Should You Stock Up on Burlington Stores as the Company Turns Around?

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Source: Amsterdad, Wikimedia Commons

Source: Amsterdad, Wikimedia Commons

Burlington Stores Inc. (NYSE:BURL) is a pretty well-known company. It operates as a retailer of branded apparel products in the United States. The company provides fashion-focused merchandise, such as women’s ready-to-wear apparel, menswear, youth apparel, baby products, footwear, accessories, home goods, and coats. The stock caught my eye as it is moving toward its fifty-two-week high after reporting an earnings beat and in line revenues. The stock itself has traded range bound for a year now, but may be set to break out on the back of this earnings report. But just how good was the earnings report?

Well, considering Burlington Store’s history, it was quite a strong quarter. Comparable store sales increased 2.7 percent primarily due to improved execution in most areas. Net sales increased 5.9 percent, or $63.3 million to $1,128.3 million. This increase includes the 2.7 percent increase in comparable store sales, as well as an increase of $40.3 million from new and non-comparable stores. Gross margin expanded by 80 basis points to 38.1 percent from 37.3 percent last year, primarily due to improved execution. This more than offset an approximate 30 basis point increase in product sourcing costs that are included in selling and administrative expenses. Expenses exclusive of advisory fees, as a percentage of net sales were 30.8 percent vs. 30.7 percent last year. As noted above, the company experienced increased product sourcing expenses to process goods through its supply chain, as well as buying costs. This was offset by positive leverage from other expenses, primarily store payrolls. The quarter also benefited from 15 to 20 basis points in expenses that will shift to the second quarter.

Turning to earnings, the company saw adjusted earnings increased 16.1 percent, or $12.8 million, to $92.3 million. Sales growth along with gross margin expansion more than offset the increase in the company’s increased selling and administrative expenses and led to a 70 basis point expansion in adjusted earnings as a percent of net sales. Depreciation and amortization expense, exclusive of net favorable lease amortization, decreased $0.5 million to $34.6 million. Interest expense decreased $7.8 million to $26.6 million from last year, driven by interest savings related to the principal payments over the last twelve months on the company’s term loans. In addition, the company realized savings as a result of its 2013 term loan refinancing. Adjusted tax expense was $12.5 million compared to $4.0 million last year. The adjusted effective tax rate did rise a touch. It was 40.2 percent vs. 39.6 percent last year. The increase in the tax rate is the result of certain tax credits recorded in last year’s first quarter. Adjusted net income was $18.6 million vs. $6.1 million last year, or $0.25 per diluted share vs. $0.08 last year.

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