Burlington Stores Inc. reported an earnings uptick in the third quarter October 28 as same-store sales grew 6 percent. Sales were in line with guidance while EPS was at the upper end of guidance.

Key takeaways

  • Comparable store sales increased 6 percent versus our guidance of 5 percent to 7 percent
  • On a GAAP basis, net income was $49 million, and diluted EPS was $0.75
  • On a non-GAAP basis Adjusted EPS was $0.98 versus our guidance of $0.86 to $1.01
  • Excluding expenses associated with the acquisition of Bed Bath & Beyond leases, Adjusted EPS was $1.10 versus our guidance of $0.97 to $1.12

Michael O’Sullivan, CEO, stated, “We were pleased with our performance during the third quarter. We had a strong trend in August and September, and this drove 6 percent comparable store sales growth for the full quarter despite the negative impact of unseasonably warm weather in October. This trend together with strong merchandise margins delivered earnings at the high end of expectations.”

O’Sullivan continued, “November is off to a solid start, helped by cooler weather at the beginning of the month. We feel very good about how we are set up for Holiday. That said, the critical high-volume weeks are still ahead of us, and we recognize that there is a lot of uncertainty in the external environment, so we are maintaining our previously issued Q4 guidance.”

O’Sullivan added, “Right now our 2024 working assumption is for total sales growth of approximately 11 percent vs. 2023. This is driven by our expectations for 2 percent comp sales growth plus 100 net new store openings. Based on these growth rates, we would expect to be able to achieve about 50 basis points of adjusted EBIT margin expansion vs. 2023. We will provide formal guidance in March 2024.”

O’Sullivan concluded, “Looking further ahead, we are excited about the potential for our business over the next several years. We have a significant total sales growth opportunity driven by our new store program and comp sales growth, as well as meaningful operating margin expansion potential. We believe our strategic initiatives have the potential to drive significant sales and earnings growth for Burlington in the years ahead.”

Fiscal 2023 Third Quarter Operating Results (for the 13-week period ended October 28, 2023, compared with the 13-week period ended October 29, 2022)

  • Total sales increased 12 percent compared to the third quarter of Fiscal 2022 to $2,285 million, while comparable store sales increased 6 percent compared to the third quarter of Fiscal 2022.
  • Gross margin rate as a percentage of net sales was 43.2 percent vs. 41.2 percent for the third quarter of Fiscal 2022, an increase of 200 basis points. Merchandise margin improved by 150 basis points and freight expense improved 50 basis points.
  • Product sourcing costs, which are included in selling, general and administrative expenses (SG&A), were $200 million vs. $177 million in the third quarter of Fiscal 2022. Product sourcing costs primarily include the costs of processing goods through our supply chain and buying costs.
  • SG&A was 36.2 percent as a percentage of net sales vs. 35.7 percent in the third quarter of Fiscal 2022, higher by 50 basis points. Adjusted SG&A was 27.3 percent as a percentage of net sales vs. 26.8 percent in the third quarter of Fiscal 2022, an increase of 50 basis points.
  • The effective tax rate was 27.4 percent vs. 26.4 percent in the third quarter of Fiscal 2022. The Adjusted Effective Tax Rate was 25.0 percent vs. 26.7 percent in the third quarter of Fiscal 2022.
  • Net income was $49 million, or $0.75 per share vs. $17 million, or $0.26 per share for the third quarter of Fiscal 2022. Adjusted Net Income was $64 million, or $0.98 per share, vs. $28 million, or $0.43 per share for the third quarter of Fiscal 2022. Adjusted Net Income, excluding approximately $10 million of expenses associated with the acquisition of Bed Bath & Beyond leases, was $71 million, or $1.10 per share for the third quarter.
  • Diluted weighted average shares outstanding amounted to 64.8 million during the quarter compared with 65.5 million during the third quarter of Fiscal 2022.
  • Adjusted EBITDA was $176 million vs. $123 million in the third quarter of Fiscal 2022, an increase of 170 basis points over the prior year quarter as a percentage of sales. Adjusted EBIT was $99 million vs. $55 million in the third quarter of Fiscal 2022, an increase of 170 basis points as a percentage of sales. Adjusted EBIT, excluding approximately $10 million of expenses associated with the acquisition of Bed Bath & Beyond leases, was $109 million.

