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Burlington Stores Dips 13% in a Month: Can Growth Plans Aid?

Zacks Equity Research
·4-min read

Burlington Stores, Inc. BURL stock is tracking down the charts of late, evident from its shares falling 13.4% in the past month. Much of this downside is caused by a dismal first-quarter fiscal 2020, wherein the company reported wider-than-expected loss per share with a sales miss. Both the top and the bottom line also declined year over year. Margins were also soft in the quarter. Nevertheless, its growth strategies including impressive business model and store-expansion effort are encouraging. The industry showcased growth of 2.4% in the same time frame.

Delving Deeper

The first-quarter fiscal 2020 results were mainly hurt by adverse impacts of COVID-19 that compelled the company to shut all stores effective Mar 22, till the end of the fiscal first quarter. While significant sales decline and $272-million inventory charge against aged inventory due to extended store closures hurt the bottom line, sales plunged 51% solely due to adverse impacts of COVID-19. Further, gross margin contracted significantly from 41% to 2% due to the inventory charge for aged inventory.

 

Despite a decline in adjusted SG&A expense, which excludes management transition costs of $3 million, the company reported adjusted operating loss in the reported quarter. At its first-quarter earnings call on May 28, management said that the company has been seeing higher traffic levels and sales in the reopened stores, as customers are responding favorably to the company’s clearance strategy.

Speaking of Burlington Stores’ strategies, the retailer has made multiple changes to its business model to adapt to the ongoing changes in the industry. The company’s “open to buy” off-price model is helping customers get nationally branded, fashionable and right-priced products. Also, the company has made technological advancements, initiated better marketing approach and focused on localized assortments. Burlington Stores’ long-term strategies include enhancement of assortments with primary focus on home, beauty and gifts categories in order to make the business less weather-sensitive.

Burlington Stores seems quite focused on its store-expansion strategy. During the first quarter of fiscal 2020, the company inaugurated 12 stores, relocated 10 and shuttered three. For the fiscal second quarter, management anticipates opening three outlets. For fiscal 2020, the company expects to introduce 64 stores and relocate or shutter 26, with total 38 net new outlets. In fact, it believes that there is room to increase the store count to at least 1,000, based on identified market opportunities. Additionally, the company intends to improve operating margin by augmenting sales, optimizing markdowns, effectively managing inventory and focusing on SG&A expenses.

Although the stock’s bearish run on bourses cannot be overlooked, the aforesaid efforts are likely to provide cushion to this Zacks Rank #3 (Hold) stock.

Key Picks in Retail

Sprouts Farmers Market SFM has a trailing four-quarter positive earnings surprise of 37.2% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SpartanNash SPTN, also a Zacks Rank #1 stock, has a positive earnings surprise of 76.3% for the last reported quarter.

Dollar General DG has a long-term earnings growth rate of 12.3%. Currently, it carries a Zacks Rank #1.

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Dollar General Corporation (DG) : Free Stock Analysis Report
 
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