease was primarily the result of share
    repurchases under the Company's share repurchase program. Since the
    end of the third quarter of Fiscal 2016, the Company has repurchased
    3.1 million shares of its common stock under its share repurchase
    program.
  • Adjusted EBITDA increased 22%, or $24 million above the prior
    year period, to $134 million. The 115 basis point expansion in
    Adjusted EBITDA as a percentage of sales was primarily driven by gross
    margin expansion.

First Nine Months Fiscal 2017 Results

  • Total sales increased 6.9%, which included a comparable store sales
    increase of 2.4% over the first nine months of Fiscal 2016, on top of
    last year's 4.5% comparable store sales increase. Net income increased
    60% over the prior year period to $144 million, or $2.04 per share vs.
    $1.25 last year. Adjusted EBITDA increased by 21%, or $68 million
    above last year, to $398 million, representing a 110 basis point
    increase in rate for the first nine months of Fiscal 2017 vs. the
    prior year period. Adjusted Net Income of $157 million was up 48% vs.
    last year, while Adjusted EPS was $2.22 for the first nine months of
    Fiscal 2017 vs. $1.47 in the prior year period.

Inventory

  • Merchandise inventories were $904 million vs. $822 million last year.
    The increase was primarily due to an increase in pack and hold
    inventory, which was 15% of total inventory at the end of the third
    quarter of Fiscal 2017 compared to 12% at the end of the third quarter
    of Fiscal 2016, and inventory related to 39 net new stores opened
    since the end of the third quarter of Fiscal 2016. Comparable store
    inventory turnover improved 10%, and comparable store inventory was
    down 2% at the end of the third quarter of Fiscal 2017.

Share Repurchase Activity

  • During the third quarter, the Company invested $70 million of cash to
    repurchase 804,577 shares of its common stock. The Company utilized
    the remaining $39 million on its previous share repurchase program, as
    well as $31 million of the new $300 million share repurchase program
    authorized by the Board of Directors on August 16, 2017. As of the end
    of the third quarter, the Company had $269 million remaining on its
    current share repurchase authorization.

Term Loan Repricing and Extension

  • On November 17, 2017, the Company completed the repricing and
    extension of its senior secured term loan facility, which reduced the
    applicable interest rate margin from 2.75% to 2.50%, with the LIBOR
    floor remaining 0.75%. The new senior secured term loan facility is
    comprised of a single tranche of loans maturing in November 2024. The
    net proceeds of the new senior secured term loan facility were used to
    repay all indebtedness under the previous term loan B facility, which
    was set to mature in 2021, as well as to pay related fees and
    expenses. Any gains, losses or fees related to this transaction will
    be reflected in the Company's financial results for the fourth quarter
    of Fiscal 2017.

Full Year Fiscal 2017 and Fourth Quarter 2017
Outlook

For the full Fiscal Year 2017 (the 53-weeks ending February 3, 2018),
the Company now expects:

  • Total sales to increase in the range of 8.1% to 8.4%, including 1.4%
    from the 53rd week; this assumes comparable store sales to increase in
    the range of 2% to 3% for the fourth quarter, resulting in a full year
    comparable store sales increase of 2.3% to 2.6% on top of the 4.5%
    increase during Fiscal 2016. Note that the updated total sales
    increase is negatively impacted by $17 million caused by the 19 store
    closures in the third quarter, as well as approximately $25 million
    from 8 stores that will remain closed during the fourth quarter;
  • Interest expense of approximately $58 million;
  • Adjusted EPS in the range of $4.23 to $4.27, utilizing a fully diluted
    share count of approximately 70.3 million, as compared with $3.24 in
    Fiscal 2016. This includes an expected benefit from the 53rd week of
    approximately $0.04 per share, and an anticipated increase of
    approximately $0.20 per share resulting from the accounting change for
    share-based compensation.
  • Adjusted EBITDA margin expansion to increase 80 to 90 basis points; and
  • To open 37 net new stores, and invest Net Capital Expenditures of
    approximately $215 million.

