Burlington Stores, Inc. (BURL – Free Report) announced lower-than-expected results for the fourth quarter of fiscal 2021. Nevertheless, the high and low compare favorably to the respective results of the previous year. Quarterly performance was primarily driven by the successful execution of the Burlington 2.0 initiative. Additionally, BURL’s store-related efforts, including the smaller store prototype, have been on track for some time.
Weaker-than-expected results for the fiscal fourth quarter, coupled with weak same-store sales (coms) and operating margin for the first quarter and fiscal year 2022, weighed on the stock. As a result, shares of Burlington Stores fell 13% during March 3 trading hours. Over the past six months, the stock has fallen 21.5%, more than the sector’s 15.4% decline.
Overview of titles
Burlington Stores reported adjusted earnings of $2.53 per share, below Zacks’ consensus estimate of $3.22. However, net income rose 3.7% from the reported figure of $2.44 per share a year ago, but fell 21.2% from the $3.21 recorded in the fourth quarter of the 2019 financial year.
Total revenue of $2,609 million increased 14.3% from last fiscal year’s reported figure and 18.1% from the fourth quarter of fiscal 2019. Net sales increased nearly 18% from the fourth quarter of fiscal 2019 to $2,603.5 million, while other income decreased 23.6% to $5.5 million dollars. Zacks’ consensus estimate was higher at $2,781 million for the quarter under review.
Compensation was up 6% from the fourth quarter FY19 reading. Lower traffic and lower spend per buyer primarily drove lower rates. Decline in traffic in December was due to external factors, including the ramp-up of the omicron variant and hot weather.
Gross margin was 39.8% in the reported quarter, down 230 basis points (bps) from actual in the fourth quarter of fiscal 2019. Commodity margins increased 30 basis points , more than offset by a 260 basis point increase in transport costs.
General and administrative expenses adjusted as a rate of sales were 22.2%, improving 50 basis points from actual in the fourth quarter of fiscal 2019. Product supply costs included in General and administrative expenses were $159 million, compared to $89 million in the fourth quarter of fiscal 2019. Product sourcing costs represent expenses for processing goods through the supply chain and costs of purchase. Higher supply chain costs primarily caused deleveraging.
Adjusted EBITDA decreased 12% from the total for the fourth quarter of fiscal 2019 to $307 million. The metric also showed a decline from adjusted EBITDA of $280.2 million recorded in the fourth quarter of fiscal 2020.
Adjusted EBIT was $241 million, down 18% from the fourth quarter of fiscal 2019. However, the metric showed a jump from Adjusted EBIT of $223.5 million observed during the third quarter of fiscal 2020. Adjusted EBIT margin fell 410 basis points compared to the final fourth quarter of fiscal 2019.
Other financial aspects
These Zacks Rank #3 (Hold) stores in Burlington ended the quarter with cash and cash equivalents of $1,091.1 million, long-term debt of $1,541.1 million and shareholders’ equity of $760.4 million. It ended the fiscal fourth quarter with $1,685 million in cash, including $1,091 million in unrestricted cash and $594 million available under its ABL facility.
Burlington Stores ended the quarter with total debt outstanding of $1,555 million, including $957 million under its term loan facility, $572 million in convertible notes and no borrowings under its ABL facility. During the current quarter, management extended the maturity of the ABL facility from June 2023 to December 2026, and increased the size from $600 million to $650 million and reduced the applicable interest rate margins .
Merchandise inventory was $1,021.7 million, up 31.4% from the count in the fourth quarter of fiscal 2019. Same-store inventory fell 30% from the level recorded in the same quarter of fiscal 2019. Reserve inventory represented 50% of total inventory at the end of the current quarter.
Burlington Stores repurchased 344,492 shares for $100 million under its stock repurchase plan during the fourth fiscal quarter. As of January 29, 2022, BURL had $150 million remaining under the share repurchase authorization. In February, BURL’s board authorized the buyout for up to an additional $500 million, which is expected to be executed through February 2024.
BURL ended fiscal 2021 with 840 stores after opening 101 stores, relocating 17 and closing 5, adding 79 net new stores. Of the new stores, 48 were within 30,000 square feet or less, representing the last small store prototype. For fiscal 2022, management intends to open 120 stores, adding 90 net new stores. It aims to relocate or close 30 stores in the aforementioned period. About 80 of these stores will be open in the smaller format. Over the next five years, 75% of stores will be introduced in the small format.
Management did not provide a specific sales and earnings view for fiscal 2022 (the 52 weeks ending January 28, 2023) due to pandemic-related uncertainty and the pace of recovery in demand from clients. Burlington Stores expects to experience significant transportation and supply chain cost pressures in the fourth fiscal quarter.
Management assumes a decline in base compensation to mid single digits for the full year. This will lead to an operating margin deleveraging of nearly 150 basis points. The estimate indicates that freight and supply chain spending will remain at elevated levels through the middle of the current fiscal year and then begin to decline.
For the fiscal first quarter, comps are expected to decline in the mid-teens with operating margin deleveraging of 750 basis points from the level seen in the first quarter of fiscal 2021. On a stack basis, the plan of the first fiscal quarter suggests comps growth of about 5% from the level of fiscal 2019 and a deleveraged operating margin of 400 basis points. This deleveraging will be primarily driven by increased freight and supply chain spending.
Capital expenditures, net of owners’ allowances for fiscal year 2022, are expected to be approximately $725 million.
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