Burlington Stores, Inc. reported earnings in the second quarter topped guidance but reduced its EPS guidance for the year as sales came in below plan.

Michael O’Sullivan, CEO, stated, “Our 17 percent comp sales decline for the quarter came in below our guidance of down 15 percent to down 13 percent. There were two major external factors that contributed to this weak trend. First, lower-to-moderate income shoppers continue to face tremendous economic pressure driven by the higher cost of living, and second, a massive overhang of inventory across the retail industry has driven a huge surge in promotional activity at other retailers.

“We managed liquidity, inventory levels, and expenses tightly during the quarter and this meant that despite the external headwinds and the weak sales trend we were able to achieve earnings that were ahead of our guidance range. That said, we believe that the external factors – economic pressure on lower-to-moderate income shoppers, and very high levels of promotional activity – will continue well into the second half of the year. Accordingly, we are taking down our full-year sales and earnings outlook.

“Although we believe that the current macro-headwinds will continue into the back-half of the year, we recognize that they are temporary. As we look further out, into 2023, we expect a recovery in sales and margins as inflation moderates, spending by low-income customers picks up, external promotional activity normalizes, other shoppers trade down to off-price looking for value, and expense pressures ease,” O’Sullivan concluded.

Fiscal 2022 Second Quarter Operating Results
 (for the 13-week period ended July 30, 2022 compared with the 13-week period ended July 31, 2021)

  • Total sales decreased 10 percent compared to the second quarter of Fiscal 2021 to $1,984 million, while comparable store sales decreased 17 percent compared to the second quarter of Fiscal 2021. In the second quarter of Fiscal 2021, total sales increased 34 percent and comparable store sales increased 19 percent.
  • Gross margin rate as a percentage of net sales was 38.9 percent vs. 42.2 percent for the second quarter of Fiscal 2021, a decrease of 320 basis points. Freight expense increased 110 basis points as a percentage of net sales and merchandise margins decreased 210 basis points.
  • Product sourcing costs, which are included in selling, general and administrative expenses (SG&A), were $157 million vs. $146 million in the second quarter of Fiscal 2021. Product sourcing costs include the costs of processing goods through our supply chain and buying costs.
  • SG&A was 34.6 percent as a percentage of net sales vs. 31.7 percent in the second quarter of Fiscal 2021. Adjusted SG&A, as defined below, was 26.1 percent as a percentage of net sales vs. 24.9 percent in the second quarter of Fiscal 2021, an increase of 120 basis points.
  • Other income and other revenue was $17 million, compared to $9 million in the second quarter of Fiscal 2021.
  • The effective tax rate was 25.0 percent vs. 17.1 percent in the second quarter of Fiscal 2021. The Adjusted Effective Tax Rate was 25.1 percent vs. 19.6 percent in the second quarter of Fiscal 2021.
  • Net income was $12 million, or $0.18 per share vs. $103 million, or $1.50 per share for the second quarter of Fiscal 2021. Adjusted Net Income was $23 million, or $0.35 per share vs. $133 million, or $1.94 per share for the second quarter of Fiscal 2021.
  • Diluted weighted average shares outstanding amounted to 66.0 million during the quarter compared with 68.4 million during the second quarter of Fiscal 2021.
  • Adjusted EBITDA was $111 million vs. $246 million in the second quarter of Fiscal 2021, a decrease of 550 basis points as a percentage of sales. Adjusted EBIT was $43 million, a decrease of 610 basis points as a percentage of sales.

Adjusted EPS of 35 cents a share topped guidance in the range of 18 cents to 31 cents. The comp decline of 17 cents was below guidance calling for a decline in the range of 15 percent to 13 percent.

First Six Months Fiscal 2022 Results

  • Total sales decreased 11 percent compared to the first six months of Fiscal 2021. Net income decreased 90 percent compared to the same period in Fiscal 2021 to $28 million, or $0.42 per share vs. $4.01 per share in the prior period. Adjusted EBIT decreased 76 percent, or $319 million compared to the first six months of Fiscal 2021, to $102 million, a decrease of 700 basis points as a percentage of sales. Adjusted Net Income of $59 million decreased 81 percent vs. the prior period, while Adjusted EPS was $0.89 vs $4.53 in the prior year period, a decrease of 80 percent.

Inventory
Merchandise inventories were $1,267 million vs. $828 million at the end of the second quarter of Fiscal 2021, a 53 percent increase, while comparable store inventories decreased 5 percent. Reserve inventory was 52 percent of total inventory at the end of the second quarter of Fiscal 2022 compared to 31 percent at the end of the second 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 second quarter of Fiscal 2022 with $1,298 million in liquidity, comprised of $455 million in unrestricted cash and $843 million in availability on its ABL facility. The company ended the second quarter with $1,487 million in outstanding total debt, including $946 million on its Term Loan facility, $508 million in Convertible Notes, and no borrowings on the ABL facility.

During the second quarter of Fiscal 2022, the company increased the size of its ABL facility from $650 million to $900 million, while maintaining the facility’s maturity in December 2026.

Common Stock Repurchases
During the second quarter of Fiscal 2022 the company repurchased 598,278 shares of its common stock under its share repurchase program for $101 million. As of the end of the second quarter of Fiscal 2022, the company had $450 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 percent to down 13 percent for Fiscal 2022, on top of the 15 percent increase during Fiscal 2021; this translates to a 3-year geometric comparable store sales stack of down 3 percent to down 1 percent versus Fiscal 2019.
  • Capital expenditures, net of landlord allowances, to be approximately $640 million;
  • To open 90 net new stores in Fiscal 2022;
  • Depreciation and amortization, exclusive of favorable lease costs, to be approximately $280 million;
  • Adjusted EBIT margin to be down 410 basis points to 360 basis points to last year;
  • Net interest expense to be approximately $61 million;
  • An effective tax rate of approximately 25 percent; and
  • Adjusted EPS to be in the range of $3.70 to $4.30, as compared to $6.00 on a GAAP basis and $8.41 on a non-GAAP basis last year.

Previously, adjusted EPS has been expected in the range of $6.00 to $7.00. Comps were expected to decline in the range of 9 percent to 6 percent.

For the third quarter of Fiscal 2022
(the 13 weeks ending October 29, 2022), the company expects:

  • Comparable store sales to decrease 18 percent to 15 percent; this translates to a 3-year geometric comparable store sales stack of down 4 percent to down 1 percent;
  • Adjusted EBIT margin to be down 360 to 260 basis points to last year;
  • An effective tax rate of approximately 25 percent; and
  • Adjusted EPS in the range of $0.36 to $0.66, as compared to $0.20 on a GAAP basis and $1.36 on a non-GAAP basis last year.