Burlington Stores Reports Third Quarter 2022 Earnings

BURLINGTON, N.J., Nov. 22, 2022 (GLOBE NEWSWIRE) — Burlington Stores, Inc. (NYSE: BURL), a nationally recognized off-price retailer of high-quality, branded apparel, footwear, accessories, and merchandise for the home at everyday low prices, today announced its results for the third quarter ended October 29, 2022.

Michael O’Sullivan, CEO, stated, “In Q3 we achieved sales and earnings that were within our guidance range, but we are not happy with this performance. As we said on our August earnings call, as an off-price retailer we should be able to perform better in this environment despite the significant macro headwinds. Recent results from other off-price retailers reinforce this view.”

Mr. O’Sullivan continued, “As we described in August, the consumer’s frame of reference for value shifted significantly in 2022, but we did not respond aggressively enough to this shift. So, in Q3 we took significant steps to improve the value and mix of our assortment. These actions have driven an improvement in our trend from mid-October through November. We are encouraged by this but given the external risks we are maintaining our guidance for Q4.”

Looking further ahead, Mr. O’Sullivan said, “While we acknowledge that there are risks and uncertainties, we think the outlook for 2023 is very positive. We anticipate that the economic and competitive environment could set up very well for off-price. We also recognize that we will be lapping our own execution mistakes and under-performance from 2022. Based on these factors we believe that we can start to drive significant sales, margin, and earnings recovery next year.”

Fiscal 2022 Third Quarter Operating Results (for the 13-week period ended October 29, 2022, compared with the 13-week period ended October 30, 2021)

  • Total sales decreased 11% compared to the third quarter of Fiscal 2021 to $2,036 million, while comparable store sales decreased 17% compared to the third quarter of Fiscal 2021. In the third quarter of Fiscal 2021, total sales increased 30% and comparable store sales increased 16%.
  • Gross margin rate as a percentage of net sales was 41.2% vs. 41.4% for the third quarter of Fiscal 2021, a decrease of 20 basis points. Merchandise margins decreased 90 basis points, partially offset by a 70 basis point improvement in freight expense.
  • Product sourcing costs, which are included in selling, general and administrative expenses (SG&A), were $178 million vs. $173 million in the third quarter of Fiscal 2021. Product sourcing costs include the costs of processing goods through our supply chain and buying costs.
  • SG&A was 35.7% as a percentage of net sales vs. 33.0% in the third quarter of Fiscal 2021. Adjusted SG&A was 26.7% as a percentage of net sales vs. 25.3% in the third quarter of Fiscal 2021, an increase of 140 basis points.
  • The effective tax rate was 26.4% vs. 56.8% in the third quarter of Fiscal 2021. The Adjusted Effective Tax Rate was 26.7% vs. 25.5% in the third quarter of Fiscal 2021.
  • Net income was $17 million, or $0.26 per share vs. $14 million, or $0.20 per share for the third quarter of Fiscal 2021. The prior year’s amount includes an $86 million loss on debt extinguishment charge, or $1.22 per share. Adjusted Net Income was $28 million, or $0.43 per share vs. $93 million, or $1.36 per share for the third quarter of Fiscal 2021.
  • Diluted weighted average shares outstanding amounted to 65.5 million during the quarter compared with 68.2 million during the third quarter of Fiscal 2021.
  • Adjusted EBITDA was $123 million vs. $205 million in the third quarter of Fiscal 2021, a decrease of 290 basis points as a percentage of sales. Adjusted EBIT was $55 million, a decrease of 340 basis points as a percentage of sales.

First Nine Months Fiscal 2022 Results

  • Total sales decreased 11% compared to the first nine months of Fiscal 2021. Net income decreased 84% compared to the same period in Fiscal 2021 to $45 million, or $0.68 per share vs. $4.21 per share in the prior period. Adjusted EBIT decreased 72%, or $404 million compared to the first nine months of Fiscal 2021, to $157 million, a decrease of 570 basis points as a percentage of sales. Adjusted Net Income of $87 million decreased 78% vs. the prior period, while Adjusted EPS was $1.32 vs. $5.89 in the prior year period, a decrease of 78%.

