OREANDA-NEWS. Burlington Stores, Inc. (NYSE: BURL), a nationally recognized off-price retailer of high-quality, branded apparel at everyday low prices, today announced its results for the second quarter and six months ended July 30, 2016.

Tom Kingsbury, Chief Executive Officer stated, “We are very pleased to report second quarter results that included a 9.7% increase in net sales, a 5.4% increase in comparable store sales and a 130 basis point expansion in Adjusted EBITDA margin. These results were driven by the continued improvement in the execution of our off-price operating model. Our consistently strong performance has also enabled us to take advantage of favorable interest rates resulting in the re-pricing of our term loan on July 29, 2016. We believe we are well positioned for the fall season and remain focused on delivering great value, relevant brands, fresh product and an improved store experience for our customers every day. I would like to thank our store and corporate teams for these results.”

Fiscal 2016 Second Quarter Operating Results (for the 13 week period ended July 30, 2016 compared with the 13 week period ended August 1, 2015):

  • Net sales increased 9.7%, or $110.8 million, to $1,255.1 million. This increase includes a 5.4% increase in comparable store sales, as well as an increase of $51.8 million from new and non-comparable stores. Our 5.4% comparable store sales increase is on top of a 5.6% increase in the second quarter of Fiscal 2015.
  • Gross margin improved 40 basis points to 39.6% during the Fiscal 2016 second quarter. This more than offset a 15 basis point increase in product sourcing costs, which are included in selling, general and administrative expenses (SG&A).
  • SG&A, less product sourcing costs, as a percentage of net sales was 27.3%, representing approximately 110 basis points of improvement compared with last year. This improvement was driven by greater leverage in store payroll, occupancy, utilities and includes a reversal of previously recorded benefits related expenses.
  • The effective tax rate was 37.6% compared with 41.4% last year, primarily related to a decrease in our state tax rate and an increase in federal hiring credits.
  • Net income increased 87.1% to $20.4 million, or $0.28 per diluted share.
  • Adjusted Net Income increased 90.1% to $28.2 million, or $0.39 per share vs. $0.19 per share last year.
  • Fully diluted shares outstanding were 72.0 million compared with 76.5 million last year, primarily driven by the repurchase of 4.8 million shares since the end of the 2015 second quarter.
  • Adjusted EBITDA increased 31.4%, or $23.7 million, to $99.1 million. Sales growth, SG&A leverage and gross margin expansion led to a 130 basis point expansion in Adjusted EBITDA as a percentage of net sales.

Fiscal 2016 First Half Operating Results (for the 26 week period ended July 30, 2016 compared with the 26 week period ended August 1, 2015):

  • Net sales increased 9.0%, or $210.4 million, to $2,537.7 million. This increase includes a 4.9% increase in comparable store sales, as well as an increase of $104.4 million from new and non-comparable stores. Our 4.9% comparable store sales increase is on top of a 3.1% increase in the first half of Fiscal 2015.
  • Gross margin expanded by 40 basis points to 39.9% from 39.5%. This more than offset a 15 basis point increase in product sourcing costs which are included in SG&A.
  • SG&A, less product sourcing costs, as a percentage of net sales was 27.0% vs. 27.8% last year. The 80 basis point improvement was driven by increased leverage in store occupancy, marketing and store payroll.
  • The effective tax rate was 37.6% compared with 39.0% last year, primarily related to a decrease in our state tax rate and an increase in federal hiring credits.
  • Net income increased 58.2% to $57.9 million, or $0.80 per diluted share.
  • Adjusted Net Income was $69.9 million vs. $46.1 million, or $0.97 per diluted share vs. $0.60 last year.
  • Fully diluted shares outstanding were 72.2 million compared with 76.5 million shares last year, primarily driven by repurchase of 4.8 million shares since the end of the 2015 second quarter.
  • Adjusted EBITDA increased 24.4%, or $43.2 million, to $220.1 million. The 110 basis point expansion in Adjusted EBITDA as a percent of net sales was driven by sales growth coupled with SG&A leverage and gross margin expansion.

