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Burlington Stores Saw Higher Freight and Product Sourcing Costs in Q1

While Burlington Stores Inc.’s first-quarter results met Wall Street’s estimates, women’s apparel still underperformed and it saw increases in both freight and product sourcing costs.

In a Nutshell: Tom Kingsbury, chairman, president and chief executive officer, said that although first-quarter sales came in at the low end of company expectations, Burlington’s disciplined expense management helped the company exceed the high end of its updated adjusted earnings per share guidance that was provided last month. He also cited the company’s return of $123 million to shareholders through share repurchases during the quarter.

Net Sales: For the quarter ended May 4, total revenues rose 7.2 percent to $1.63 billion from $1.52 billion. Included in the revenue figure was a 7.3 percent gain in net sales to $1.63 billion from $1.5 billion. The company said comparable store sales inched up 0.1 percent in the quarter.

Gross margin slipped by 20 basis points to 41 percent in the quarter. While merchandise margins rose by 10 basis points, they were more than offset by a 30 basis point increase in freight costs. Furthermore, product sourcing costs, which included selling, general and administrative expenses, were 10 basis points higher as a percentage of sales compared with the year-ago quarter.

The company said merchandise inventories rose to $896 million, compared with $787 million a year ago. The increase was connected to the addition of 37 net new stores, as well as an increase in pack-and-hold inventory, which represented 28 percent of total inventory for the first quarter ended May 4.

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Earnings: Net income decreased 5.8 percent to $77.8 million, or $1.15 a diluted share, from $82.6 million, or $1.20, a year ago. On an adjusted basis, diluted earnings per share was $1.26.

Wall Street was expecting adjusted diluted EPS of $1.25 on revenues of $1.61 billion.

For the second quarter ending Aug. 3, Burlington guided adjusted EPS in the range of $1.11 to $1.15, on a total sales increase of between 8 percent to 9 percent.

For Fiscal 2019, the company guided adjusted EPS to the range of $6.93 to $7.01, on a sales projection of an increase between 8.5 percent to 9 percent. The sales forecasts also includes a comps estimate of between 1 percent to 2 percent for the second quarter, and a 2 percent to 3 percent increase for the balance of the fiscal year. Burlington also said it plans capital expenditures of $310 million, which includes the opening of 50 net new stores.

All forecasts exclude about $4 million in management transition costs during Fiscal 2019 related to the company’s CEO succession plan disclosed last month. At the time, the company said that Kingsbury would step down as CEO on Sept. 16, 2019, and take on the role of executive chairman. Kingsbury will be succeeded by Michael O’Sullivan, formerly president and chief operating officer of Ross Stores Inc.

The company also said it invested $123 million of cash repurchase 841,460 shares of its common stock in the quarter, ending the three months with $176 million remaining on its current share repurchase authorization. Burlington also said that from the end of the first quarter of Fiscal 2018 through the end of the first quarter of Fiscal 2019, the company repurchased about 1.8 million shares of its common stock under the share repurchase program.

CEO’s Take: Kingsbury said, “Although we saw strength in our children’s apparel, Baby Depot and home businesses, we remain very focused on improving our underperforming ladies apparel business.”