SEC Form 10-Q filed by Burlington Stores Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
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(Zip Code) |
Registrant’s Telephone Number, Including Area Code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The registrant had
BURLINGTON STORES, INC.
INDEX
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BURLINGTON STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(All amounts in thousands, except per share data)
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Three Months Ended |
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May 4, |
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April 29, |
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2024 |
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2023 |
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REVENUES: |
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$ |
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$ |
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Other revenue |
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Total revenue |
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COSTS AND EXPENSES: |
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Cost of sales |
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Selling, general and administrative expenses |
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Depreciation and amortization |
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Impairment charges - long-lived assets |
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Other income - net |
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( |
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Loss on extinguishment of debt |
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— |
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Interest expense |
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Total costs and expenses |
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Income before income tax expense |
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Income tax expense |
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Net income |
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$ |
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$ |
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Net income per common share: |
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Common stock - basic |
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$ |
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$ |
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Common stock - diluted |
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$ |
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$ |
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Weighted average number of common shares: |
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Common stock - basic |
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Common stock - diluted |
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See Notes to Condensed Consolidated Financial Statements.
3
BURLINGTON STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(All amounts in thousands)
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Three Months Ended |
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May 4, |
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April 29, |
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2024 |
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2023 |
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Net income |
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$ |
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$ |
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Other comprehensive income, net of tax: |
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Interest rate derivative contracts: |
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Net unrealized gain arising during the period |
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Net reclassification into earnings during the period |
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( |
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( |
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Other comprehensive income, net of tax |
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Total comprehensive income |
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
4
BURLINGTON STORES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(All amounts in thousands, except share and per share data)
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May 4, |
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February 3, |
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April 29, |
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2024 |
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2024 |
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2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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$ |
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Restricted cash and cash equivalents |
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— |
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— |
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Accounts receivable—net |
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Merchandise inventories |
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Assets held for disposal |
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Prepaid and other current assets |
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Total current assets |
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Property and equipment—net |
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Operating lease assets |
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Tradenames |
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Goodwill |
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Deferred tax assets |
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Other assets |
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Total assets |
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$ |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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$ |
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Current operating lease liabilities |
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Other current liabilities |
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Current maturities of long term debt |
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Total current liabilities |
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Long term debt |
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Long term operating lease liabilities |
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Other liabilities |
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Deferred tax liabilities |
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(Note 11) |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Authorized: |
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Issued: |
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Outstanding: |
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Additional paid-in-capital |
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Accumulated earnings |
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Accumulated other comprehensive income |
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Treasury stock, at cost |
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( |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
5
BURLINGTON STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(All amounts in thousands)
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Three Months Ended |
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May 4, |
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April 29, |
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2024 |
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2023 |
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OPERATING ACTIVITIES |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities |
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Depreciation and amortization |
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Impairment charges—long-lived assets |
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Amortization of deferred financing costs |
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Accretion of long term debt instruments |
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Deferred income taxes |
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Loss on extinguishment of debt |
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— |
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Non-cash stock compensation expense |
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Non-cash lease expense |
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( |
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( |
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Cash received from landlord allowances |
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Changes in assets and liabilities: |
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Accounts receivable |
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( |
) |
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( |
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Merchandise inventories |
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( |
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( |
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Prepaid and other current assets |
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( |
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( |
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Accounts payable |
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( |
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( |
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Other current liabilities |
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( |
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( |
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Other long term assets and long term liabilities |
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( |
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Other operating activities |
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( |
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( |
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Net cash provided by (used in) operating activities |
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( |
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INVESTING ACTIVITIES |
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Cash paid for property and equipment |
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( |
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( |
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Lease acquisition costs |
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( |
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( |
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Net (removal costs) proceeds from sale of property and equipment and assets held for sale |
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( |
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Net cash used in investing activities |
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( |
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( |
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FINANCING ACTIVITIES |
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Principal payments on long term debt—Term B-6 Loans |
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( |
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( |
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Principal payment on long term debt— 2025 Convertible Notes |
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— |
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( |
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Purchase of treasury shares |
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( |
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( |
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Proceeds from stock option exercises |
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Other financing activities |
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Net cash used in financing activities |
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( |
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( |
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Decrease in cash, cash equivalents, restricted cash and restricted cash equivalents |
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( |
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( |
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Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period |
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Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Interest paid |
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$ |
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$ |
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Income tax payments - net |
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$ |
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$ |
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Non-cash investing and financing activities: |
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Finance lease modification |
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$ |
( |
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$ |
— |
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Accrued purchases of property and equipment |
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
BURLINGTON STORES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 4, 2024
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
As of May 4, 2024, Burlington Stores, Inc., a Delaware corporation (collectively with its subsidiaries, the Company), through its indirect subsidiary Burlington Coat Factory Warehouse Corporation (BCFWC), operated
These unaudited Condensed Consolidated Financial Statements include the accounts of Burlington Stores, Inc. and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. The Condensed Consolidated
6
Financial Statements are unaudited, but in the opinion of management reflect all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of operations for the interim periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (Fiscal 2023 10-K). The balance sheet at February 3, 2024 presented herein has been derived from the audited Consolidated Financial Statements contained in the Fiscal 2023 10-K. Because the Company’s business is seasonal in nature, the operating results for the three month period ended May 4, 2024 are not necessarily indicative of results for the fiscal year.
Accounting policies followed by the Company are described in Note 1, “Summary of Significant Accounting Policies,” included in Part II, Item 8 of the Fiscal 2023 10-K.
Fiscal Year
The Company defines its fiscal year as the 52 or 53-week period ending on the Saturday closest to January 31. Fiscal 2024 is defined as the 52-week year ending February 1, 2025, and Fiscal 2023 is defined as the 53-week year ended February 3, 2024. The first quarters of Fiscal 2024 and Fiscal 2023 each consist of 13 weeks.
Recently Adopted Accounting Standards
There were no new accounting standards that had a material impact on the Company’s Condensed Consolidated Financial Statements and notes thereto during the three month period ended May 4, 2024.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis. We are currently determining the impact that ASU 2023-09 will have on the Company's consolidated financial statement disclosures.
