Burlington Stores’ (BURL) Stock Rises on Q3 Earnings Beat

Shares of Burlington Stores, Inc. BURL rose 8.5% during the trading session on Nov 26. The stock received a shot in the arm following the company’s third-quarter fiscal 2019 results, wherein the bottom line surpassed the Zacks Consensus Estimate and came ahead of management’s expectations. Notably, both net sales and earnings per share continued to increase year over year. Further, the company witnessed decent comparable store sales performance. Cumulatively, these prompted the New Jersey-based company to raise fiscal 2019 earnings view.

We note that while the top line fell short of the Zacks Consensus Estimate, bottom line surpassed the same for the second quarter in row.

Shares of this Zacks Rank #2 (Buy) company have gained roughly 30% compared with the industry’s rally of approximately 9% during the past three months.

Let’s Introspect

The company delivered third-quarter adjusted earnings (exclusive of management transition costs) of $1.55 per share that surpassed the Zacks Consensus Estimate of $1.41. Notably, earnings surged 28% from the prior-year quarter reported figure driven by higher net sales, merchandise margin improvement, and leverage on product sourcing costs and SG&A.

Net sales advanced 8.6% year over year to $1,774.9 million. However, the reported figure came below the consensus mark of $1,781 million, after surpassing the same in the preceding two quarters. New and non-comparable stores contributed $116 million to sales. Other revenues came in at $6.6 million, up 2.6% year over year.

Meanwhile, comparable store sales rose 2.7% in the reported quarter compared with increase of 4.4% in the year-ago period and 3.8% in the preceding quarter. This was the 27th successive quarter of comparable store sales growth. Burlington Stores had projected comparable store sales growth of 2-3% for the quarter under review.

Gross margin remained flat at 42.4%. We note that an increase of 30 basis points in merchandise margin was offset by deleverage of 20 basis points in freight costs and 10 basis points owing to inventory write offs at the temporarily closed stores. Management expects freight costs to increase 20 basis points during fiscal 2019.

Adjusted SG&A expenses, as a percentage of net sales, declined 40 basis points to 27.3% due to sturdy sales growth and leverage on store related and corporate costs, as well as marketing expense.

Adjusted operating income (exclusive of management transition costs) improved 23.2% to $141.2 million, while adjusted operating margin, as a percentage of net sales, expanded 100 basis points to 8%.

Store Update

During the reported quarter, Burlington Stores opened 35 net new stores, relocated eight stores and shuttered two stores. The company concluded the quarter with 726 stores. The company now plans to open 76 new stores with four store openings, one relocation, and three store closures in the final quarter. This brings expected net new store count for fiscal 2019 to 51 net new stores.

Other Financial Aspects

Burlington Stores ended the reported quarter with cash and cash equivalents of $140.5 million, long-term debt of $982.3 million and shareholders’ equity of $391.6 million. Net capital expenditures incurred during first nine months of fiscal 2019 were $220 million. For fiscal 2019, the company projects net capital expenditures of roughly $310 million.

During the quarter, the company bought back 223,009 shares for $43 million. At the end of the reported quarter, the company had $482 million remaining under its share buyback program. The company’s board of directors had approved an additional $400 million share repurchase program to be executed through August 2021.

Outlook

Based on the quarterly performance, Burlington Stores now envisions fiscal 2019 adjusted earnings in the range of $7.28-$7.33 per share, suggesting an improvement over $6.44 reported in the prior year. The current Zacks Consensus Estimate stands at $7.23. The company had earlier forecast earnings between $7.14 and $7.22 per share.

Management now expects total sales to increase in the band of 8.8-9.1% with comparable store sales projected to improve 2.1-2.4%. The company had witnessed comparable store sales growth of 3.2% in fiscal 2018.

Management anticipates adjusted operating margin to be up approximately 10-20 basis points year over year. Further, Burlington Stores projects interest expenses of about $51 million for the fiscal year.

The company expects fourth-quarter total sales to increase 9-10%. Comparable store sales are anticipated to improve 2-3% compared with 1.3% increase registered in the year-ago period. The company envisions adjusted earnings of $3.12 to $3.17 per share, which is up from the prior-year quarter reported figure of $2.83 but below the Zacks Consensus Estimate of $3.21.

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