For the fourth quarter of Fiscal 2017 (the 14 weeks ending February
3, 2018), the Company expects:

  • Total sales to increase in the range of 11.0% to 12.0%, including 5.0%
    from the 53rd week. This increase includes the negative
    impact of $25 million from the 8 stores that will remain closed during
    the fourth quarter;
  • Comparable store sales to increase in the range of 2% to 3% on top of
    a 4.6% increase during the fourth quarter of Fiscal 2016; and
  • Adjusted EPS in the range of $2.02 to $2.06, which assumes no benefit
    from the accounting change for share-based compensation and utilizing
    a fully diluted share count of approximately 69.3 million shares, as
    compared to $1.78 last year. Adjusted EPS for the fourth quarter
    includes a $0.04 benefit from the 53rd week.

The Company has not presented a quantitative reconciliation of the
forward-looking non-GAAP financial measures set out above to their most
comparable GAAP financial measures because it would require the Company
to create estimated ranges on a GAAP basis, which would entail
unreasonable effort. Adjustments required to reconcile forward-looking
non-GAAP measures cannot be predicted with reasonable certainty but may
include, among others, costs related to debt amendments, loss on
extinguishment of debt, and impairment charges, as well as the tax
effect of such items. Some or all those adjustments could be significant.

Note regarding Non-GAAP financial measures

The foregoing discussion of the Company's operating results includes
references to Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings
per Share (or Adjusted EPS) and Adjusted Operating Margin. The Company
believes these measures are useful in evaluating the operating
performance of the business and for comparing its historical results to
that of other retailers. These non-GAAP financial measures are defined
and reconciled to the most comparable GAAP measure later in this
document.

Third Quarter 2017 Conference Call

The Company will hold a conference call on Tuesday, November 21, 2017 at
8:30 a.m. Eastern Time to discuss the Company's third quarter
results. The U.S. toll free dial-in for the conference call is
1-877-407-0789 and the international dial-in number is 1-201-689-8562.

A live webcast of the conference call will also be available on the
investor relations page of the Company's website at www.burlingtoninvestors.com. For
those unable to participate in the conference call, a replay will be
available beginning at 11:30 am ET, November 21, 2017 until 11:59 pm ET
on December 5, 2017. The U.S. toll-free replay dial-in number is
1-844-512-2921 and the international replay dial-in number is
1-412-317-6671. The replay passcode is 13673387. Additionally, a replay
of the call will be available on the investor relations page of the
Company's website at www.burlingtoninvestors.com.

Investors and others should note that Burlington Stores currently
announces material information using SEC filings, press releases, public
conference calls and webcasts. In the future, Burlington Stores will
continue to use these channels to distribute material information about
the Company, and may also utilize its website and/or various social
media sites to communicate important information about the Company, key
personnel, new brands and services, trends, new marketing campaigns,
corporate initiatives and other matters. Information that the Company
posts on its website or on social media channels could be deemed
material; therefore, the Company encourages investors, the media, our
customers, business partners and others interested in Burlington Stores
to review the information posted on its website, as well as the
following social media channels:

Facebook (https://www.facebook.com/BurlingtonCoatFactory/)
and Twitter (https://twitter.com/burlington).

Any updates to the list of social media channels the Company may use to
communicate material information will be posted on the investor
relations page of the Company's website at www.burlingtoninvestors.com.

About Burlington Stores, Inc.

Burlington Stores, Inc., headquartered in New Jersey, is a nationally
recognized off-price retailer with Fiscal 2016 revenue of $5.6 billion.
The Company is a Fortune 500 company and its common stock is traded on
the New York Stock Exchange under the ticker symbol "BURL." The Company
operated 631 stores as of the end of the third quarter of Fiscal 2017,
inclusive of an internet store, in 45 states and Puerto Rico,
principally under the name Burlington Stores. The Company's stores offer
an extensive selection of in-season, fashion-focused merchandise at up
to 65% off other retailers' prices, including women's ready-to-wear
apparel, menswear, youth apparel, baby, beauty, footwear, accessories,
home and coats.

For more information about the Company, visit www.burlingtonstores.com.

