Burlington Stores Inc. reported a loss of $37 million in the second quarter as revenues declined 39 percent. The off-pricer was able to significantly improve liquidity and reduced inventories 26 percent at the end of the second quarter.

Michael O’Sullivan, CEO, stated, “The second quarter had some highs and some lows. The pace of our re-opening sales significantly exceeded our expectations, and we turned our aged spring merchandise very rapidly. This enabled us to go back into the market and take advantage of great merchandise availability. But we were not able to get these fresh receipts to our stores as quickly as we needed them; our in-store inventories declined and our sales trend fell off dramatically in the back half of June. As we have re-built our store inventory levels over the last several weeks, we have seen significant improvement in our sales trend.”

O’Sullivan continued, “We expect our trend to strengthen as we continue to replenish our store inventory levels but we see a lot of risk in Q3. In this uncertain environment, we plan to manage our business conservatively. We have plenty of liquidity and we will use this to support opportunistic buys of fall merchandise and of the pack and hold inventory that we will flow to stores next year.”

Fiscal 2020 Second Quarter Operating Results (for the 13 week period ended August 1, 2020 compared with the 13 week period ended August 3, 2019)

  • Total sales decreased 39 percent to $1,010 million. Sales in re-opened stores decreased 14 percent from the date of their re-opening to the end of the second quarter.
  • Gross margin rate was 45.8 percent vs. last year’s rate of 41.4 percent. Low levels of clearance inventory in the second half of the quarter resulted in lower markdowns and an increase in gross margin for the quarter. Clearance markdowns during the second quarter were offset by the markdown reserve established in the first quarter. Product sourcing costs, which are included in selling, general and administrative expenses (SG&A), were $72 million in the second quarter vs. $82 million in last year’s second quarter. Product sourcing costs include the costs of processing goods through our supply chain and buying costs.
  • SG&A decreased $40 million to $492 million for the second quarter of Fiscal 2020. Adjusted SG&A was $402 million vs. $441 million last year.
  • The effective tax rate was 57.4 percent vs. 11.6 percent in last year’s second quarter. The Adjusted Effective Tax Rate was 55.6 percent vs. last year’s second quarter Adjusted Effective Tax Rate of 12.8 percent.
  • Net income was a loss of $46.8 million, or ($0.71) per share vs. net income of $85 million, or $1.26 per share for the second quarter last year, and Adjusted Net Income represented a loss of $37 million, or ($0.56) per share vs. $91 million, or $1.36 per share last year. This decrease in
  • Adjusted Net Income was due primarily to the significant decline in sales, which was driven by store closures and other disruptions related to COVID-19.
  • Diluted shares outstanding amounted to 65.9 million at the end of the quarter compared with 67.3 million at the end of last year’s second quarter. The decrease was primarily the result of share repurchases under the company’s share repurchase program as well as the company’s stock-based compensation grants being anti-dilutive while in a net loss position. From the end of the second quarter of Fiscal 2019 through the suspension of our share repurchase program announced on March 19, 2020, the company repurchased approximately 0.8 million shares of its common stock under its share repurchase program.
  • Adjusted EBITDA decreased $179 million from last year’s second quarter to ($9) million. Adjusted EBIT decreased $181 million below the prior-year period to ($63) million. The decrease in Adjusted EBIT was driven by the same factors described above that drove the decline in Adjusted Net Income.

First Six Months Fiscal 2020 Results
Total sales decreased 45 percent compared to the first six months of Fiscal 2019. Net (loss) income decreased 334 percent compared to the prior-year period to $(381) million, or $(5.79) per share versus $2.40 last year. Adjusted EBIT decreased by 340 percent, or $801 million compared to last year, to $(565) million. Adjusted Net (Loss) Income of $(352) million was down 299 percent versus last year, while Adjusted EPS was $(5.36) versus $2.62 in the prior-year period.
Inventory

Merchandise inventories were $608 million vs. $824 million last year, a 26 percent decrease. The decrease was driven by faster than expected clearance sell-through during the first half of the quarter, delays in inventory replenishment, as well as conservative inventory plans due to uncertain consumer demand during the pandemic. Pack and hold inventory was 26 percent of total inventory at the end of the second quarter of Fiscal 2020 compared to 29 percent at the end of the second quarter of Fiscal 2019.

Liquidity
The company ended the second quarter with $1,197 million in liquidity, including $1,077 million in unrestricted cash and $120 million in availability on its ABL facility. During the second quarter, the company repaid $150 million on its $600 million ABL facility, with $250 million remaining outstanding at the end of the second quarter.
Share Repurchase Activity

The company suspended its share repurchase program on March 19, 2020. As of the end of the second quarter, the company’s share repurchase program, which remains suspended, had $348 million in the remaining authorization.

Sales in Re-Opened Stores
Due to the temporary closing of all its stores as a result of the COVID-19 global pandemic, the company’s definition of comparable store sales is not meaningful this quarter. In order to provide a performance indicator for its stores as they reopen, the company is temporarily reporting a new sales measure: Sales in re-opened stores. Sales in re-opened stores include all stores that were opened prior to the end of the second quarter of Fiscal 2019 and report the sales increase or decrease of these stores for the days the stores were open in the current period against sales for the same days in the prior year.

Outlook
Given the uncertainty surrounding the pace of the recovery of consumer demand, the company’s sales and earnings guidance for Fiscal 2020 (the 52-weeks ending January 30, 2021) remains suspended at this time.

Photo courtesy Burlington Stores/Pasadena Star-News/SCNG