Temporary store closures meant the first quarter was likely a bust for off-price retailer Burlington Stores Inc., but the retailer is seeing some good news ahead due to positive response from customers at stores that have reopened.
In a Nutshell: Sales fell in the quarter as all of the Burlington’s doors were temporarily shuttered starting March 22 and remained closed throughout April because of the coronavirus pandemic. The company began reopening on May 11 and will have 402 doors reopened by this weekend. It expects to have the balance of its 334 stores reopened by mid-June. Data from 332 stores that have re-opened have seen sales exceed year-ago levels, Burlington said.
“The most important priority as we have reopened our stores has been to ensure very high standards for safety and social distancing,” CEO Michael O’Sullivan said. “We have implemented a detailed set of safety measures, and our associates and customers have responded very well to these actions. This will remain the over-riding priority for us.”
The company ended the quarter with $1.64 billion in liquidity, including $151 million in availability on its asset-based lending facility. Burlington last month closed on $1.1 billion of debt offerings, all maturing in April 2025.
Net Sales: For the quarter ended May 2, total revenue fell 51 percent to $801.5 million from $1.63 billion. Total revenue included a corresponding 51 percent drop in net sales to $798 million from $1.63 billion. Gross margin rate for the quarter was 2 percent, versus 41 percent a year ago, dragged down by an inventory charge for aged stock.
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The company said it moved aggressively to reduce inventory levels during the extended store closure period. Merchandise inventories were down 30 percent to $626 million from $896 million, and the company took a $272 million inventory charge in the quarter to account for expected markdowns for aged goods, and “because we expect a very promotional environment for the first few months as retailers re-open their stores.” In additional, pack and hold inventory was 22 percent of total inventory at the end of the first quarter, versus 28 percent in the same year-ago period.
Earnings: The company posted a net loss of $333.7 million, or $5.09 a diluted share, against net income of $77.8 million, or $1.15, a year ago. On an adjusted basis, the loss per diluted share was $4.76.
The company said it was not providing sales and earnings guidance for fiscal 2020 ending Jan. 30, 2021 because of the “uncertainty surrounding the pace of the recovery of consumer demand.”
Burlington now expects capital expenditures to be around $260 million, net of landlord allowances, from prior guidance of $400 million. And it now expects to open 64 new stores, while relocating or closing 26, for a net new store total of 38 for fiscal 2020. That’s lower than prior plans for 80 new stores and 54 net new stores. Burlington said the updated store plan moves 16 new stores from Fall 2020 to Spring 2021.
CEO’s Take: “We began to reopen our stores earlier this month and…we have been pleased with the traffic levels and sales that we have seen so far. There is clearly pent-up demand, and our customers are responding positively to our clearance strategy. That said, we do not know how long this will continue, as sales could slow down as we sell through our clearance merchandise. But as an off-price retailers, we are excited by the chance to turn our inventory and to pursue great opportunistic buys in what we expect will be a very strong off-price buying environment,” O’ Sullivan said. “There is considerable uncertainty ahead, but we are current on our accounts payable, we have lean inventories, and we have ample liquidity. Therefore, we believe we are well positioned to chase the sales trend or to pull back based on whatever situation we face in the coming months.”