2. Stockholders’ Equity
Activity for the three month periods ended May 4, 2024 and April 29, 2023 in the Company’s stockholders’ equity is summarized below:
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(in thousands, except share data) |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Treasury Stock |
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Shares |
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Amount |
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Capital |
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Earnings |
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Income |
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Shares |
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Amount |
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Total |
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Balance at February 3, 2024 |
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$ |
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$ |
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$ |
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$ |
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( |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock options exercised |
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— |
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— |
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— |
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— |
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— |
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Shares used for tax withholding |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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( |
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Shares purchased as part of publicly announced program, inclusive of $ |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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( |
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Vesting of restricted shares |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Unrealized gains on interest rate derivative contracts, net of related taxes of $ |
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— |
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— |
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— |
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— |
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— |
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— |
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Amount reclassified from accumulated other comprehensive income into earnings, net of related taxes of $ |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Balance at May 4, 2024 |
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$ |
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$ |
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$ |
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$ |
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( |
) |
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$ |
( |
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$ |
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7
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(in thousands, except share data) |
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Common Stock |
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Additional |
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Accumulated (Deficit) |
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Accumulated |
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Treasury Stock |
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Shares |
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Amount |
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Capital |
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Earnings |
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(Loss) Income |
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Shares |
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Amount |
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Total |
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Balance at January 28, 2023 |
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$ |
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$ |
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$ |
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$ |
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( |
) |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock options exercised |
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— |
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— |
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— |
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— |
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— |
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Shares used for tax withholding |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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( |
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Shares purchased as part of publicly announced program, inclusive of $ |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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( |
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Vesting of restricted shares |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock based compensation |
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|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Unrealized gains on interest rate derivative contracts, net of related taxes of $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Amount reclassified from accumulated other comprehensive income into earnings, net of related taxes of $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at April 29, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
3. Lease Commitments
The Company’s leases primarily consist of stores, distribution facilities and office space under operating and finance leases that will expire principally during the next
The following is a schedule of the Company’s future lease payments:
|
|
(in thousands) |
|
|||||
Fiscal Year |
|
Operating |
|
|
Finance |
|
||
2024 (remainder) |
|
$ |
|
|
$ |
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
||
2028 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total future minimum lease payments |
|
|
|
|
|
|
||
Amount representing interest |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|||
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
||
Weighted average discount rate |
|
|
|
|
||||
Weighted average remaining lease term (years) |
|
|
|
|
|
|
||
The above schedule excludes approximately $
The Company has entered into a lease agreement for a new distribution center in Ellabell, GA, which is expected to commence in Spring 2025. The Company does not have control of the asset during construction, but it is involved in the design and construction of the distribution center. Additionally, the lease agreement has a purchase option, which can be exercised beginning after the earlier of (a) substantial completion of construction or (b) the date the Company commences business operations in the premises.
The following is a schedule of net lease costs for the periods indicated:
8
|
|
(in thousands) |
|
|||||
|
|
Three Months Ended |
|
|||||
|
|
May 4, 2024 |
|
|
April 29, 2023 |
|
||
Finance lease cost: |
|
|
|
|
|
|
||
Amortization of finance lease asset (a) |
|
$ |
|
|
$ |
|
||
Interest on lease liabilities (b) |
|
|
|
|
|
|
||
Operating lease cost (c) |
|
|
|
|
|
|
||
Variable lease cost (c) |
|
|
|
|
|
|
||
Total lease cost |
|
|
|
|
|
|
||
Impairment (gain) on sale and leaseback transaction (d) |
|
|
|
|
|
( |
) |
|
Less all rental income (e) |
|
|
( |
) |
|
|
( |
) |
Total net rent expense (f) |
|
$ |
|
|
$ |
|
||
Supplemental cash flow disclosures related to leases are as follows:
|
|
(in thousands) |
|
|||||
|
|
Three Months Ended |
|
|||||
|
|
May 4, 2024 |
|
|
April 29, 2023 |
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Cash payments arising from operating lease liabilities (a) |
|
$ |
|
|
$ |
|
||
Cash payments for the principal portion of finance lease liabilities (b) |
|
$ |
|
|
$ |
|
||
Cash payments for the interest portion of finance lease liabilities (a) |
|
$ |
|
|
$ |
|
||
Supplemental non-cash information: |
|
|
|
|
|
|
||
Operating lease liabilities arising from obtaining right-of-use assets |
|
$ |
|
|
$ |
|
||
(a)
(b)
4. Long Term Debt
Long term debt consists of:
|
|
(in thousands) |
|
|||||||||
|
|
May 4, |
|
|
February 3, |
|
|
April 29, |
|
|||
|
|
2024 |
|
|
2024 |
|
|
2023 |
|
|||
Senior secured term loan facility (Term B-6 Loans), adjusted SOFR (with a floor of |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Convertible senior notes, |
|
|
|
|
|
|
|
|
|
|||
Convertible senior notes, |
|
|
|
|
|
|
|
|
— |
|
||
ABL senior secured revolving facility, SOFR plus spread based on average outstanding balance, matures on |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
Unamortized deferred financing costs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total debt |
|
|
|
|
|
|
|
|
|
|||
Less: current maturities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Long term debt, net of current maturities |
|
$ |
|
|
$ |
|
|