Inventory

  • Merchandise inventories were $745.0 million vs. $802.3 million last year, primarily driven by a comparable store inventory decrease of 7%. Pack and hold inventory represented 27% of inventory at quarter end vs. 28% last year.

Share Repurchase Activity

  • During the second quarter, we invested $25 million of cash to repurchase 390,814 shares of our common stock ending the period with approximately $125 million remaining on its share repurchase authorization.

Debt Repricing

  • On July 29, 2016, the Company completed the repricing of its senior secured term loan facility (the Term Loan Facility), which, among other things, reduced the applicable interest rate margins from 2.25% to 1.75%, in the case of prime rate loans, and from 3.25% to 2.75% in the case of LIBOR loans, with the LIBOR floor being reduced from 1.00% to 0.75%. As a result of this transaction, the Company recognized a non-cash loss on the extinguishment of debt of $3.8 million and incurred fees of $1.3 million, which were recorded in the line items “Loss on extinguishment of debt” and “Costs related to debt amendments and secondary offering,” respectively, in the Condensed Consolidated Statements of Operations.

Full Year Fiscal 2016 and Third Quarter 2016 Outlook

The Company is raising its full year Fiscal 2016 outlook based on its strong first half performance and positive outlook for the remainder of the year, including a reduction of interest expense associated with the re-pricing of the Term Loan Facility. The Company notes that given changes in share count, simple addition of its quarterly adjusted net income per share will not round to the full fiscal year.

For the full Fiscal Year 2016 (the 52 weeks ending January 28, 2017), the Company expects:

  • Net sales to increase in the range of 7.8% to 8.3%;
  • Comparable store sales to increase between 3.6% to 4.1%;
  • Interest expense of approximately $59 million reflecting the Term Loan Facility repricing;
  • Adjusted Net Income per Share in the range of $2.92 to $2.96, which reflects an increase in incentive compensation expense of $0.02 per share driven by operating performance above the Company’s expectations in the first half of the year, compared to the Company’s prior guidance of $2.68 to $2.78, utilizing a fully diluted share count of approximately 72.1 million shares, as compared with $2.31 in Fiscal 2015;
  • Adjusted EBITDA margin expansion to increase 50 to 60 basis points; and
  • To open 25 net new stores.

For the third quarter of Fiscal 2016 (the 13 weeks ending October 29, 2016), the Company expects:

  • Net sales to increase in the range of 7.1% to 8.1%;
  • Comparable store sales to increase in the range of 2.5% to 3.5%; and
  • Adjusted Net Income per Share in the range of $0.30 to $0.32, which reflects an increase in incentive compensation expense of $0.01 per share driven by operating performance above the Company’s expectations in the first half of the year, utilizing a fully diluted share count of approximately 72.0 million shares, as compared to $0.25 last year.

The Company has provided non-GAAP guidance as set out above. This does not reflect the impact of potential future non-GAAP adjustments on GAAP net income or GAAP diluted net income per share because the need for some of these adjustments, and their impact, cannot be predicted with reasonable certainty. The adjustments that cannot be predicted with reasonable certainty include, but are not limited to, costs related to debt amendments, secondary offerings, loss on extinguishment of debt, and impairment charges as well as the tax effect of such items.

Note regarding Non-GAAP financial measures

The foregoing discussion includes references to Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per Share. The Company believes these measures are useful in evaluating the operating performance of the business and for comparing its results to that of other retailers. These non-GAAP financial measures are defined and reconciled to the most comparable GAAP measure later in this document.

 

Participation in Goldman Sachs Annual Global Retailing Conference

The Company is scheduled to participate in the 23rd Annual Goldman Sachs Global Retailing Conference, to be held at the Plaza Hotel in New York City, on Thursday, September 8, 2016. Tom Kingsbury, Chairman, President and Chief Executive Officer, Marc Katz, Executive Vice President and Chief Financial Officer and Robert LaPenta, Jr., Treasurer will host a fireside chat presentation at 1:40 p.m. Eastern Time. 

