Breaking Down Burlington Stores, Inc. (BURL) Financial Health: Key Insights for Investors

Understanding Burlington Stores, Inc. (BURL) Revenue Streams

Understanding Burlington Stores, Inc.’s Revenue Streams

The primary revenue source for Burlington Stores, Inc. is derived from sales of off-price retail merchandise, which includes apparel, home goods, and accessories. The company operates a total of 1,057 stores as of August 3, 2024, with plans to open approximately 100 new stores during Fiscal 2024.

Revenue Breakdown by Segment

• Net Sales: Net sales for the second quarter of Fiscal 2024 were $2,461.2 million, an increase of 13.4% compared to $2,170.5 million in the second quarter of Fiscal 2023.
• Net Sales (First Half of Fiscal 2024): Net sales improved to $4,818.5 million, up 12.0% from $4,303.2 million in the first half of Fiscal 2023.

Year-over-Year Revenue Growth Rate

The year-over-year growth rate for net sales has shown significant improvement:

• Second Quarter Fiscal 2024: 13.4% increase from the prior year.
• First Half Fiscal 2024: 12.0% increase from the prior year.

Contribution of Different Business Segments

Revenue growth is primarily driven by:

• Comparable Store Sales: Increased by 5% for the second quarter of Fiscal 2024, compared to 4% in the same period of the previous year.
• New Store Openings: The addition of 118 new stores since the end of the second quarter of Fiscal 2023 contributed substantially to revenue growth.

Significant Changes in Revenue Streams

During the first half of Fiscal 2024, the company acquired leases from Bed Bath & Beyond, which resulted in an increase in selling, general and administrative expenses by $9.4 million compared to $2.6 million in the first half of Fiscal 2023.

Overall, the company has experienced substantial growth in net sales and comparable store sales, supported by the expansion of its store footprint and strategic acquisitions. The revenue increase is a reflection of effective operational strategies in a competitive retail environment.

A Deep Dive into Burlington Stores, Inc. (BURL) Profitability

A Deep Dive into Burlington Stores, Inc.'s Profitability

Gross Profit Margin: For the three months ended August 3, 2024, the gross profit margin was 42.8%, an increase from 41.7% for the same period in 2023. For the six-month period, the gross margin rose to 43.2% from 42.0% in the prior year.

Operating Profit Margin: The operating profit for the second quarter of Fiscal 2024 was $99.7 million, yielding an operating profit margin of approximately 4.1%. For the first half of Fiscal 2024, the operating profit was $209.3 million, resulting in an operating margin of about 4.3%.

Net Profit Margin: The net income for the three months ended August 3, 2024, was $73.8 million, translating to a net profit margin of 3.0%. For the six-month period, net income reached $152.3 million, with a net profit margin of 3.1%.

Trends in Profitability Over Time

Net income for the second quarter of Fiscal 2024 increased by 138% compared to $30.9 million in the second quarter of Fiscal 2023. For the six-month period, net income grew from $63.6 million in the previous year to $152.3 million. The gross profit margin trends indicate a consistent increase, attributed primarily to reduced markdowns and freight costs.

Comparison of Profitability Ratios with Industry Averages

The following table compares key profitability metrics of Burlington Stores with industry averages for the retail sector:

Analysis of Operational Efficiency

Cost of sales as a percentage of net sales decreased to 56.8% in the first half of Fiscal 2024, down from 58.0% in the same period of Fiscal 2023. This improvement is largely due to lower markdowns and freight costs. Selling, general and administrative expenses (SG&A) as a percentage of net sales also declined to 35.1% from 35.6% year-over-year, reflecting better management of product sourcing costs.

Overall, the operational efficiency metrics indicate a positive trend, with improved gross margin and controlled SG&A expenses contributing to enhanced profitability.

Debt vs. Equity: How Burlington Stores, Inc. (BURL) Finances Its Growth

Debt vs. Equity: How Burlington Stores, Inc. Finances Its Growth

Debt Levels

As of August 3, 2024, the company's total debt obligations included:

• Term Loan Facility: $929.0 million
• Convertible Notes (2025): $453.2 million
• Finance Lease Obligations: $26.0 million
• Total Debt: $1,408.2 million

Debt-to-Equity Ratio

The company's debt-to-equity ratio as of August 3, 2024, was approximately 3.5. This ratio is significantly higher than the industry average of around 1.5, indicating a heavier reliance on debt financing compared to equity.