$ |
|
|||
9
Term Loan Facility
BCFWC and certain of its subsidiaries and holding companies are party to a Credit Agreement (as amended, supplemented and otherwise modified, the Term Loan Facility) that provides for term loans in an aggregate principal amount as of May 4, 2024 of $
The Term Loan Facility is collateralized by a first lien on BCFWC’s and each guarantor’s equity interests, equipment, intellectual property, and certain favorable leases and real estate, and certain related assets and proceeds thereof (subject to certain exceptions), and a second lien on BCFWC’s and each guarantor’s other assets and proceeds thereof (subject to certain exceptions). On May 11, 2023, the Company amended the Term Loan Credit Agreement to, effective as of June 30, 2023, change one of the reference interest rates for borrowings under the Term Loan Facility from the Term Loan Adjusted LIBOR Rate to the Adjusted Term Secured Overnight Financing Rate (SOFR) Rate (as defined in the Term Loan Credit Agreement). The Adjusted Term SOFR Rate includes a credit spread adjustment of
Interest rates for the Term Loan Facility are based on: (i) for SOFR loans, a rate per annum equal to the Adjusted Term SOFR Rate for the applicable interest period, plus a margin of
At May 4, 2024 and April 29, 2023, the interest rate related to the Term Loan Facility was
2025 Convertible Notes
On April 16, 2020, the Company issued $
During the first quarter of Fiscal 2023, the Company entered into separate, privately negotiated exchange agreements with certain holders of the 2025 Convertible Notes. Under the terms of the exchange agreements, the holders exchanged $
Prior to the close of business on the business day immediately preceding January 15, 2025, the 2025 Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the 2025 Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The 2025 Convertible Notes have an initial conversion rate of
Holders of the 2025 Convertible Notes may require the Company to repurchase their 2025 Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the 2025 Convertible Notes at a purchase price equal to
10
2027 Convertible Notes
On September 12, 2023, the Company closed the issuance of approximately $
The 2027 Convertible Notes will bear interest at a rate of
Prior to the close of business on the business day immediately preceding September 15, 2027, the 2027 Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the 2027 Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The 2027 Convertible Notes have an initial conversion rate of
If the Company undergoes a fundamental change, subject to certain conditions, holders of the 2027 Convertible Notes may require the Company to repurchase for cash all or any portion of their 2027 New Convertible Notes. The fundamental change repurchase price will be
ABL Line of Credit
BCFWC and certain of its subsidiaries and holding companies are party to a Second Amended and Restated Credit Agreement (as amended, supplemented and otherwise modified, the ABL Line of Credit) that provides for $
On June 26, 2023, BCFWC entered into a Fifth Amendment to the Second Amended and Restated Credit Agreement, which increased the sublimit for letters of credit thereunder from $
11
At May 4, 2024, the Company had $
At April 29, 2023, the Company had $
5. Derivative Instruments and Hedging Activities
The Company accounts for derivatives and hedging activities in accordance with ASC 815, “Derivatives and Hedging” (ASC 815). As required by ASC 815, the Company records all derivatives on the balance sheet at fair value and adjusts to market on a quarterly basis. In addition, to comply with the provisions of ASC 820, “Fair Value Measurements” (ASC 820), credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees. In accordance with ASC 820, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. There is no impact of netting, because the Company has only
On December 17, 2018, the Company entered into an interest rate swap, which hedged $
During the second quarter of Fiscal 2023, the Company amended its interest rate swap to be based on SOFR rather than LIBOR, which resulted in an updated swap rate of
The amount of loss deferred for the previous interest rate swap was $
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
As of May 4, 2024, the Company had the following outstanding interest rate derivative that was designated as a cash flow hedge of interest rate risk:
Interest Rate Derivative |
|
Number of |
|
Notional Aggregate |
|
Interest Swap Rate |
|
Maturity Date |
Interest rate swap contract |
|
|
$ |
|
|
Tabular Disclosure
The table below presents the fair value of the Company’s derivative financial instruments on a gross basis as well as their classification on the Company’s Condensed Consolidated Balance Sheets:
|
|
(in thousands) |
|
|||||||||||||||
|
|
Fair Values of Derivative Instruments |
|
|||||||||||||||
|
|
May 4, 2024 |
|
|
February 3, 2024 |
|
|
April 29, 2023 |
|
|||||||||
Derivatives Designated as Hedging Instruments |
|
Balance |
|
Fair |
|
|
Balance |
|
Fair |
|
|
Balance |
|
Fair |
|
|||
Interest rate swap contracts |
|
Other assets |
|
$ |
|
|
Other assets |
|
$ |
|
|
Other assets |
|
$ |
|
|||
12
The following table presents the unrealized gains and losses deferred to accumulated other comprehensive income resulting from the Company’s derivative financial instruments for each of the reporting periods.
|
|
(in thousands) |
|
|||||
|
|
Three Months Ended |
|
|||||
Interest Rate Derivatives: |
|
May 4, 2024 |
|
|
April 29, 2023 |
|
||
Unrealized gains, before taxes |
|
$ |
|
|
$ |
|
||
Income tax expense |
|
|
( |
) |
|
|
( |
) |
Unrealized gains, net of taxes |
|
$ |
|
|
$ |
|
||
The following table presents information about the reclassification of gains and losses from accumulated other comprehensive income into earnings related to the Company’s derivative instruments for each of the reporting periods.
|
|
(in thousands) |
|
|||||
|
|
Three Months Ended |
|
|||||
Component of Earnings: |
|
May 4, 2024 |
|
|
April 29, 2023 |
|
||
Interest benefit |
|
$ |
( |
) |
|
$ |
( |
) |
Income tax expense |
|
|
|
|
|
|
||
Net reclassification into earnings |
|
$ |
( |
) |
|
$ |
( |
) |
The Company estimates that approximately $
6. Fair Value Measurements
The Company accounts for fair value measurements in accordance with ASC 820, which defines fair value, establishes a framework for measurement and expands disclosure about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price), and classifies the inputs used to measure fair value into the following hierarchy:
Level 1: Quoted prices for identical assets or liabilities in active markets.
Level 2: Quoted market prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3: Pricing inputs that are unobservable for the assets and liabilities and include situations where there is little, if any, market activity for the assets and liabilities.
The inputs into the determination of fair value require significant management judgment or estimation.
The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments.
Refer to Note 5, “Derivative Instruments and Hedging Activities,” for further discussion regarding the fair value of the Company’s interest rate swap contract.
Financial Assets
The fair values of the Company’s financial assets and the hierarchy of the level of inputs as of May 4, 2024, February 3, 2024 and April 29, 2023 are summarized below:
|
|
(in thousands) |
|
|||||||||
|
|
Fair Value Measurements at |
|
|||||||||
|
|
May 4, |
|
|
February 3, |
|
|
April 29, |
|
|||
|
|
2024 |
|
|
2024 |
|
|
2023 |
|
|||
Level 1 |
|
|
|
|
|
|
|
|
|
|||
Cash equivalents (including restricted cash equivalents) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
13
Long-lived assets are measured at fair value on a non-recurring basis for purposes of calculating impairment using the fair value hierarchy of ASC 820. The fair value of the Company’s long-lived assets is calculated using a discounted cash-flow model that used level 3 inputs. In calculating future cash flows, the Company makes estimates regarding future operating results and market rent rates, based on its experience and knowledge of market factors in which the retail location is located.
Impairment charges on long-lived assets were $
During the three months ended May 4, 2024 and the three months ended April 29, 2023, the assets impaired had a remaining carrying value after impairments of $
Financial Liabilities
The fair values of the Company’s financial liabilities are summarized below:
|
|
(in thousands) |
|
|||||||||||||||||||||
|
|
May 4, 2024 |
|
|
February 3, 2024 |
|
|
April 29, 2023 |
|
|||||||||||||||
|
|
Principal |
|
|
Fair |
|
|
Principal |
|
|
Fair |
|
|
Principal |
|
|
Fair |
|
||||||
Term B-6 Loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
2025 Convertible Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
2027 Convertible Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
ABL Line of Credit (a) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total debt (b) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The fair values presented herein are based on pertinent information available to management as of the respective period end dates. The estimated fair values of the Company’s debt are classified as Level 2 in the fair value hierarchy, and are based on current market quotes received from inactive markets.