About Burlington Stores, Inc.

Burlington Stores, Inc., headquartered in New Jersey, is a nationally recognized off-price retailer with fiscal 2015 revenue of $5.1 billion. The Company is a Fortune 500 company and its common stock is traded on the New York Stock Exchange under the ticker symbol “BURL.” The Company operates 570 stores, inclusive of an internet store, in 45 states and Puerto Rico, principally under the name Burlington Stores. The Company’s stores offer an extensive selection of in-season, fashion-focused merchandise at up to 65% off other retailers' prices, including women’s ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear, accessories, home and coats.

Safe Harbor for Forward-Looking and Cautionary Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). All statements other than statements of historical fact included in this release are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. We do not undertake to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied in such statements will not be realized. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those we expected, including competition in the retail industry, seasonality of our business, adverse weather conditions, changes in consumer preferences and consumer spending patterns, import risks, inflation, general economic conditions, our ability to implement our strategy, our substantial level of indebtedness and related debt-service obligations, restrictions imposed by covenants in our debt agreements, availability of adequate financing, our dependence on vendors for our merchandise, events affecting the delivery of merchandise to our stores, existence of adverse litigation and risks, availability of desirable locations on suitable terms and other factors that may be described from time to time in our filings with the Securities and Exchange Commission (SEC). For each of these factors, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended.

 

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(All amounts in thousands)
             
    Three Months Ended   Six Months Ended
    July 30,   August 1,   July 30,   August 1,
    2016   2015   2016   2015
REVENUES:                                
Net sales   $ 1,255,053     $ 1,144,218     $ 2,537,723     $ 2,327,276  
Other revenue     5,663       7,355       11,877       15,215  
Total revenue     1,260,716       1,151,573       2,549,600       2,342,491  
COSTS AND EXPENSES:                                
Cost of sales     757,622       695,915       1,526,303       1,408,845  
Selling, general and administrative expenses     407,102       381,606       810,487       759,285  
Costs related to debt amendments and secondary offering     1,346       (12 )     1,346       247  
Stock option modification expense     178       335       414       795  
Depreciation and amortization     44,613       41,746       90,158       83,901  
Impairment charges-long-lived assets     —       188       109       1,903  
Other income—net     (1,717 )     (1,389 )     (5,886 )     (2,462 )
Loss on extinguishment of debt     3,805       —       3,805       649  
Interest expense     15,084       14,598       30,036       29,401  
Total cost and expenses     1,228,033       1,132,987       2,456,772       2,282,564  
Income before income tax expense     32,683       18,586       92,828       59,927  
Income tax expense     12,289       7,686       34,920       23,332  
Net income   $ 20,394     $ 10,900     $ 57,908     $ 36,595  
 

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(All amounts in thousands)
                   
    July 30,     January 30,     August 1,  
    2016     2016     2015  
ASSETS                        
Current assets:                        
Cash and cash equivalents   $ 30,469     $ 20,915     $ 27,231  
Restricted cash and cash equivalents     27,800       27,800       27,800  
Accounts receivable—net     41,902       38,571       38,979  
Merchandise inventories     744,965       783,528       802,341  
Prepaid and other current assets     86,895       62,168       140,672  
Total current assets     932,031       932,982       1,037,023  
Property and equipment—net     1,024,919       1,018,570       986,395  
Goodwill and intangible assets—net     511,645       523,817       539,314  
Other assets     97,659       96,444       101,799  
Total assets   $ 2,566,254     $ 2,571,813     $ 2,664,531  
                         