Inventory

  • Merchandise inventories were $1,445 million vs. $1,060 million at the end of the third quarter of Fiscal 2021, a 36% increase, while comparable store inventories increased 8%. Reserve inventory was 31% of total inventory at the end of the third quarter of Fiscal 2022 compared to 30% at the end of the third quarter of Fiscal 2021. Reserve inventory is largely composed of merchandise that is purchased opportunistically and that will be sent to stores in future months or next season.

Liquidity and Debt

  • The Company ended the third quarter of Fiscal 2022 with $1,279 million in liquidity, comprised of $429 million in unrestricted cash and $850 million in availability on its ABL facility. The Company ended the third quarter with $1,478 million in outstanding total debt, including $949 million on its Term Loan facility, $508 million in Convertible Notes, and no borrowings on the ABL facility.

Common Stock Repurchases

  • During the third quarter of Fiscal 2022 the Company repurchased 370,599 shares of its common stock under its share repurchase program for $51 million. As of the end of the third quarter of Fiscal 2022, the Company had $399 million remaining on its current share repurchase program authorization.

Outlook*
For the full Fiscal Year 2022 (the 52-weeks ending January 28, 2023), the Company now expects:

  • Comparable store sales to decrease in the range of down 15% to down 14% for Fiscal 2022, on top of the 15% increase during Fiscal 2021; this translates to a 3-year geometric comparable store sales stack of down 2% to down 1% versus Fiscal 2019;
  • Capital expenditures, net of landlord allowances, to be approximately $510 million;
  • To open 87 net new stores in Fiscal 2022;
  • Depreciation and amortization, exclusive of favorable lease costs, to be approximately $275 million;
  • Adjusted EBIT margin to be down 400 basis points to down 370 basis points compared to last year;
  • Net interest expense to be approximately $63 million;
  • An effective tax rate of approximately 25%; and
  • Adjusted EPS to be in the range of $3.77 to $4.07, as compared to $6.00 on a GAAP basis and $8.41 on a non-GAAP basis last year.

For the fourth quarter of Fiscal 2022 (the 13-weeks ending January 28, 2023), the Company expects:

  • Comparable store sales to decrease 9% to 6%; this translates to a 3-year geometric comparable store sales stack of down 4% to down 1%;
  • Adjusted EBIT margin to be flat to up 70 basis points compared to last year;
  • An effective tax rate of approximately 26%; and
  • Adjusted EPS in the range of $2.45 to $2.75, as compared to $1.80 on a GAAP basis and $2.53 on a non-GAAP basis last year.

*Three year geometric comparable store sales stack is defined as a stacked comparable sales growth rate that accounts for the compounding of comparable store sales from Fiscal 2019 to Fiscal 2022. It is calculated for each Fiscal 2022 quarter and full year Fiscal 2022 as follows: (1 + QTD 2021 comparable store sales growth) * (1 + QTD 2022 comparable store sales growth) – 1, and (1 + FY 2021 comparable store sales growth) * (1 + FY 2022 comparable store sales growth) – 1. Comparisons for Fiscal 2021 periods are made versus the same periods in Fiscal 2019.

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 of those adjustments could be significant.

Note Regarding Non-GAAP Financial Measures

The foregoing discussion of the Company’s operating results includes references to Adjusted SG&A, Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings per Share (or Adjusted EPS), Adjusted EBIT (or Operating Margin), and Adjusted Effective Tax Rate. The Company believes these supplemental measures are useful in evaluating the performance of our business and provide greater transparency into our results of operations. In particular, we believe that excluding certain items that may vary substantially in frequency and magnitude from what we consider to be our core operating results are useful supplemental measures that assist investors and management in evaluating our ability to generate earnings and leverage sales, and to more readily compare core operating results between past and future periods. These non-GAAP financial measures are defined and reconciled to the most comparable GAAP measures later in this document.

About Burlington Stores, Inc.

Burlington Stores, Inc., headquartered in New Jersey, is a nationally recognized off-price retailer with Fiscal 2021 net sales of $9.3 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 893 stores as of the end of the third quarter of Fiscal 2022, in 46 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 60% off other retailers’ prices, including women’s ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear, accessories, home, toys, gifts and coats.

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