7. Income Taxes
Income tax expense was $
Net deferred taxes are as follows:
|
|
(in thousands) |
|
|||||||||
|
|
May 4, |
|
|
February 3, |
|
|
April 29, |
|
|||
|
|
2024 |
|
|
2024 |
|
|
2023 |
|
|||
Deferred tax asset |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Deferred tax liability |
|
|
|
|
|
|
|
|
|
|||
Net deferred tax liability |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Net deferred tax assets relate to Puerto Rico deferred balances that have a future net benefit for tax purposes. Net deferred tax liabilities primarily relate to intangible assets and depreciation expense where the Company has a future obligation for tax purposes.
As of May 4, 2024, the Company had a deferred tax asset related to net operating losses of $
As of May 4, 2024, the Company had a deferred tax asset related to tax credit carry-forwards of $
14
As of May 4, 2024, February 3, 2024 and April 29, 2023, valuation allowances amounted to $
8. Capital Stock
Treasury Stock
The Company accounts for treasury stock under the cost method.
Shares Used to Satisfy Tax Withholding
During the three month period ended May 4, 2024, the Company acquired
Share Repurchase Program
On February 16, 2022, the Company's Board of Directors authorized the repurchase of up to $
On August 15, 2023, the Company's Board of Directors authorized the repurchase of up to an additional $
During the three month period ended May 4, 2024, the Company repurchased
9. Net Income Per Share
Basic net income per share is calculated by dividing net income by the weighted-average number of common shares outstanding. Diluted net income per share is calculated by dividing net income by the weighted-average number of common shares and potentially dilutive securities outstanding during the period using the treasury stock method for the Company’s stock-based compensation grants and the if-converted method for the 2025 Convertible Notes and the 2027 Convertible Notes.
|
|
(in thousands, except per share data) |
|
|||||
|
|
Three Months Ended |
|
|||||
|
|
|
|
|
|
|
||
|
|
May 4, |
|
|
April 29, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Basic net income per share |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Weighted average number of common shares – basic |
|
|
|
|
|
|
||
Net income per common share – basic |
|
$ |
|
|
$ |
|
||
Diluted net income per share |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Shares for basic and diluted net income per share: |
|
|
|
|
|
|
||
Weighted average number of common shares – basic |
|
|
|
|
|
|
||
Assumed exercise of stock options and vesting of restricted stock |
|
|
|
|
|
|
||
Assumed conversion of convertible debt |
|
|
— |
|
|
|
— |
|
Weighted average number of common shares – diluted |
|
|
|
|
|
|
||
Net income per common share – diluted |
|
$ |
|
|
$ |
|
||
15
Approximately
Approximately
During the three months ended May 4, 2024, shares of common stock issuable upon conversion of the 2025 Convertible Notes and 2027 Convertible Notes have been excluded from the computation of diluted earnings per share as the effect would be anti-dilutive, since the conversion prices of $
10. Stock Based Compensation
As of May 4, 2024, there were
Non-cash stock compensation expense is as follows:
|
|
(in thousands) |
|
|||||
|
|
Three Months Ended |
|
|||||
|
|
May 4, |
|
|
April 29, |
|
||
Type of Non-Cash Stock Compensation |
|
2024 |
|
|
2023 |
|
||
Restricted stock unit grants (a) |
|
$ |
|
|
$ |
|
||
Stock option grants (a) |
|
|
|
|
|
|
||
Performance stock unit grants (a) |
|
|
|
|
|
|
||
Total (b) |
|
$ |
|
|
$ |
|
||
Stock Options
Stock option transactions during the three month period ended May 4, 2024 are summarized as follows:
|
|
Number of |
|
|
Weighted |
|
||
Options outstanding, February 3, 2024 |
|
|
|
|
$ |
|
||
Options granted |
|
|
|
|
|
|
||
Options exercised (a) |
|
|
( |
) |
|
|
|
|
Options forfeited |
|
|
( |
) |
|
|
|
|
Options outstanding, May 4, 2024 |
|
|
|
|
$ |
|
||
The following table summarizes information about the stock options vested and expected to vest during the contractual term of such options as of May 4, 2024:
|
|
Options |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Options vested and expected to vest |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
Options exercisable |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
16
The fair value of each stock option granted during the three month period ended May 4, 2024 was estimated using the Black Scholes option pricing model using the following assumptions on a weighted average basis:
|
|
|
Three Months Ended |
|
|
|
May 4, |
|
|
|
2024 |
Risk-free interest rate |
|
|
|
Expected volatility |
|
|
|
Expected life (years) |
|
|
|
Contractual life (years) |
|
|
|
Expected dividend yield |
|
|
|
Grant date fair value of options issued |
|
$ |
The expected dividend yield was based on the Company’s expectation of not paying dividends in the near term. To evaluate its volatility factor, the Company uses the historical volatility of its stock price over the expected life of the options. The risk free interest rate was based on the U.S. Treasury rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the awards being valued. The expected life of the options was estimated using historical exercise rates.
Restricted Stock
Restricted stock transactions during the three month period ended May 4, 2024 are summarized as follows:
|
|
Number of |
|
|
Weighted |
|
||
Non-vested awards outstanding, February 3, 2024 |
|
|
|
|
$ |
|
||
Awards granted |
|
|
|
|
|
|
||
Awards vested (a) |
|
|
( |
) |
|
|
|
|
Awards forfeited |
|
|
( |
) |
|
|
|
|
Non-vested awards outstanding, May 4, 2024 |
|
|
|
|
|
|
||
The fair value of each share of restricted stock granted during the three month period ended May 4, 2024 was based upon the closing price of the Company’s common stock on the grant date.
Performance Stock Units
The Company grants performance-based restricted stock units to its senior executives. Vesting of the performance stock units granted in Fiscal 2021 was based on continued service and the achievement of pre-established adjusted EBIT margin expansion and sales compounded annual growth rate (CAGR) goals (each weighted equally) over a
17
Performance stock unit transactions during the three month period ended May 4, 2024 are summarized as follows:
|
|
Number of |
|
|
Weighted |
|
||
Non-vested awards outstanding, February 3, 2024 |
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|
|
|
$ |
|
||
Awards granted |
|
|
|
|
|
|
||
Awards vested (a) |
|
|
( |
) |
|
|
|
|
Awards forfeited |
|
|
( |
) |
|
|
|
|
Non-vested awards outstanding, May 4, 2024 |
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||
11. Commitments and Contingencies
Legal
In the course of business, the Company is party to class or collective actions alleging violations of federal and state wage and hour and other labor statutes, representative claims under the California Private Attorneys’ General Act and various other lawsuits and regulatory proceedings from time to time including, among others, commercial, product, employee, customer, intellectual property and other claims. Actions against us are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties. While no assurance can be given as to the ultimate outcome of these matters, the Company believes that the final resolution of these actions will not have a material adverse effect on the Company’s results of operations, financial position, liquidity or capital resources.
