Burlington Stores, Inc. reported earnings on an adjusted basis fell 69.9 percent in the third quarter ended October 29, reaching the lower end of guidance. Comparable store sales decreased 17 percent.

Michael O’Sullivan, CEO, said, “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.”

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, 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 percent compared to the third quarter of Fiscal 2021 to $2,036 million, while comparable store sales decreased 17 percent (guidance called for a decline of 18 percent to 15 percent) compared to the third quarter of Fiscal 2021. In the third quarter of Fiscal 2021, total sales increased 30 percent and comparable store sales increased 16 percent;
  • Gross margin rate as a percentage of net sales was 41.2 percent vs. 41.4 percent 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 versus $173 million in the third quarter of Fiscal 2021. Product sourcing costs include the costs of processing goods through its supply chain and buying costs;
  • SG&A was 35.7 percent, as a percentage of net sales, versus 33.0 percent in the third quarter of Fiscal 2021. Adjusted SG&A was 26.7 percent as a percentage of net sales versus 25.3 percent in the third quarter of Fiscal 2021, an increase of 140 basis points;
  • The effective tax rate was 26.4 percent vs. 56.8 percent in the third quarter of Fiscal 2021. The Adjusted Effective Tax Rate was 26.7 percent versus 25.5 percent in the third quarter of Fiscal 2021;
  • Net income was $17 million, or $0.26 per share versus $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 (guidance called for earnings between 36 cents and 66 cents) versus $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 (guidance called for 360 to 260 basis point decline);
  • 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.

First Nine Months Fiscal 2022 Results
Total sales decreased 11 percent compared to the first nine months of Fiscal 2021. Net income decreased 84 percent 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 percent, 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 percent versus the prior period, while Adjusted EPS was $1.32 vs. $5.89 in the prior year period, a decrease of 78 percent.

Inventory
Merchandise inventories were $1,445 million versus $1,060 million at the end of the third quarter of Fiscal 2021, a 36 percent increase, while comparable store inventories increased 8 percent. Reserve inventory was 31 percent of total inventory at the end of the third quarter of Fiscal 2022 compared to 30 percent at the end of the third quarter of Fiscal 2021. Reserve inventory is largely composed of merchandise that is purchased opportunistically and that would 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
(for the 52 weeks ending January 28, 2023)

  • Comparable store sales to decrease in the range of down 15 percent to down 14 percent (prior, 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 2 percent to down 1 percent 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 (previously, down 410 basis points to 360 basis points) compared to last year;
  • Net interest expense to be approximately $63 million;
  • An effective tax rate of approximately 25 percent; and
  • Adjusted EPS to be in the range of $3.77 to $4.07 (previously $3.70 to $4.30), as compared to $6.00 on a GAAP basis and $8.41 on a non-GAAP basis last year.

For Fourth Quarter Fiscal 2022
(for the13-weeks ending January 28, 2023)

  • Comparable store sales to decrease 9 percent to 6 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 flat to up 70 basis points compared to last year;
  • An effective tax rate of approximately 26 percent; 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.

Photo courtesy Burlington