Growth stocks are always a favorite among investors, and Burlington Stores Inc. (BURL, Financial) is a growth stock. The company posted excellent quarterly results including an 8.94% increase in net sales. Net sales for the first nine months increased 8.99%.
Burlington is a leading off-price apparel and home product retailer and offers 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. The company operates 570 stores, inclusive of its online store, in 45 states and Puerto Rico.
Strong third-quarter results
On Nov. 22, 2016, the Florence, New Jersey-based company reported its financial results for the third quarter ended Oct. 29. The company’s net sales increased 8.94% to $1.34 billion, compared to $1.23 billion for the comparable prior-year period. Total revenue for the reported quarter increased 8.87% to $1.35 billion, compared to $1.24 billion in the third quarter of 2015.
Gross profit for the reported quarter increased 12.96% to $552.74 million, compared to $489.30 million in the prior-year period. The gross profit margin increased 41.17% from 39.75% in the same period last year.
Burlington’s operating income increased 86.18% to $55.09 million, compared to $29.59 million in the year-ago quarter. Operating income as a percentage of net sales increased 4.1% from 2.4% in the same period last year. Net income increased 114.28% to $32.4 million, or 45 cents per diluted share. Adjusted net income increased 90.45% to $36.28 million, or 51 cents per diluted share, compared to $19.05 million or 25 cents per diluted share for the comparable prior year period. Net income as a percentage of net sales increased 2.41% from 1.23% in the prior-year period.
The company’s EBITDA increased 52.44% to $45.55 million, compared to $29.88 million for the comparable prior-year period. Adjusted EBITDA increased 32.76% to $109.58 million compared to $82.54 million in the year-ago quarter.
Burlington’s cost of sales increased 6.51% to $789.86 million compared to $741.58 million. On the other hand, cost of sales as a percentage of net sales decreased to 58.83% compared to 60.25% in the prior-year period. Selling, general and administrative expenses increased 8.38% to $451.07 million compared to $416.2 million in the same period last year. Net interest expense for the reported quarter decreased 11.02% to $13.16 million compared to $14.79 million.
Burlington ended the quarter with cash and cash equivalents of $32.8 million, an increase of 13.69%, compared to $28.85 million in the year-ago quarter. Inventories and long-term debt for the reported quarter decreased 11.94% to $822.47 million and 7.14% to $1.3 billion, compared to $934.01 million and $1.40 billion for the comparable prior-year period.
Attributes of the quarter
Net sales increased primarily due to increase in comparable-store sales and sales from new and noncomparable stores. Gross margin increased 140 basis points primarily due to strong merchandise margins. Selling, general and administrative expenses less product sourcing costs as a percentage of net sales improved mainly due to greater leverage in advertising, store occupancy and store payroll expense.
First nine months results overview
The following chart shows Burlington’s financial results for first nine months of 2016.
| Metrics | Nine months ended October 2016 | Nine months ended October 2015 | % change |
| Net sales | $3.88 billion | $3.56 billion | 8.99% |
| Total revenue | $3.9 billion | $3.58 billion | 8.94% |
| Gross profit | $1.56 billion | $1.41 billion | 10.64% |
| Operating income | $437.36 million | $103.79 million | 321.39% |
| Net income | $90.31 million | $51.71 million | 74.65% |
| Adjusted net income | $106.13 million | $65.29 million | 62.55% |
| EBITDA | $133.47 million | $95.81 million | 39.31% |
| Adjusted EBITDA | $329.64 million | $259.38 million | 27.09% |
| Cost of sales | $2.32 billion | $2.15 billion | 7.91% |
| Selling, general and administrative expenses | $1.26 billion | $1.17 billion | 7.69% |
| Net interest expense | $43.2 million | $44.19 million | (2.24)% |
| Net cash provided by operating activities | $286.49 million | $103.7 million | 176.27% |
Share repurchase
During the quarter, Burlington invested $75 million of cash to repurchase 919.12 million shares of its common stock and at the end of the quarter, it returned $350 million to shareholders.
Projections
Burlington has updated its guidance and for the fourth quarter, the company expects an increase in net sales and comparable store sales in the range of 6.6% to 7.6% and 2.5% to 3.5%. Additionally, the company expects adjusted net income per share in the range of $1.63 to $1.67.
For fiscal 2016, the company expects an increase in net sales and comparable store sales in the range of 8.4% to 8.7% and 3.9% to 4.2%. The company expects its interest expense of approximately $57 million and adjusted net income per share in the range of $3.11 to $3.15. Further, the company expects an increase in adjusted EBITDA margin by 70 to 80 basis points and plans to open 25 net new stores.
Growth strategies
To attract more and more customers in its arena, Burlington has refined its off-price business model through improved buying and inventory management. To drive growth, improve efficiency, and to improve customer experience, the company has invested in technology, systems, and has introduced programs such as well maintained fitting rooms, friendly associates, clean, well lit, easy-to-shop store and efficient checkout. Other initiatives taken by Burlington to expand operating margins and to drive EPS include a rise in purchasing power and improvement in inventory turnover.
Management
On Nov. 16, 2016, Burlington has appointed Ted English to its board of directors. English's 30 years of retail experience will help the company to expand its own offerings into home, beauty, and ladies apparel.
On a concluding note
Burlington is a rock-solid company with a strong balance sheet, remarkable white space opportunity, flexible off-price sourcing and merchandising model and experienced management team.
Since 2008, the company’s comparable store inventory turnover has improved 126% and has reduced inventory aged 91 days and older. Finally, with the recent quarterly release, the company is aiming for a better future and is set to deliver greater shareholder returns.
Disclosure: I do not hold any position in the company.
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