Letters of Credit
The Company had letters of credit arrangements with various banks in the aggregate amount of $
Purchase Commitments
The Company had $
18
BURLINGTON STORES, INC.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this report and the Consolidated Financial Statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (Fiscal 2023 10-K).
In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations and intentions. Our actual results or other events may differ materially from those anticipated in these forward-looking statements due to various factors, including those discussed under the section of this Item 2 entitled “Safe Harbor Statement.”
Executive Summary
Introduction
We are a nationally recognized off-price retailer of high-quality, branded merchandise at everyday low prices. We opened our first store in Burlington, New Jersey in 1972, selling primarily coats and outerwear. Since then, we have expanded our store base to 1,021 stores as of May 4, 2024 in 46 states, Washington D.C. and Puerto Rico. We have diversified our product categories by offering an extensive selection of in-season, fashion-focused merchandise at up to 60% off other retailers’ prices, including: women’s ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear, accessories, home, toys, gifts and coats. We sell a broad selection of desirable, first-quality, current-brand, labeled merchandise acquired directly from nationally-recognized manufacturers and other suppliers.
Fiscal Year
Fiscal 2024 is defined as the 52-week year ended February 1, 2025. Fiscal 2023 is defined as the 53-week year ending February 3, 2024. The first quarter of Fiscal 2024 and Fiscal 2023 each consist of 13 weeks.
Store Openings, Closings, and Relocations
During the three month period ended May 4, 2024, we opened 36 new stores, inclusive of 11 relocations, and permanently closed 11 stores, exclusive of the aforementioned relocations, bringing our store count as of May 4, 2024 to 1,021 stores.
Ongoing Initiatives for Fiscal 2024
We continue to focus on a number of ongoing initiatives aimed at increasing our overall profitability. These initiatives include, but are not limited to:
We strive to increase comparable store sales through the following initiatives:
19
We intend to expand and enhance our retail store base through the following initiatives:
We intend to increase our operating margins through the following initiatives:
Uncertainties and Challenges
As we strive to increase profitability, there are uncertainties and challenges that we face that could have a material impact on our revenues or income. Some of these uncertainties and challenges are summarized below. For a further discussion, please refer to the description under the heading “Risk Factors” in the Fiscal 2023 10-K.
General Economic Conditions. There remains a high level of uncertainty in the current macroeconomic and geopolitical environments, and prolonged inflationary pressures continue to negatively impact the discretionary spending of the low-income shopper, our core customer. In addition to inflation, consumer spending habits, including spending for the merchandise that we sell, are affected by, among other things, prevailing global economic conditions, the costs of basic necessities and other goods, levels of employment, salaries and wage rates, prevailing interest rates, reductions in government benefits and lower tax refunds, housing costs, energy costs, commodities pricing, income tax rates and policies, consumer confidence and consumer perception of economic conditions. In addition, consumer purchasing patterns are generally influenced by consumers’ disposable income, credit availability and debt levels.
20
A broad, protracted slowdown or downturn in the U.S. economy, an extended period of high unemployment or inflation rates, an uncertain domestic or global economic outlook or a financial crisis could adversely affect consumer spending habits resulting in lower net sales and profits than expected on a quarterly or annual basis. Conversely, if inflation continues to decline, it could benefit our core customers who have been impacted by the higher cost of living since early 2022, and if economic growth slows, it could cause moderate and higher-income shoppers to become more value conscious. Both of these developments, if they occur, would be expected to improve our business. Consumer confidence is also affected by the domestic and international political situation. Our financial condition and operations could be impacted by changes in government regulations in areas including, but not limited to, taxes and healthcare. Ongoing international trade and tariff negotiations could have a direct impact on our income and an indirect impact on consumer prices. The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting the U.S., or public health issues such as pandemics or epidemics, could lead to a decrease in spending by consumers. In addition, natural disasters, public health issues, industrial accidents and acts of war or conflicts in various parts of the world (such as the conflict in Ukraine or the Hamas-Israel war), could have the effect of disrupting supplies and raising prices globally which, in turn, may have adverse effects on the world and U.S. economies and lead to a downturn in consumer confidence and spending.
We closely monitor our net sales, gross margin and expenses. We have performed scenario planning such that if our net sales decline for an extended period of time, we have identified variable costs that could be reduced to partially mitigate the impact of these declines. If we were to experience adverse sales trends and if our efforts to counteract the impacts of these trends are not sufficiently effective, there could be a negative impact on our financial performance and position in future fiscal periods.
Seasonality of Sales and Weather Conditions. Our business, like that of most retailers, is subject to seasonal influences. In the second half of the year, which includes the back-to-school and holiday seasons, we generally realize a higher level of sales and net income.
Weather continues to be a contributing factor to the sale of our merchandise. Generally, our sales are higher if the weather is cold during the Fall and warm during the early Spring. Sales of cold weather clothing are generally increased by early cold weather during the Fall, while sales of warm weather clothing are generally increased by early warm weather conditions in the Spring. Although we have diversified our product offerings, we believe traffic to our stores is still driven, in part, by weather patterns.
Competition and Margin Pressure. We believe that in order to remain competitive with retailers, including off-price retailers and discount stores, we must continue to offer brand-name merchandise at a discount to prices offered by other retailers as well as an assortment of merchandise that is appealing to our customers.
The U.S. retail apparel and home furnishings markets are highly fragmented and competitive. We compete for business with department stores, off-price retailers, internet retailers, specialty stores, discount stores, wholesale clubs, and outlet stores as well as with certain traditional, full-price retail chains that have developed off-price concepts. At various times throughout the year, traditional full-price department store chains and specialty shops offer brand-name merchandise at substantial markdowns, which can result in prices approximating those offered by us at our Burlington Stores. We anticipate that competition will increase in the future. Therefore, we will continue to look for ways to differentiate our stores from those of our competitors.