Safe Harbor for Forward-Looking and Cautionary Statements

This release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended (Exchange Act). All
statements other than statements of historical fact included in this
release are forward-looking statements. Forward-looking statements
discuss our current expectations and projections relating to our
financial condition, results of operations, plans, objectives, future
performance and business. You can identify forward-looking statements by
the fact that they do not relate strictly to historical or current
facts. We do not undertake to publicly update or revise our
forward-looking statements even if experience or future changes make it
clear that any projected results expressed or implied in such statements
will not be realized. If we do update one or more forward-looking
statements, no inference should be made that we will make additional
updates with respect to those or other forward-looking statements. All
forward-looking statements are subject to risks and uncertainties that
may cause actual results to differ materially from those we expected,
including competition in the retail industry, seasonality of our
business, adverse weather conditions, changes in consumer preferences
and consumer spending patterns, import risks, inflation, general
economic conditions, our ability to implement our strategy, our
substantial level of indebtedness and related debt-service obligations,
restrictions imposed by covenants in our debt agreements, availability
of adequate financing, our dependence on vendors for our merchandise,
events affecting the delivery of merchandise to our stores, existence of
adverse litigation and risks, availability of desirable locations on
suitable terms and other factors that may be described from time to time
in our filings with the Securities and Exchange Commission (SEC). For
each of these factors, the Company claims the protection of the safe
harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, as amended.

 

 BURLINGTON STORES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME

(unaudited)
(All
amounts in thousands)

 
      Three Months Ended     Nine Months Ended
October 28,     October 29, October 28,     October 29,
2017 2016 2017 2016
REVENUES:
Net sales $ 1,438,167 $ 1,342,600 $ 4,147,937 $ 3,880,322
Other revenue   6,405     6,447     17,834     18,324  
Total revenue 1,444,572 1,349,047 4,165,771 3,898,646
COSTS AND EXPENSES:
Cost of sales 831,728 789,858 2,436,250 2,316,162
Selling, general and administrative expenses 480,194 451,072 1,338,247 1,261,559
Costs related to debt amendments 1,346
Stock option modification expense 26 106 131 520
Depreciation and amortization 50,836 46,472 147,547 136,630
Impairment charges - long-lived assets 988 109
Other income - net (1,362 ) (1,473 ) (6,948 ) (7,361 )
Loss on extinguishment of debt 3,805
Interest expense   15,351     13,159     43,409     43,196  
Total costs and expenses   1,376,773     1,299,194     3,959,624     3,755,966  
Income before income tax expense 67,799 49,853 206,147 142,680
Income tax expense   22,920     17,449     61,998     52,368  
Net income $ 44,879   $ 32,404   $ 144,149   $ 90,312  
 
 

BURLINGTON STORES, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS

(unaudited)
(All amounts in
thousands)

 
      October 28,     January 28,     October 29,
2017 2017 2016
ASSETS
Current assets:
Cash and cash equivalents $ 48,080 $ 81,597 $ 32,799
Restricted cash and cash equivalents 27,800 27,800 27,800
Accounts receivable—net 78,995 43,252 59,757
Merchandise inventories 903,663 701,891 822,469
Prepaid and other current assets   91,917     73,784     104,051  
Total current assets 1,150,455 928,324 1,046,876
Property and equipment—net 1,111,949 1,049,447 1,040,297
Goodwill and intangible assets—net 480,438 498,244 505,744
Deferred tax assets 7,939 7,973
Other assets   92,582     90,495     95,203  
Total assets $ 2,843,363   $ 2,574,483   $ 2,688,120  
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 764,563 $ 640,326 $ 691,971
Other current liabilities 361,170 354,870 326,114
Current maturities of long term debt   1,942     1,638     1,574  
Total current liabilities 1,127,675 996,834 1,019,659
Long term debt 1,294,300 1,128,843 1,303,001
Other liabilities 309,848 290,683 294,740
Deferred tax liabilities 222,073 207,935 206,124
Stockholders' deficit   (110,533 )   (49,812 )   (135,404 )
Total liabilities and stockholders' deficit $ 2,843,363   $ 2,574,483   $ 2,688,120  
 
 

BURLINGTON STORES, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS

(unaudited)
(All
amounts in thousands)