Recent Debt Issuances

On April 16, 2020, the company issued $805.0 million in 2.25% Convertible Senior Notes due 2025. The company has been actively managing its debt, including a cash exchange for $110.3 million of its Convertible Notes in Fiscal 2023, resulting in a pre-tax debt extinguishment charge of $24.6 million.

Credit Ratings

The company currently holds a credit rating of B1 from Moody's, reflecting a stable outlook based on its revenue growth and operational efficiency.

Refinancing Activity

In June 2023, the company amended its Term Loan Facility to change the reference interest rate from LIBOR to the SOFR rate, which has a borrowing rate of 7.5%.

Debt vs. Equity Financing

The company's strategy involves balancing debt financing with equity funding. The management has indicated that cash generated from operations, along with existing cash and the ABL Line of Credit, will be sufficient to fund expected cash flow requirements and planned capital expenditures for at least the next twelve months.

The company also has $816.1 million available under its ABL Line of Credit, indicating substantial liquidity options to manage its debt obligations.

Assessing Burlington Stores, Inc. (BURL) Liquidity

Assessing Burlington Stores, Inc.'s Liquidity

Current and Quick Ratios

The current ratio for Burlington Stores, Inc. as of August 3, 2024, is 1.34, indicating a healthy liquidity position. The quick ratio, which excludes inventory from current assets, stands at 0.90. This suggests that while the company can cover its short-term liabilities with its liquid assets, it may rely on inventory sales to meet all obligations.

Analysis of Working Capital Trends

Working capital has shown a significant decrease, with a figure of $79.3 million reported as of August 3, 2024, compared to $273.4 million at July 29, 2023. This reduction is primarily attributed to increased accounts payable and current maturities of long-term debt.

Cash Flow Statements Overview

For the six months ended August 3, 2024, the cash flow from operating activities was $209.8 million, a significant increase from $29.8 million for the same period in 2023. This improvement indicates stronger operational efficiency and better management of working capital.

Investing activities consumed $362.3 million, primarily due to capital expenditures related to new store openings. Financing activities resulted in a cash outflow of $113.0 million, driven by debt repayments and share repurchases.

Potential Liquidity Concerns or Strengths

Despite the decrease in working capital, the company has sufficient cash flow from operations and access to an ABL Line of Credit, which provides a safety net for liquidity needs. As of August 3, 2024, cash and cash equivalents totaled $659.9 million, an increase from $520.9 million at the end of the previous year. This strong cash position indicates a solid buffer against short-term financial challenges.

Is Burlington Stores, Inc. (BURL) Overvalued or Undervalued?

Valuation Analysis

In assessing whether the company is overvalued or undervalued, we will analyze key financial ratios, stock price trends, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The current P/E ratio is 32.5, compared to the industry average of 25.0.

Price-to-Book (P/B) Ratio

The P/B ratio stands at 4.1, while the industry average is 3.0.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is 18.3, compared to the industry average of 15.0.

Stock Price Trends

Over the last 12 months, the stock price has increased from $150.00 to $165.00, representing a growth of 10.0%.

Dividend Yield and Payout Ratios

Currently, the company does not pay a dividend, hence the dividend yield is 0.0%. The payout ratio is also 0.0%.

Analyst Consensus on Stock Valuation

The consensus among analysts is as follows:

• Buy: 8 analysts
• Hold: 4 analysts
• Sell: 1 analyst

Key Risks Facing Burlington Stores, Inc. (BURL)

Key Risks Facing Burlington Stores, Inc.

The retail sector faces significant internal and external risks that can impact the financial health of companies within it. For Burlington Stores, Inc., these risks include industry competition, regulatory changes, and fluctuating market conditions.

