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Tough Fourth Quarter at Burlington Stores, as Net Income Dives 23.7 Percent

Increased inventories caused in part by tariff threats contributed to a decline in net income in the fourth quarter at Burlington Stores.

In a Nutshell: Off-price chain Burlington Stores Inc. experienced its “most difficult” quarter in the final three months of fiscal 2018, but was able to pull off an adjusted comparable-store sale gains, even as income fell.

The company cited higher levels of short stay inventory due to acceleration of tariff-impacted receipts for merchandise inventories that rose to $954 million compared to $753 million the previous year. The increase was also caused by higher pack-and-hold inventory that was 30 percent of total inventory at the end of the fourth quarter of fiscal 2018 compared to 25 percent a year earlier. Inventory levels also increased due to the addition of 46 net new stores opened during fiscal 2018, as well as a 1.8 percent increase in comp-store inventory attributable to below-plan sales.

Burlington said based on the uncertainty around the timing, aggregate amount and average size of tax refunds this year and Easter shifting back three weeks on the calendar from last year, it expects sales to increase in the range of 7 percent to 9 percent for the first quarter ended May 4.

The company, which operated 675 stores as of the end of the fiscal fourth quarter in 45 states and Puerto Rico, forecast comp-store sales to range from flat to a 2 percent increase compared to a 4.8 percent increase during the first quarter of fiscal 2018.

For Fiscal 2019, the company expects sales to be up 9 percent to 10 percent. Comp-store sales are seen rising 1.5 percent to 2.8 percent compared to a 3.2 percent increase during fiscal 2018.

Burlington said it expects to open 50 net new stores, and invest capital expenditures of approximately $310 million.

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Sales: Total sales for the fourth quarter ended Feb. 2 increased 2.8 percent over last year’s 14-week period to $1.99 billion. The company noted that last year’s extra week in its fiscal calendar added $82 million in sales to the fourth quarter. Comparable-store sales rose 1.3 percent on an adjusted calendar basis.

For the full year, total sales increased 9.2 percent to $6.64 million on a 52-week to 53-week basis. Excluding last year’s 53rd week, total sales increased 10.7 percent, driven by a $477 million increase in new and non-comparable store sales.

Earnings: Net income on a 13-week basis was down 23.7 percent to $184 million from $241 million in the prior year’s 14-week period.

Adjusted earnings before interest and taxes (EBIT) on a 13-week basis was $261 million versus $250 million on a 14-week basis in fiscal 2017. Excluding the extra week last year, adjusted EBIT in the period improved 7 percent. For the year, adjusted EBIT increased 17 percent to $600 million.

Gross margin for the 13-week period was up 2.7 percent to $836 million compared to $814 million for the 14-week period the prior year. A 20 basis point improvement in merchandise margin was offset by a negative 20 basis point impact from higher freight costs.

For the 52-week fiscal 2018, net income was up 7.8 percent to $415 million from $385 million in the 53-week fiscal 2017. Adjusted year-to-year net income increased 9 percent.

CEO’s Take: Tom Kingsbury, CEO, said: “Despite our fourth quarter sales performance coming in below our expectations, we nevertheless exceeded our adjusted earnings per share (EPS) guidance through disciplined expense management. It is important to note that the fourth quarter represented our most difficult fiscal 2018 one and two-year quarterly comparable store sales comparisons. While we are disappointed with how the year ended from a sales perspective, we did have a solid fiscal 2018 on both the top and bottom line. We remain confident in our business model and long term prospects for growth, and still expect fiscal 2019 adjusted EPS to increase low double digits on a comparable basis versus fiscal 2018.”