 
      Nine Months Ended
October 28,     October 29,
2017 2016
OPERATING ACTIVITIES
Net income $ 144,149 $ 90,312
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 147,547 136,630
Deferred income taxes 12,375 5,891
Non-cash loss on extinguishment of debt 3,805
Non-cash stock compensation expense 19,655 11,634
Non-cash rent (17,940 ) (22,052 )
Deferred rent incentives 33,557 17,884
Changes in assets and liabilities:
Accounts receivable (25,894 ) (13,671 )
Merchandise inventories (201,772 ) (39,518 )
Accounts payable 125,067 88,090
Other current assets and liabilities (26,159 ) 9,981
Long term assets and liabilities 581 4,187
Other operating activities   10,330     5,047  
Net cash provided by operating activities   221,496     298,220  
INVESTING ACTIVITIES
Cash paid for property and equipment (192,491 ) (137,643 )
Proceeds from insurance recoveries related to property and equipment 3,069
Other investing activities   990     104  
Net cash (used in) investing activities   (188,432 )   (137,539 )
FINANCING ACTIVITIES
Proceeds from long term debt—ABL Line of Credit 1,124,300 1,286,100
Principal payments on long term debt—ABL Line of Credit (959,100 ) (1,279,200 )
Proceeds from long term debt—Term B-4 Loans 1,114,208
Principal payments on long term debt—Term B-3 Loans (1,117,000 )
Purchase of treasury shares (234,918 ) (151,781 )
Other financing activities   3,137     (1,124 )
Net cash used in financing activities   (66,581 )   (148,797 )
(Decrease) increase in cash and cash equivalents (33,517 ) 11,884
Cash and cash equivalents at beginning of period   81,597     20,915  
Cash and cash equivalents at end of period $ 48,080   $ 32,799  
 
 

Reconciliation of Non-GAAP Financial Measures

(Unaudited)
(Amounts in thousands except per share data)
 

Adjusted Net Income, Adjusted EPS, Adjusted EBITDA and Adjusted
Operating Margin

The following tables calculate the Company's Adjusted Net Income,
Adjusted EPS, Adjusted EBITDA (earnings before (i) net interest expense,
(ii) loss on the extinguishment of debt, (iii) costs related to debt
amendments, (iv) stock option modification expense, (v) depreciation and
amortization, (vi) impairment charges, (vii) amounts related to certain
ongoing litigation, (viii) income tax expense (benefit) and (ix) other
unusual, non-recurring or extraordinary expenses, losses, charges or
gains) and Adjusted Operating Margin (EBIT), all of which are considered
Non-GAAP financial measures. Generally, a Non-GAAP financial measure is
a numerical measure of a company's performance, financial position or
cash flows that either excludes or includes amounts that are not
normally excluded or included in the most directly comparable measure
calculated and presented in accordance with GAAP.

Adjusted Net Income is defined as net income for the period plus (i) net
favorable lease amortization, (ii) costs related to debt amendments,
(iii) stock option modification expense, (iv) loss on extinguishment of
debt, (v) impairment charges, (vi) amounts related to certain ongoing
litigation and (vii) other unusual, non-recurring or extraordinary
expenses, losses, charges or gains, all of which are tax effected to
arrive at Adjusted Net Income.

Adjusted EPS is defined as Adjusted Net Income divided by the fully
diluted weighted average shares outstanding, as defined in the table
below.

Adjusted Operating Margin is defined as net income for the period plus
(i) net interest expense, (ii) net favorable lease amortization, (iii)
loss on the extinguishment of debt, (iv) costs related to debt
amendments, (v) stock option modification expense, (vi) impairment
charges, (vii) amounts related to certain ongoing litigation, (viii)
income tax expense (benefit) and (ix) other unusual, non-recurring or
extraordinary expenses, losses, charges or gains.

The Company presents Adjusted Net Income, Adjusted EPS, Adjusted EBITDA
and Adjusted Operating Margin because it believes they are useful
supplemental measures in evaluating the performance of the Company's
business and provide greater transparency into the results of
operations. In particular, the Company believes that excluding certain
items that may vary substantially in frequency and magnitude from
operating income are useful supplemental measures that assist in
evaluating the Company's ability to generate earnings and leverage
sales, and to more readily compare these metrics between past and future
periods.

The Company believes that Adjusted Net Income, Adjusted EPS, Adjusted
EBITDA and Adjusted Operating Margin provide investors helpful
information with respect to the Company's operations and financial
condition. Other companies in the retail industry may calculate these
non-GAAP measures differently such that the Company's calculation may
not be directly comparable. The adjustments to these metrics are not in
accordance with regulations adopted by the SEC that apply to periodic
reports presented under the Exchange Act. Accordingly, Adjusted Net
Income, Adjusted EPS, Adjusted EBITDA and Adjusted Operating Margin may
be presented differently in filings made with the SEC than as presented
in this report or not presented at all.