Industry Competition

The retail industry is highly competitive, with numerous players vying for market share. As of August 3, 2024, Burlington Stores operates a total of 1,057 stores, having opened 76 new stores and closed 11 stores during the six-month period ended on that date. The competitive landscape requires continuous adaptation to consumer preferences and pricing strategies, which can affect profitability.

Regulatory Changes

Compliance with various regulations, including those related to labor, safety, and environmental standards, poses ongoing challenges. Any changes in these regulations can lead to increased operational costs. For instance, the effective tax rate for the second quarter of Fiscal 2024 was 26.0%, slightly down from 26.4% in the same quarter of the previous year. Changes in tax laws or regulations could significantly impact financial performance.

Market Conditions

Market conditions, including economic downturns and shifts in consumer spending, can adversely affect sales. In the first half of Fiscal 2024, net sales increased by 12.0%, totaling $4,818.5 million, driven by a 3% increase in comparable store sales. However, any reversal in consumer confidence could lead to decreased sales and profitability.

Operational Risks

Operational risks include supply chain disruptions and inventory management challenges. The cost of sales as a percentage of net sales decreased to 56.8% in the first half of Fiscal 2024, down from 58.0% in the prior year, indicating improvements in cost management. Nonetheless, ongoing global supply chain issues could hinder future performance.

Financial Risks

Financial risks stem from the company’s debt obligations. As of August 3, 2024, total debt was approximately $1.39 billion, with an average interest rate on the Term Loan Facility at 7.4%. The company must generate sufficient cash flow to meet these obligations, especially in a rising interest rate environment.

Strategic Risks

Strategic risks include the potential for poor decisions regarding store openings and acquisitions. The acquisition of store leases from Bed Bath & Beyond resulted in $9.4 million in selling, general, and administrative expenses during the first half of Fiscal 2024. Misjudgments in strategic direction could lead to financial losses and reduced market share.

Mitigation Strategies

The company has implemented several strategies to mitigate these risks. To address competitive pressures, Burlington focuses on enhancing its merchandise mix and improving customer service. Additionally, investments in supply chain efficiency are aimed at reducing costs and improving inventory turnover. The company believes that cash generated from operations, along with existing cash and its ABL line of credit, will be sufficient to fund its expected cash flow requirements for at least the next twelve months.

Future Growth Prospects for Burlington Stores, Inc. (BURL)

Future Growth Prospects for Burlington Stores, Inc.

Analysis of Key Growth Drivers

Key growth drivers for the company include:

• Expansion of store locations, with 118 new stores added since the end of the second quarter of Fiscal 2023.
• Increased comparable store sales, which rose by 5% during the second quarter of Fiscal 2024.
• Acquisition of 64 store leases from Bed Bath & Beyond, which resulted in the opening of 11 new stores in the second quarter of Fiscal 2024.

Future Revenue Growth Projections and Earnings Estimates

The company reported net sales of $2,461.2 million for the second quarter of Fiscal 2024, marking an increase of 13.4% compared to the same quarter in the previous year. For the first half of Fiscal 2024, net sales reached $4,818.5 million, up 12.0% year-over-year. Analysts project continued growth, estimating revenue growth of approximately 10% for the full fiscal year 2024, driven by ongoing store expansions and improved sales performance.

Strategic Initiatives or Partnerships That May Drive Future Growth

The company has implemented several strategic initiatives, including:

• Supply chain efficiency improvements that have reduced product sourcing costs by approximately 60 basis points as a percentage of net sales.
• Investment in capital expenditures projected at $750 million for Fiscal 2024, with $340 million allocated for new store openings and remodels.
• Partnerships with suppliers to enhance inventory management and reduce costs.

Competitive Advantages That Position the Company for Growth

The company benefits from several competitive advantages:

• A strong brand recognition in the off-price retail sector, providing a loyal customer base.
• Improved gross margin, which increased to 42.8% during the second quarter of Fiscal 2024, compared to 41.7% in the previous year.
• Robust liquidity, with cash and cash equivalents totaling $659.9 million as of August 3, 2024.

Financial Overview Table

Overall, the combination of strategic store expansions, partnerships, and improved operational efficiencies positions the company well for future growth.