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Burlington Stores (BURL) Q2 Earnings Beat Mark, Sales Fall Y/Y

Burlington Stores, Inc. BURL reported mixed results for second-quarter fiscal 2022, wherein sales missed the Zacks Consensus Estimate, while earnings beat the same. Both the top and the bottom line compared unfavorably with the respective prior-fiscal year’s quarterly tallies. Margins were also soft in the reported fiscal quarter.

Quarterly performance was mainly hurt by weak sales and comparable-store sales (comps), and lower in-store inventory levels. Also, inflationary pressures higher supply-chain costs and elevated freight expenses weighed on BURL’s results in the reported fiscal quarter. Supply-chain and freight costs cumulatively caused a deleverage of about 170 basis points (bps). Management issued a soft outlook for the third quarter and fiscal 2022.

Following the soft quarterly results, shares of this apparel retailer have dropped 10% during the trading hours on Aug 25. Over the past three months, the stock has decreased 3.5% against the industry's 7.9% rise.

Insight Into the Headlines

Burlington Stores delivered adjusted earnings of 35 cents per share, surpassing the Zacks Consensus Estimate of 23 cents. However, the bottom line fell sharply from $1.94 a share recorded in the year-ago period.

Total revenues of $1,987.9 million tumbled 10.3% from the last fiscal year’s reported figure. Net sales decreased 10% from the second-quarter fiscal 2021 number to $1,983.9 million, while Other revenues increased 32.3% to $4.1 million. The Zacks Consensus Estimate stood higher at $2,032 million for the reported quarter.

Comps dropped 17% year over year against a rise of 19% seen in the second quarter of fiscal 2021. Lower in-store inventory levels caused the decline.

Margins

Gross margin was 38.9% in the reported quarter, down 320 bps from the second-quarter fiscal 2021 actuals. Merchandise margins declined 210 bps and freight expenses rose 110 bps. Around half of the decline in merchandise margin was induced by increased markdowns.

Adjusted SG&A as a rate of sales was 26.1%, increasing 120 bps from the second-quarter fiscal 2021 actuals. Product sourcing costs included in SG&A came in at $157 million, up from $146 million recorded in the second quarter of fiscal 2021. Product sourcing costs represent the processing goods expenses via supply-chain and buying costs.

Adjusted EBITDA decreased 54.9% from the second-quarter fiscal 2022 tally to $111 million. As a rate of sales, the metric decreased 550 bps. Adjusted EBIT was $42.6 million, down from $182.9 million in second-quarter fiscal 2021. Adjusted EBIT margin fell 610 bps from the second-quarter fiscal 2021 finals.

Other Financial Aspects

This presently Zacks Rank #4 (Sell) Burlington Stores ended the reported quarter with cash and cash equivalents of $455 million, long-term debt of $1,472.2 million and a stockholders’ equity of $633.9 million. BURL exited the fiscal second quarter with $1,298 million of liquidity, including $455 million of unrestricted cash and $843 million available under its ABL facility. In the reported quarter, management raised the size of the ABL facility to $900 million from $650 million and maintained its maturity in December 2026.

Burlington Stores ended the quarter with $1,487 million of outstanding total debt comprising $946 million under its Term Loan Facility, $508 million of Convertible Notes and no borrowings under its ABL Facility.

Merchandise inventories were $1266.7 million, up 53% from the second-quarter fiscal 2021 tally. Comparable store inventories dipped 5% from the level recorded in the same quarter of fiscal 2021. Reserve inventory accounted for 52% of the total inventory at the end of the reported quarter.

Burlington Stores bought back 598,278 shares for $101 million under its share repurchase plan in the fiscal second quarter. As of Jul 30, 2022, BURL had $450 million remaining under the share repurchase authorization.

During the reported quarter, BURL inaugurated 11 net stores, taking the total store base to 877. This comprised 13 store openings and two relocations. For fiscal 2022, management intends to open 120 stores, adding 90 net stores. It aims to relocate or close 30 stores in the aforementioned period.

For fiscal 2022, management projects capital expenditures, net of landlord allowances, of about $640 million.

Outlook

Management believes that the current retail environment, including a soft sales trend and major promotional activity will prevail in the rest of the fiscal year. These factors compelled management to lower guidance for the back half of the fiscal year. It assumes comps in the range of a minus 13% to a minus 10% for the back half against comps growth of 10% for the back half in fiscal 2021.

Also, it expects a significant pressure on merchant margin. Adjusted EBIT margin is likely to fall 80-160 bps, generating adjusted earnings per share of $2.81-$3.41 in the back half.

For fiscal 2022, comps are likely to fall in the band of 13-15% compared with a fall of 6-9% predicted earlier and a 15% rise expected in fiscal 2021. Adjusted EBIT margin is now expected to decrease 410-360 bps for the full fiscal compared to a decline of 130-200 bps projected previously. Adjusted earnings per share are envisioned in the bracket of $3.70-$4.30, down from the earlier view of $6.00-$7.00 and adjusted earnings per share of $8.41 recorded last fiscal year.

For the fiscal third quarter, comps are expected to decrease 15-18%. Adjusted EBIT margin is likely to contract 260-360 bps from the last fiscal year’s quarterly reading while adjusted earnings per share are forecast in the range of 36-66 cents, indicating a decline from $1.36 on a non-GAAP basis recorded last fiscal year.

The Zacks Consensus Estimate for third-quarter and fiscal 2022 earnings is pegged higher at $1.36 and $8.41, respectively.

3 Hot Stocks to Consider

Here we highlighted three better-ranked stocks, namely Dollar General DG, Costco COST and Dollar Tree DLTR.

Dollar General, a discount retailer, currently carries a Zacks Rank #2 (Buy). DG has an expected earnings per share (EPS) growth rate of 12.8% for three to five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Dollar General’s current financial-year revenues and EPS suggests growth of 10.1% and 13.7%, respectively, from the comparable year-ago reported figures. DG has a trailing four-quarter earnings surprise of 2.8%, on average.

Costco, engaged in the operation of membership warehouses, carries a Zacks Rank of 2. COST has an expected EPS growth rate of 9.2% for three to five years.

The Zacks Consensus Estimate for Costco’s current financial-year sales and EPS suggests growth of 15.4% and 18.2%, respectively, from the corresponding year-ago period’s tallies. COST has a trailing four-quarter earnings surprise of 9.7%, on average.

Dollar Tree operates discount variety retail stores and currently carries a Zacks Rank #2. DLTR has an expected EPS growth rate of 15.5% for three to five years.

The Zacks Consensus Estimate for Dollar Tree’s current financial-year revenues and EPS suggests growth of 6.7% and 40.7%, respectively, from the corresponding year-ago reported figures. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average.


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