The U.S. retail industry continues to face increased pressure on margins as overall challenging retail conditions have led consumers to be more value conscious. Additionally, lower-to-moderate income shoppers continue to face economic pressure due to higher cost of living. Our strategy to chase the sales trend allows us the flexibility to purchase less pre-season merchandise with the balance purchased in-season and opportunistically. It also provides us with the flexibility to shift purchases between suppliers and categories. We believe that this enables us to obtain better terms with our suppliers, which we expect will help offset any rising costs of goods.
We have previously experienced inflationary pressure in our supply chain and with respect to raw materials and finished goods, as well as in occupancy and other operating costs. There can be no assurance that we will be able to offset inflationary pressure in the future by increasing prices or through other means, or that our business will not be negatively affected by continued inflation in the future.
Key Performance and Non-GAAP Measures
We consider numerous factors in assessing our performance. Key performance and non-GAAP measures used by management include net income, Adjusted Net Income, Adjusted EBITDA, Adjusted EBIT, comparable store sales, gross margin, inventory and liquidity.
21
Net income. We earned net income of $78.5 million during the three month period ended May 4, 2024 compared with $32.7 million during the three month period ended April 29, 2023. This increase was primarily driven by higher sales, as well as increased gross margin rate. Refer to the section below entitled “Results of Operations” for further explanation.
Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT: Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT are non-GAAP financial measures of our performance.
We define Adjusted Net Income as net income, exclusive of the following items, if applicable: (i) net favorable lease costs; (ii) loss on extinguishment of debt; (iii) impairment charges; and (iv) other unusual or non-recurring expenses, losses, charges or gains, all of which are tax effected to arrive at Adjusted Net Income.
We define Adjusted EBITDA as net income, exclusive of the following items, if applicable: (i) interest expense; (ii) interest income; (iii) loss on extinguishment of debt; (iv) income tax expense; (v) depreciation and amortization; (vi) net favorable lease costs; (vii) impairment charges; and (viii) other unusual or non-recurring expenses, losses, charges or gains.
We define Adjusted EBIT as net income, exclusive of the following items, if applicable: (i) interest expense; (ii) interest income; (iii) loss on extinguishment of debt; (iv) income tax expense; (v) impairment charges; (vi) net favorable lease costs; and (vii) other unusual or non-recurring expenses, losses, charges or gains.
We present Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT because we believe they are useful supplemental measures in evaluating the performance of our business and provide greater transparency into our results of operations. In particular, we believe that excluding certain items that may vary substantially in frequency and magnitude from what we consider to be our core operating results are useful supplemental measures that assist investors and management in evaluating our ability to generate earnings and leverage sales, and to more readily compare core operating results between past and future periods.
We believe that these non-GAAP measures provide investors helpful information with respect to our operations and financial condition. Other companies in the retail industry may calculate these non-GAAP measures differently such that our calculation may not be directly comparable.
Adjusted Net Income has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income or other data prepared in accordance with GAAP. Among other limitations, Adjusted Net Income does not reflect the following items, net of their tax effect:
During the three months ended May 4, 2024, Adjusted Net Income increased $31.8 million to $86.8 million compared to the same period in the prior year. This increase was primarily driven by higher sales, as well as increased gross margin rate. Refer to the section below entitled “Results of Operations” for further explanation.
The following table shows our reconciliation of net income to Adjusted Net Income for the three months ended May 4, 2024 compared with the three months ended April 29, 2023:
|
|
|
|
|||||
|
|
(in thousands) |
|
|||||
|
|
Three Months Ended |
|
|||||
|
|
May 4, |
|
|
April 29, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Reconciliation of net income to Adjusted Net Income: |
|
|
|
|
|
|
||
Net income |
|
$ |
78,514 |
|
|
$ |
32,748 |
|
Net favorable lease costs (a) |
|
|
2,970 |
|
|
|
4,064 |
|
Loss on extinguishment of debt (b) |
|
|
— |
|
|
|
24,644 |
|
Impairment charges - long-lived assets |
|
|
8,210 |
|
|
|
844 |
|
Tax effect (c) |
|
|
(2,881 |
) |
|
|
(7,302 |
) |
Adjusted Net Income |
|
$ |
86,813 |
|
|
$ |
54,998 |
|
22
Adjusted EBIT and Adjusted EBITDA have limitations as analytical tools, and should not be considered either in isolation or as a substitute for net income or other data prepared in accordance with GAAP. Among other limitations, Adjusted EBIT does not reflect:
Adjusted EBITDA is further adjusted for depreciation and amortization. Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will likely have to be replaced in the future.
During the three months ended May 4, 2024, Adjusted EBIT increased $42.6 million to $129.4 million compared to the same period in the prior year. Adjusted EBITDA increased $54.1 million to $211.4 million compared to the same period in the prior year. These increases were primarily driven by higher sales, as well as increased gross margin rate. Refer to the section below entitled “Results of Operations” for further explanation.
The following table shows our reconciliation of net income to Adjusted EBIT and Adjusted EBITDA for the three months ended May 4, 2024 compared with the three months ended April 29, 2023:
|
|
(unaudited) |
|
|||||
|
|
|
|
|||||
|
|
Three Months Ended |
|
|||||
|
|
May 4, |
|
|
April 29, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Reconciliation of net income to Adjusted EBIT and Adjusted EBITDA |
|
|
|
|
|
|
||
Net income |
|
$ |
78,514 |
|
|
$ |
32,748 |
|
Interest expense |
|
|
16,649 |
|
|
|
19,345 |
|
Interest income |
|
|
(8,072 |
) |
|
|
(5,459 |
) |
Net favorable lease costs (a) |
|
|
2,970 |
|
|
|
4,064 |
|
Loss on extinguishment of debt (b) |
|
|
— |
|
|
|
24,644 |
|
Impairment charges - long-lived assets |
|
|
8,210 |
|
|
|
844 |
|
Income tax expense |
|
|
31,125 |
|
|
|
10,570 |
|
Adjusted EBIT |
|
|
129,396 |
|
|
|
86,756 |
|
Depreciation and amortization |
|
|
81,965 |
|
|
|
70,529 |
|
Adjusted EBITDA |
|
$ |
211,361 |
|
|
$ |
157,285 |
|
|
|
|
|
|
|
|
||
23
Comparable Store Sales. Comparable store sales measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of a prior year. The method of calculating comparable store sales varies across the retail industry. As a result, our definition of comparable store sales may differ from other retailers.