LIABILITIES AND STOCKHOLDERS' DEFICIT                        
Current liabilities:                        
Accounts payable   $ 546,035     $ 598,199     $ 590,498  
Other current liabilities     291,353       286,986       278,593  
Current maturities of long term debt     1,512       1,403       1,340  
Total current liabilities     838,900       886,588       870,431  
Long term debt     1,351,830       1,295,163       1,340,857  
Other liabilities     284,083       287,389       270,575  
Deferred tax liabilities     195,175       201,695       223,305  
Commitments and contingencies                        
Stockholders' deficit     (103,734 )     (99,022 )     (40,637 )
Total liabilities and stockholders' deficit   $ 2,566,254     $ 2,571,813     $ 2,664,531  
 

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(All amounts in thousands)
       
    Six Months Ended  
    July 30,     August 1,  
    2016     2015  
OPERATING ACTIVITIES                
Net income   $ 57,908     $ 36,595  
Adjustments to reconcile net income to net cash provided by (used in) operating activities                
Depreciation and amortization     90,158       83,901  
Deferred income tax (benefit)     (4,603 )     (7,740 )
Non-cash loss on extinguishment of debt     3,805       649  
Non-cash stock compensation expense     7,376       5,258  
Non-cash rent expense     (15,712 )     (12,182 )
Deferred rent incentives     9,681       16,936  
Changes in assets and liabilities:                
Accounts receivable     (5,034 )     1,902  
Merchandise inventories     38,263       (13,633 )
Accounts payable     (53,238 )     (31,184 )
Other current assets and liabilities     (24,244 )     (78,110 )
Long term assets and liabilities     2,440       512  
Other operating activities     (3,681 )     (3,610 )
Net cash provided by (used in) operating activities     103,119       (706 )
INVESTING ACTIVITIES                
Cash paid for property and equipment     (75,949 )     (81,935 )
Other investing activities     203       136  
Net cash used in investing activities     (75,746 )     (81,799 )
FINANCING ACTIVITIES                
Proceeds from long term debt—ABL Line of Credit     887,400       797,800  
Principal payments on long term debt—ABL Line of Credit     (831,500 )     (647,400 )
Proceeds from long term debt—Term B-4 Loans     1,114,208       —  
Principal payments on long term debt—Term B-3 Loans     (1,117,000 )     (50,000 )
Purchase of treasury shares     (76,155 )     (25,782 )
Other financing activities     5,228       9,769  
Net cash (used in) provided by financing activities     (17,819 )     84,387  
Increase in cash and cash equivalents     9,554       1,882  
Cash and cash equivalents at beginning of period     20,915       25,349  
Cash and cash equivalents at end of period   $ 30,469     $ 27,231  
                 
 

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

(Amounts in thousands except per share data)
 

Adjusted Net Income, Adjusted Net Income per Share, Adjusted EBITDA and Adjusted Tax Expense
 
The following tables calculate the Company’s Adjusted Net Income, Adjusted Net Income per Share, Adjusted EBITDA (earnings before (i) net interest expense, (ii) loss on extinguishment of debt, (iii) costs related to debt amendments and secondary offering, (iv) stock option modification expense, (v) advisory fees, (vi) depreciation and amortization, (vii) impairment charges, (viii) amounts related to certain ongoing litigation and (ix) taxes) and Adjusted Tax Expense (income tax expense less the tax effect of the reconciling items to get to Adjusted Net Income (footnote (h) in the table below)), all of which are considered Non-GAAP financial measures. Generally, a Non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.
 
Adjusted Net Income is defined as net income for the period plus (i) net favorable lease amortization, (ii) costs related to debt amendments and secondary offering, (iii) stock option modification expense, (iv) loss on the extinguishment of debt, (v) impairment charges, (vi) amounts related to certain ongoing litigation and (vii) advisory fees, all of which are tax effected to arrive at Adjusted Net Income.
 
Adjusted Net Income per Share is defined as Adjusted Net Income divided by the weighted average shares outstanding, as defined in the table below.
 
