Burlington Stores Inc. reported revenues tumbled 51 percent in the first quarter ended May 2 as all of the off-price stores closed on March 23 and remained close for the remainder of the quarter.
Michael O’Sullivan, CEO, stated, “Despite the impact of the COVID-19 pandemic and the fact that our stores have been closed since March 22nd, we ended the first quarter in a strong financial and cash position. We began to re-open our stores earlier this month, and expect to have over 400 stores open by this weekend; we have been pleased with the traffic levels and sales that we have seen so far. There is clearly pent-up demand, and our customers are responding positively to our clearance strategy. That said, we do not know how long this will continue, as sales could slow down as we sell through our clearance merchandise. But as an off-price retailer, we are excited by the chance to turn our inventory and to pursue great opportunistic buys in what we expect will be a very strong off-price buying environment. There is considerable uncertainty ahead, but we are currently on our accounts payable, we have lean inventories, and we have ample liquidity. Therefore, we believe that we are well-positioned to chase the sales trend or to pull back based on whatever situation we face in the coming months.”
O’Sullivan continued, “The most important priority as we have re-opened our stores has been to ensure very high standards for safety and social distancing. We have implemented a detailed set of safety measures, and our associates and customers have responded very well to these actions. This will remain the over-riding priority for us.”
Fiscal 2020 First Quarter Operating Results (for the 13 week period ended May 2, 2020 compared with the 13 week period ended May 4, 2019)
- Total sales decreased 51 percent to $798 million. All of the company’s stores were closed by the end of business on March 22, 2020, and remained closed through the end of the first quarter, due to the COVID-19 pandemic. Currently, 332 of the company’s stores have re-opened and 402 stores are expected to be open as of May 29, 2020, with most of the balance of our stores expected to open by mid-June.
- Gross margin rate was 2.0 percent versus last year’s rate of 41.0 percent. This rate decrease was driven primarily by a $272 million inventory charge against aged inventory due to extended store closures. This charge is expected to cover the full cost of markdowns needed to clear this inventory, which we anticipate taking in the second quarter. Product sourcing costs, which are included in selling, general and administrative expenses (SG&A), were $76 million in the first quarter versus $79 million in last year’s first quarter. Product sourcing costs include the costs of processing goods through our supply chain and buying costs.
- SG&A decreased $32 million to $485 million for the first quarter of Fiscal 2020. Adjusted SG&A, as defined below, was $390 million versus $428 million last year. Note that Adjusted SG&A excludes $3 million in management transition costs incurred during the first quarter of Fiscal 2020.
- The effective tax rate was 38.1 percent versus 17.2 percent in last year’s first quarter. The Adjusted Effective Tax Rate was 39.0 percent versus last year’s first-quarter Adjusted Effective Tax Rate of 18.0 percent.
- Net income was a loss of $334 million, or $5.09 per share versus net income of $78 million, or $1.15 per share for the first quarter last year, and Adjusted Net Income represented a loss of $312 million, or $4.76 per share versus $85 million, or $1.26 per share last year. Adjusted Net Income and EPS exclude the previously anticipated 4 cents per charge per share for management transition costs. This decrease in Adjusted Net Income was driven primarily by the $272 million inventory charge due to aged inventory, as well as the significant decline in sales, both of which were driven by extended store closures related to the COVID-19 pandemic.
- Fully diluted shares outstanding amounted to 65.6 million at the end of the quarter compared with 67.7 million at the end of last year’s first quarter. The decrease was primarily the result of share repurchases under the company’s share repurchase program, discussed in more detail below, as well as the company’s stock-based compensation grants being anti-dilutive while in a net loss position. From the end of the first quarter of Fiscal 2019 through the suspension of our share repurchase program announced on March 19, 2020, the company repurchased approximately 1.1 million shares of its common stock under its share repurchase program.
- Adjusted EBITDA decreased $613 million from last year’s first quarter to ($445) million. Adjusted EBIT decreased $617 million below the prior-year period to ($499) million. The decrease in Adjusted EBIT was driven by the same factors described above that drove the decline in Adjusted
- Net Income. Adjusted EBITDA and Adjusted EBIT exclude the impact of $3 million in management transition costs incurred during the first quarter of Fiscal 2020.
- Merchandise inventories were $626 million versus $896 million last year, a 30 percent decrease. The decrease was made possible by aggressive actions to reduce inventory receipts during this period of extended store closures and was driven by the $272 million inventory charge that we took at the end of the quarter to cover expected markdowns in the second quarter. We anticipate the need to take these markdowns because our inventory is aged and because we expect a very promotional environment for the first few months as retailers re-open their stores. Pack and hold inventory was 22 percent of total inventory at the end of the first quarter of Fiscal 2020 compared to 28 percent at the end of the first quarter of Fiscal 2019.
- On April 16, 2020, the company closed on $1.1 billion of debt offerings, which included $300 million of high yield senior secured notes and $805 million of convertible senior unsecured notes, each maturing in April 2025.
- The company ended the first quarter with $1,639 million in liquidity, including $1,488 million in unrestricted cash and $151 million in availability on its ABL facility.
Share Repurchase Activity
- Prior to the suspension of its share repurchase program announced on March 19, 2020, the company had repurchased 243,573 shares of its common stock for $50 million during the first quarter. As of the end of the first quarter, the company’s share repurchase program, which remains suspended, had $348 million in the remaining authorization.
Given the uncertainty surrounding the pace of the recovery of consumer demand, the company is not prepared to give sales and earnings guidance for Fiscal 2020 (the 52-weeks ending January 30, 2021) at this time.
The following Fiscal 2020 guidance items have been re-issued and reflect actions taken during the first quarter of 2020:
- Capital expenditures, net of landlord allowances, are now expected to be approximately $260 million; this compares to a previous outlook of $400 million;
- The company now expects to open 64 new stores, while relocating or closing 26 stores, for a total of 38 net new stores in Fiscal 2020. This compares to a previous plan of 80 new stores and 54 net new stores. A total of 16 new stores have been shifted from Fall 2020 to Spring 2021;
- Depreciation & amortization, exclusive of favorable lease costs, is now expected to be approximately $230 million versus the previous outlook of $235 million; and
- Interest expense, net of non-cash interest of $24 million on convertible notes, is expected to be $80 million vs. previous guidance of $45 million.
Photo courtesy Burlington