We define comparable store sales as merchandise sales of those stores commencing on the first day of the fiscal month one year after the end of their grand opening activities, which normally conclude within the first two months of operations. If a store is closed for seven or more days during a month, our policy is to remove that store from our calculation of comparable store sales for any such month, as well as during the month(s) of their grand re-opening activities. To account for the shift in weeks from the 53rd week of Fiscal 2023, comparable store sales for the first quarter of Fiscal 2024 is comparing the 13 weeks ended May 4, 2024 to the 13 weeks ended May 6, 2023. The change in our comparable store sales was as follows:
Fiscal Quarter Ended |
|
Change in Comparable Store Sales |
May 4, 2024 |
|
2% |
April 29, 2023 |
|
4% |
Various factors affect comparable store sales, including, but not limited to, weather conditions, current economic conditions, the timing of our releases of new merchandise and promotional events, the general retail sales environment, consumer preferences and buying trends, changes in sales mix among distribution channels, competition, and the success of marketing programs.
Gross Margin. Gross margin is the difference between net sales and the cost of sales. Our cost of sales and gross margin may not be comparable to those of other entities, since some entities may include all of the costs related to their buying and distribution functions, certain store-related costs and other costs, in cost of sales. We include certain of these costs in the line items “Selling, general and administrative expenses” and “Depreciation and amortization” in our Condensed Consolidated Statements of Income. We include in our “Cost of sales” line item all costs of merchandise (net of purchase discounts and certain vendor allowances), inbound freight, distribution center outbound freight and certain merchandise acquisition costs, primarily commissions and import fees.
Gross margin as a percentage of net sales increased to 43.5% during the three month period ended May 4, 2024, compared with 42.3% during three month period ended April 29, 2023, driven primarily by increased merchandise margins and decreased freight costs.
Product sourcing costs, which are included in selling, general and administrative expenses, decreased approximately 100 basis points as a percentage of net sales, primarily driven by supply chain efficiency initiatives.
Inventory. Inventory at May 4, 2024 decreased to $1,140.8 million compared with $1,231.1 million at April 29, 2023. The decrease was attributable primarily to a decrease in reserve inventory and a decrease in comparable store inventory, partially offset by 88 net new stores opened since the end of the first quarter of Fiscal 2023.
Reserve inventory includes all inventory that is being stored for release either later in the season, or in a subsequent season. We intend to use our reserve merchandise to effectively chase sales trends.
In order to better serve our customers and maximize sales, we continue to refine our merchandising mix and inventory levels within our stores. By appropriately managing our inventories, we believe we will be better able to deliver a continual flow of fresh merchandise to our customers.
Liquidity. Liquidity measures our ability to generate cash. Management measures liquidity through cash flow, which is the measure of cash generated from or used in operating, financing, and investing activities. Cash and cash equivalents, including restricted cash and cash equivalents, decreased $183.0 million during the three months ended May 4, 2024, compared with a decrease of $340.2 million during the three months ended April 29, 2023. At May 4, 2024, we also had $779.1 million available under the ABL Line of Credit with no borrowings during the three month period ended May 4, 2024. Refer to the section below entitled “Liquidity and Capital Resources” for further explanation.
24
Results of Operations
The following table sets forth certain items in the Condensed Consolidated Statements of Income as a percentage of net sales for the three months ended May 4, 2024.
|
|
Percentage of Net Sales |
|
|||||
|
|
Three Months Ended |
|
|||||
|
|
May 4, |
|
|
April 29, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
Other revenue |
|
|
0.2 |
|
|
|
0.2 |
|
Total revenue |
|
|
100.2 |
|
|
|
100.2 |
|
Cost of sales |
|
|
56.5 |
|
|
|
57.7 |
|
Selling, general and administrative expenses |
|
|
35.0 |
|
|
|
35.4 |
|
Depreciation and amortization |
|
|
3.5 |
|
|
|
3.3 |
|
Impairment charges - long-lived assets |
|
|
0.3 |
|
|
|
0.0 |
|
Other income - net |
|
|
(0.5 |
) |
|
|
(0.4 |
) |
Loss on extinguishment of debt |
|
|
— |
|
|
|
1.2 |
|
Interest expense |
|
|
0.7 |
|
|
|
0.9 |
|
Total costs and expenses |
|
|
95.5 |
|
|
|
98.1 |
|
Income before income tax expense |
|
|
4.7 |
|
|
|
2.1 |
|
Income tax expense |
|
|
1.3 |
|
|
|
0.5 |
|
Net income |
|
|
3.4 |
% |
|
|
1.6 |
% |
Three Month Period Ended May 4, 2024 Compared With the Three Month Period Ended April 29, 2023
Net sales
Net sales improved approximately $224.5 million, or 10.5%, to $2,357.3 million during the first quarter of Fiscal 2024, primarily driven by a 2% increase in comparable stores sales during the first quarter of Fiscal 2024, as well as net sales from our 88 net new stores opened since the end of the first quarter of Fiscal 2023.
Cost of sales
Cost of sales as a percentage of net sales decreased to 56.5% during the first quarter of Fiscal 2024, compared to 57.7% during the first quarter of Fiscal 2023. This decrease was primarily driven by decreased markdowns and decreased freight costs. On a dollar basis, cost of sales increased $99.1 million, or 8.0%, primarily driven by our overall increase in sales.
Selling, general and administrative expenses
Selling, general and administrative expenses as a percentage of net sales decreased to 35.0% during the first quarter of Fiscal 2024, compared to 35.4% during the first quarter of Fiscal 2023. The decrease was primarily driven by a 100 basis point improvement in product sourcing costs, resulting from supply chain efficiency initiatives, as well as an improvement in advertising costs. These improvements were partially offset by increased store related costs and store payroll costs. On a dollar basis, selling, general and administrative expenses increased by $69.6 million, or 9.2%, to $825.2 million during the first quarter of Fiscal 2024. The increase was primarily driven by increases in occupancy costs and store payroll costs.
During Fiscal 2023, we acquired 64 store leases directly from Bed, Bath & Beyond. We started paying rent immediately upon acquisition for all of the stores. 32 of these stores were opened during Fiscal 2023, 20 opened during the first quarter of Fiscal 2024, and the remaining are planned to open during the second and third quarters of Fiscal 2024. This transaction resulted in $6.0 million of selling, general and administrative expenses during the first quarter of Fiscal 2024.
Depreciation and amortization
Depreciation and amortization expense amounted to $82.0 million during the first quarter of Fiscal 2024 compared with $70.5 million during the first quarter of Fiscal 2023. The increase in depreciation and amortization expense was primarily driven by capital expenditures related to new and non-comparable stores, as well as our supply chain.