The following table shows the Company's reconciliation of net income to
Adjusted Net Income and Adjusted EPS for the three and nine months ended
October 28, 2017 compared with the three and nine months ended October
29, 2016:

     
(unaudited)
(in thousands, except per share data)
Three Months Ended     Nine Months Ended
October 28,     October 29, October 28,     October 29,
2017 2016 2017 2016
Reconciliation of net income to Adjusted Net Income:
Net income $ 44,879 $ 32,404 $ 144,149 $ 90,312
Net favorable lease amortization (a) 5,830 5,852 17,751 17,926
Costs related to debt amendments (b) 1,346
Stock option modification expense (c) 26 106 131 520
Loss on extinguishment of debt (b) 3,805
Impairment charges (d) 988 109
Litigation accrual (e) 1,400
Tax effect (f)   (1,944)   (2,085)   (6,265)   (9,285)
Adjusted Net Income $ 48,791 $ 36,277 $ 156,754 $ 106,133
Fully diluted weighted average shares outstanding (g) 69,541 71,597 70,616 72,002
Adjusted EPS $ 0.70 $ 0.51 $ 2.22 $ 1.47
 

The following table shows the Company's reconciliation of net income to
Adjusted EBITDA for the three and nine months ended October 28, 2017
compared with the three and nine months ended October 29, 2016:

     
(unaudited)
(in thousands)
Three Months Ended     Nine Months Ended
October 28,     October 29, October 28,     October 29,
2017 2016 2017 2016
Reconciliation of net income to Adjusted EBITDA:
Net income $ 44,879 $ 32,404 $ 144,149 $ 90,312
Interest expense 15,351 13,159 43,409 43,196
Interest income (63 ) (14 ) (132 ) (42 )
Loss on extinguishment of debt (b) 3,805
Costs related to debt amendments (b) 1,346
Stock option modification expense (c) 26 106 131 520
Depreciation and amortization 50,836 46,472 147,547 136,630
Impairment charges (d) 988 109
Litigation accrual (e) 1,400
Tax expense   22,920     17,449     61,998     52,368  
Adjusted EBITDA $ 133,949   $ 109,576   $ 398,090   $ 329,644  
 

The following table shows the Company's reconciliation of net income to
Adjusted Operating Margin for the three and nine months ended October
28, 2017 compared with the three and nine months ended October 29, 2016:

     
(unaudited)
(in thousands)
Three Months Ended     Nine Months Ended
October 28,     October 29, October 28,     October 29,
2017 2016 2017 2016
Reconciliation of net income to Adjusted Operating Margin:
Net income $ 44,879 $ 32,404 $ 144,149 $ 90,312
Interest expense 15,351 13,159 43,409 43,196
Interest income (63 ) (14 ) (132 ) (42 )
Net favorable lease amortization (a) 5,830 5,852 17,751 17,926
Loss on extinguishment of debt (b) 3,805
Costs related to debt amendments (b) 1,346
Stock option modification expense (c) 26 106 131 520
Impairment charges (d) 988 109
Litigation accrual (e) 1,400
Tax expense   22,920     17,449     61,998     52,368  
Adjusted Operating Margin $ 88,943   $ 68,956   $ 268,294   $ 210,940  
 
(a)   Net favorable lease amortization represents the non-cash
amortization expense associated with favorable and unfavorable
leases that were recorded as a result of purchase accounting related
to the April 13, 2006 Bain Capital acquisition of Burlington Coat
Factory Warehouse Corporation, and are recorded in the line item
"Depreciation and amortization" in our Condensed Consolidated
Statements of Income.
(b) Represents costs related to the repricing of our Term Loan Facility
during the second quarter of Fiscal 2016.
(c) Represents expenses incurred as a result of our May 2013 stock
option modification.
(d) Represents impairment charges on long-lived assets.
(e) Represents amounts charged for certain ongoing litigation.
(f) Tax effect is calculated based on the effective tax rates (before
discrete items) for the respective periods for the tax impact of
items (a) through (e).
(g) Fully diluted weighted average shares outstanding starts with basic
shares outstanding and adds back any potentially dilutive securities
outstanding during the period. Fully diluted weighted average shares
outstanding is equal to basic shares outstanding if the Company is
in an Adjusted Net Loss position.
 

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