The Company presents Adjusted Net Income, Adjusted Net Income per Share, Adjusted EBITDA and Adjusted Tax Expense because it believes they are useful supplemental measures in evaluating the performance of the Company’s business and provide greater transparency into the results of operations. In particular, the Company believes that excluding certain items that may vary substantially in frequency and magnitude from operating income are useful supplemental measures that assist in evaluating the Company’s ability to generate earnings and leverage sales, and to more readily compare these metrics between past and future periods.
 
The Company believes that Adjusted Net Income, Adjusted Net Income per Share, Adjusted EBITDA and Adjusted Tax Expense provide investors helpful information with respect to the Company’s operations and financial condition. Other companies in the retail industry may calculate these non-GAAP measures differently such that the Company’s calculation may not be directly comparable. The adjustments to these metrics are not in accordance with regulations adopted by the SEC that apply to periodic reports presented under the Exchange Act. Accordingly, Adjusted Net Income, Adjusted Net Income per Share, Adjusted EBITDA and Adjusted Tax Expense may be presented differently in filings made with the SEC than as presented in this report or not presented at all.
 
The following table shows the Company’s reconciliation of net income to Adjusted Net Income for the three and six months ended July 30, 2016 compared with the three and six months ended August 1, 2015:
    (unaudited)  
    (in thousands, except per share data)  
    Three Months Ended     Six Months Ended  
    July 30,     August 1,     July 30,     August 1,  
    2016     2015     2016     2015  
Reconciliation of net income to Adjusted Net Income:                                
Net income   $ 20,394     $

10,900

     $ 57,908     $ 36,595  
Net favorable lease amortization (a)     5,852       5,992       12,074       12,049  
Costs related to debt amendments and secondary offering (b)     1,346       (12 )     1,346       247  
Stock option modification expense (c)     178       335       414       795  
Loss on extinguishment of debt (d)     3,805       —       3,805       649  
Impairment charges (e)     —       188       109       1,903  
Advisory fees (f)     —       —       —       72  
Litigation accrual(g)     1,400       —       1,400       —  
Tax effect (h)     (4,731 )     (2,546 )     (7,200 )     (6,161 )
Adjusted Net Income   $ 28,244     $ 14,857     $ 69,856     $ 46,149  
Fully diluted weighted average shares outstanding (i)     71,987       76,511       72,205       76,506  
Adjusted Net Income per Share   $ 0.39     $ 0.19     $ 0.97     $ 0.60  
(a)   Net favorable lease amortization represents the non-cash amortization expense associated with favorable and unfavorable leases that were recorded as a result of purchase accounting related to the April 13, 2006 Bain Capital acquisition of Burlington Coat Factory Warehouse Corporation, and are recorded in the line item “Depreciation and amortization” in our Condensed Consolidated Statements of Operations.
(b)   Costs are related to the repricing of our Term Loan Facility during the second quarter of Fiscal 2016 and our secondary offering of common stock during Fiscal 2015.
(c)   Represents expenses incurred as a result of our May 2013 stock option modification.
(d)   Amounts relate to the repricing or our Term Loan Facility during the second quarter of Fiscal 2016 and the prepayment on our Term Loan Facility during the first quarter of Fiscal 2015.
(e)   Represents impairment charges on long-lived assets.
(f)   Amounts represent reimbursement for out-of-pocket expenses that are payable to Bain Capital, and are recorded in the line item “Selling, general and administrative expenses” in our Condensed Consolidated Statements of Operations.
(g)   Represents amounts charged for certain ongoing litigation.
(h)   Tax effect is calculated based on the effective tax rates (before discrete items) for the respective periods, adjusted for the tax effect for the tax impact of items (a) through (g).
(i)   Fully diluted weighted average shares outstanding starts with basic shares outstanding and adds back any potentially dilutive securities outstanding during the period. Fully diluted weighted average shares outstanding is equal to basic shares outstanding if the Company is in an Adjusted Net Loss position.
 
 
The following table shows the Company’s reconciliation of net income to Adjusted EBITDA for the three and six months ended July 30, 2016 compared with the three and six months ended August 1, 2015: