Burlington Stores (BURL) Down 35.7% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Burlington Stores (BURL). Shares have lost about 35.7% in that time frame, underperforming 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' Q4 Earnings Beat Estimates, Rise Y/Y

Burlington Stores, Inc. delivered robust bottom-line results in fourth-quarter fiscal 2019. Earnings not only grew year over year but also outshined the Zacks Consensus Estimate for the third straight time. Although the top line lagged the consensus mark, the same improved year over year on impressive comparable store sales and solid contributions from new and non-comparable stores.

Notably, Burlington Stores is on track with its strategic initiatives. Management will now focus on higher investment in merchandizing capabilities, operating with leaner inventories, enhancing operational flexibility and controlling costs. In addition, the company has decided to wind down e-commerce operations, which represented nearly 0.5% of total sales. The decision will enable the off-price retailer to focus more and deploy resources in the bricks-and-mortar platform.

Let’s Introspect

The company delivered fourth-quarter adjusted earnings (exclusive of management transition costs) of $3.25 per share that surpassed the Zacks Consensus Estimate of $3.22. Notably, earnings rose 14.8% from the prior-year quarter on higher net sales, merchandise margin improvement and leverage on SG&A.

Net sales advanced 10.5% year over year to $2,201.4 million. However, the reported figure lagged the consensus mark of $2,206 million, marking the second consecutive quarterly miss. New and non-comparable stores contributed $151 million to sales. Other revenues came in at $7.2 million, up 9.1% year over year.

Meanwhile, comparable store sales rose 3.9% in the reported quarter, up from an increase of 2.7% in the preceding quarter. Comps growth was mainly backed by rise in units per transactions with AUR and a marginal increase in conversions, somewhat offset by a slight fall in traffic. Notably, this was the 28th successive quarter of comparable store sales growth.

Gross margin grew 20 basis points (bps) to 42.1%, driven by an increase of 40 bps in merchandise margin, partly offset by higher freight costs.

Adjusted SG&A expenses, as a percentage of net sales, declined 20 basis points to 22.5% owing to sturdy sales growth that led to leveraged occupancy and marketing expenses, and corporate costs. This excludes management transition costs of $2.9 million incurred during the reported quarter.

Adjusted operating income (exclusive of management transition costs) improved 13.6% to $296.8 million, while adjusted operating margin, as a percentage of net sales, expanded 40 bps to 13.5%.

Store Update

During the quarter, the company added one net new store including one relocation and two store closures ending the period with 727 stores. During fiscal 2019, Burlington Stores opened 76 new stores and shuttered 24 stores. The company concluded the quarter with 727 stores. During fiscal 2020, it plans to open 80 new and close or relocate 26. This reaches the expected net new store opening count for fiscal 2020 to 54.

Other Financial Aspects

Burlington Stores ended the reported quarter with cash and cash equivalents of $403.1 million, long-term debt of $1,001.7 million and shareholders’ equity of $528.1 million. Net capital expenditures incurred during fiscal 2019 totaled $269 million. For fiscal 2020, the company projects net capital expenditures of roughly $400 million.

Further, merchandise inventories were $777.2 million, down 18.6% from last year. The decline was mainly due to a 15% fall in comparable store inventory at the end of the fiscal coupled with decrease in pack and hold inventory that constituted 26% of total inventory by fiscal-end.

During the quarter, the company bought back 375,529 shares for $83 million. At the end of the reported quarter, the company had $399 million remaining under its share buyback program.

On Feb 26, management completed the repricing of the senior secured term loan facility. This lowered the applicable interest rate margin to 1.75% from 2%, with a 0.00% LIBOR floor. Further, the senior secured term loan facility includes a single tranche of loans, having a maturity date in November 2024.

Outlook

For fiscal 2020, management now projects total sales growth of 8-9%, compared to fiscal 2019 sales growth of 9%. Further, comparable store sales are forecasted to improve 1-2%. The company had witnessed comparable store sales growth of 3% in fiscal 2019.

Further, depreciation and amortization, exclusive of favorable lease expenses, are likely to come in at roughly $235 million. Adjusted EBIT margin rate is likely to remain flat year over year. It estimates net interest expense of about $45 million and an effective tax rate of 21% for the fiscal year.

Burlington Stores now envisions fiscal 2020 adjusted earnings per share in the range of $7.97-$8.12, suggesting an improvement from adjusted earnings of $7.41 reported in fiscal 2019.

Additionally, the company expects first-quarter total sales growth of 8-9%. Comparable store sales are anticipated to improve 1-2% compared with flat comparable store sales reported in the year-ago period. It envisions adjusted earnings per share of $1.29-$1.34, suggesting a rise from the prior-year adjusted figure of $1.26.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -97.47% due to these changes.

VGM Scores

Currently, Burlington Stores has a great Growth Score of A, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Burlington Stores has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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