Why Is Burlington Stores (BURL) Up 9.1% Since Last Earnings Report?
It has been about a month since the last earnings report for Burlington Stores (BURL). Shares have added about 9.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Burlington Stores due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Burlington Stores Q1 Earnings Meet, Sales Top Estimates
Burlington Stores, Inc. delivered first-quarter fiscal 2019 results, wherein the bottom line met the Zacks Consensus Estimate and was flat year over year. Meanwhile, the top line beat the consensus mark and grew year over year.
We note that while comparable store sales were nearer to the low end of the previously provided guidance of 0-0.5%, cost containment efforts helped the bottom line surpass management’s view of $1.21-$1.25.
The company delivered adjusted earnings of $1.26 per share that met the Zacks Consensus Estimate as well as the prior-year quarter figure.
Net sales advanced 7.3% year over year to $1,628.5 million and marginally beat the consensus estimate of $1,622.8 million, following a miss in the preceding quarter. New and non-comparable stores contributed $121 million to sales. Other revenues came in at $5.6 million, down 9.8% year over year.
The company witnessed strength across Children’s Apparel, Baby Depot and Home businesses and remains committed toward improving the performance of Ladies Apparel business.
Meanwhile, comparable store sales rose 0.1% in the reported quarter compared with an increase of 4.8% in the year-ago period and 1.3% in the preceding quarter. Although comparable store sales growth rate decelerated on a sequential basis, it is likely to accelerate in the second quarter, as evident from management’s forecast of 1-2% growth. However, we note that in second-quarter fiscal 2018, the company recorded comparable store sales growth of 2.9%.
Gross margin contracted 20 basis points (bps) to 41%. We note that an increase of 10 bps in merchandise margins was more than offset by deleverage of 30 bps in freight costs. Management expects freight costs to increase 20 bps, while merchandise margins are projected to increase approximately 40 bps in fiscal 2019.
Adjusted SG&A expenses, as a percentage of sales, rose 20 bps to 26.3% due to deleverage in occupancy and store payroll expenses. This was partly offset by lower marketing and utilities expense rates.
Adjusted operating income fell 1.9% to $117.4 million, while adjusted operating margin contracted about 65 bps owing to higher freight expenses and depreciation charges.
During the reported quarter, Burlington Stores opened 17 gross new stores, comprising six relocations, and closed two outlets. The company concluded the quarter with a store count of 684. In fiscal 2019, the company plans to introduce 75 gross stores, and relocate or shutter about 25, thereby projecting 50 net new stores for the fiscal. The company plans to remodel 28 stores during the fiscal year.
Other Financial Aspects
Burlington Stores ended the reported quarter with cash and cash equivalents of $105 million, long-term debt of $1,133.4 million and shareholders’ equity of $278.5 million. Net capital expenditures incurred during the quarter were $72 million. For fiscal 2019, the company projects net capital expenditures of roughly $310 million.
During the quarter, the company bought back 841,460 shares for $123 million. At the end of the reported quarter, the company had $176 million remaining under its share buyback program.
Based on the quarterly performance, Burlington Stores now envisions fiscal 2019 adjusted earnings per share in the range of $6.93-$7.01. The mid-point of $6.97 suggests an improvement over $6.44 reported in the prior year.
For fiscal 2019, management expects total sales growth of 8.5-9.2% with comparable store sales projected to improve 1.3-2.1%. The company registered comparable store sales growth of 3.2% in fiscal 2018.
Management anticipates adjusted operating margin to be flat year over year. Further, Burlington Stores projects interest expenses of approximately $53 million for the fiscal year.
The company estimates second-quarter fiscal 2019 sales growth of 8-9%. Adjusted earnings per share are expected to be $1.11-$1.15, the mid-point of which is lower than the prior-year quarter reported figure of $1.15.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
At this time, Burlington Stores has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Burlington Stores has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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