First Nine Months of Fiscal 2023 Results

  • Total sales increased 11 percent compared to the first nine months of Fiscal 2022. Net income increased 150 percent compared to the same period in Fiscal 2022 to $112 million, or $1.73 per share vs. $0.68 per share in the prior period. Adjusted EBIT increased by $97 million compared to the first nine months of Fiscal 2022, to $254 million, an increase of 120 basis points as a percentage of sales. Adjusted Net Income of $158 million increased 81 percent vs. the prior period, while Adjusted EPS was $2.43 vs. $1.32 in the prior period, an increase of 84 percent.

Inventory

  • Merchandise inventories were $1,329 million vs. $1,445 million at the end of the third quarter of Fiscal 2022, an 8 percent decrease, while comparable store inventories increased 2 percent compared to the third quarter of Fiscal 2022. Reserve inventory was 30 percent of total inventory at the end of the third quarter of Fiscal 2023 compared to 31 percent at the end of the third quarter of Fiscal 2022. 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 third quarter of Fiscal 2023 with $1,440 million in liquidity, comprised of $616 million in unrestricted cash and $824 million in availability on its ABL facility.
  • During the third quarter of Fiscal 2023, the company exchanged $241 million in aggregate principal amount of its 2.25 percent Convertible Senior Notes due 2025 (2025 Convertible Notes) for $255 million in aggregate principal amount of its 1.25 percent Convertible Senior Notes due 2027 (2027 Convertible Notes). The company also issued $42 million in aggregate principal amount of 2027 Convertible Notes in a private placement to certain investors.
  • The company ended the third quarter with $1,412 million in outstanding total debt, including $940 million on its Term Loan facility, $453 million in Convertible Notes, and no borrowings on its ABL facility.

Common Stock Repurchases

  • During the third quarter of Fiscal 2023 the company repurchased 348,948 shares of its common stock under its share repurchase program for $52 million. As of the end of the third quarter of Fiscal 2023, the company had an aggregate of $718 million remaining under its share repurchase authorizations.

Outlook
For the full Fiscal Year 2023 (the 53-weeks ending February 3, 2024), the company now expects:

  • Total sales to increase approximately 11 percent, which includes approximately 2 percent from the 53rd week, on top of a 7 percent decrease in Fiscal 2022; this assumes comparable store sales will increase approximately 3 percent, on top of the 13 percent decrease during Fiscal 2022;
  • Capital expenditures, net of landlord allowances, to be approximately $560 million;
  • To open approximately 80 net new stores;
  • Depreciation and amortization, exclusive of favorable lease costs, to be approximately $310 million;
  • Adjusted EBIT margin to increase 70 to 80 basis points versus last year; this Adjusted EBIT margin increase includes approximately $18 million of anticipated expenses related to the recently acquired Bed Bath & Beyond leases. Excluding these incremental expenses, Adjusted EBIT margin is expected to increase 90 to 100 basis points versus last year;
  • Net interest expense to be approximately $60 million;
  • An effective tax rate of approximately 26 percent; and
  • Adjusted EPS to be in the range of $5.52 to $5.67, which includes $0.20 of expected incremental expenses associated with the recently acquired Bed Bath & Beyond leases. Excluding these expenses, Adjusted EPS is expected to be in the range of $5.72 to $5.87. This assumes a fully diluted share count of approximately 65 million, as compared to Fiscal 2022 diluted EPS of $3.49 and Adjusted EPS of $4.26. These Adjusted EPS amounts include an expected benefit from the 53rd week of approximately $0.05 per share.

For the fourth quarter of Fiscal 2023 (the 13 weeks ending January 27, 2024), the company expects:

  • Total sales to increase in the range of 5 percent to 7 percent; this assumes comparable store sales to be in the range of -2 percent to 0 percent versus the fourth quarter of Fiscal 2022;
  • Adjusted EBIT margin to be in the range of a decrease of 10 to an increase of 20 basis points versus the fourth quarter of Fiscal 2022; this EBIT margin increase includes approximately $5 million of expenses related to the recently acquired Bed Bath & Beyond leases. Excluding these expenses, adjusted EBIT margin is expected to increase 0 to 40 basis points;
  • An effective tax rate of approximately 27 percent; and
  • Adjusted EPS in the range of $3.04 to $3.19, as compared to $2.83 in diluted EPS and $2.96 in Adjusted EPS last year. This includes $0.06 per share of expected incremental expenses associated with the recently acquired Bed Bath & Beyond leases. Excluding these expenses, adjusted EPS is expected to be in the range of $3.10 to $3.25.
  • When including the $0.05 benefit from the 53rd week, adjusted EPS is expected to be in the range of $3.15 to $3.30.