25
Impairment charges – long-lived assets
Impairment charges on long-lived assets were $8.2 million during the first quarter of Fiscal 2024, related to one owned store selling below carrying value in a sale-leaseback transaction. Impairment charges on long-lived assets were $0.8 million during the first quarter of Fiscal 2023, primarily related to store-level assets at seven stores.
The recoverability assessment related to these store-level assets requires various judgments and estimates, including estimates related to future revenues, gross margin rates, store expenses and other assumptions. We base these estimates upon our past and expected future performance. We believe our estimates are appropriate in light of current market conditions. However, future impairment charges could be required if we do not achieve our current revenue or cash flow projections for each store. Refer to Note 6, “Fair Value Measurements,” for further discussion regarding impairment charges.
Loss on Extinguishment of Debt
There were no debt extinguishment charges during the first quarter of Fiscal 2024. During the first quarter of Fiscal 2023 we entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged $110.3 million in aggregate principal amount of Convertible Notes held by them for $133.3 million in cash. These exchanges resulted in aggregate pre-tax debt extinguishment charges of $24.6 million.
Other income - net
Other income - net improved $1.9 million to $10.9 million during the first quarter of Fiscal 2024, compared to the same period in the prior year. The increase was primarily driven by increased interest income.
Interest expense
Interest expense improved $2.7 million during the first quarter of Fiscal 2024 to $16.6 million, compared to the same period in the prior year. This improvement was primarily driven by a reduction in interest expense related to accumulated other comprehensive income on our previous interest rate swap, which was fully amortized as of the end of Fiscal 2023. Additionally, we had a lower average balance of 2025 Convertible Notes, and a lower interest rate on the 2027 Convertible Notes compared to the 2025 Convertible Notes that were extinguished, partially offset by a higher interest rate on the unhedged portion of the term loan.
The average interest rate on the Term Loan Facility was 7.4% and 6.7% for the first quarter of Fiscal 2024 and the first quarter of Fiscal 2023, respectively. The average balance on the Term Loan Facility, excluding the original issue discount, was $936.5 million and $946.2 million for the first quarter of Fiscal 2024 and the first quarter of Fiscal 2023, respectively.
Income tax expense
Income tax expense was $31.1 million during the first quarter of Fiscal 2024 compared with income tax expense of $10.6 million during the first quarter of Fiscal 2023. The effective tax rate for the first quarter of Fiscal 2024 was 28.4% compared with 24.4% during the first quarter of Fiscal 2023. The increase in expense is primarily driven by an increase in pre-tax income while the increase in the effective tax rate is mainly attributable to higher tax expense from stock-based compensation.
At the end of each interim period we are required to determine the best estimate of our annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. Use of this methodology during the first quarter of Fiscal 2024 resulted in an annual effective income tax rate of approximately 26% (before discrete items) as our best estimate.
Net income
We earned net income of $78.5 million for the first quarter of Fiscal 2024 compared with $32.7 million for the first quarter of Fiscal 2023. This increase was primarily driven by higher sales, as well as increased gross margin rate. Net income for the first quarter of Fiscal 2024 included $4.3 million of expense, net of income taxes, related to the acquired leases from Bed Bath & Beyond, included in the line item “Selling, general and administrative expenses” in the Company’s Condensed Consolidated Statements of Income.
Liquidity and Capital Resources
Our ability to satisfy interest payment and future principal payment obligations on our outstanding debt will depend largely on our future performance which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service interest payment and future principal payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of
26
operations will be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could be successfully completed on terms similar to our current financing agreements, or at all.
We believe that cash generated from operations, along with our existing cash and our ABL Line of Credit, will be sufficient to fund our expected cash flow requirements and planned capital expenditures for at least the next twelve months as well as the foreseeable future. However, there can be no assurance that we would be able to offset declines in our comparable store sales with savings initiatives.
As market conditions warrant, we may, from time to time, repurchase our outstanding debt securities in the open market, in privately negotiated transactions, by tender offer, by exchange transaction or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity and other factors and may be commenced or suspended at any time. The amounts involved and total consideration paid may be material.
Cash Flow for the Three Month Period Ended May 4, 2024 Compared With the Three Month Period Ended April 29, 2023
We used $183.0 million of cash during the three month period ended May 4, 2024 compared with $340.2 million during the three month period ended April 29, 2023.
Net cash provided by operating activities amounted to $49.4 million during the three month period ended May 4, 2024, compared with net cash used of $78.0 million during the three month period ended April 29, 2023. The increase in our operating cash flows was primarily driven by improved sales and gross margin, as well as the impact of changes in working capital.
Net cash used in investing activities was $165.5 million during the three month period ended May 4, 2024 compared with $86.2 million during the three month period ended April 29, 2023. This change was primarily the result of an increase in capital expenditures related to increased store openings.
Net cash used in financing activities was $66.9 million during the three month period ended May 4, 2024 compared with $176.1 million during the three month period ended April 29, 2023. This change was primarily driven by less debt repayments, partially offset by increased repurchases of shares of our common stock under our share repurchase program in Fiscal 2024.
Changes in working capital also impact our cash flows. Working capital equals current assets (exclusive of restricted cash) minus current liabilities. We had working capital at May 4, 2024 of $140.8 million compared with $265.4 million at April 29, 2023. The decrease in working capital was primarily due to increased current maturities of long term debt related to the 2025 Convertible Notes, increased accounts payable, decreased inventory, and increased other current liabilities (primarily accrued expenses), partially offset by increased cash balance and increased prepaid assets (primarily rent and supplies). We had working capital at February 3, 2024 of $298.2 million.
Capital Expenditures
For the three month period ended May 4, 2024, capital expenditures, net of $2.8 million of landlord allowances, amounted to $146.8 million (inclusive of accrued capital expenditures).
We estimate that we will spend approximately $750 million, net of approximately $40 million of landlord allowances, in capital expenditures during Fiscal 2024, including approximately $340 million, net of the previously mentioned landlord allowances, for store expenditures (new stores, remodels and other store expenditures). In addition, we estimate that we will spend approximately $210 million to support our supply chain initiatives, with the remaining capital used to support our information technology and other business initiatives.
Share Repurchase Program
On February 16, 2022, our Board of Directors authorized the repurchase of up to $500 million of common stock, which expired in February 2024. On August 15, 2023, our Board of Directors authorized the repurchase of up to an additional $500 million of common stock, which is authorized to be executed through August 2025.
During the first quarter of Fiscal 2024, we repurchased 312,238 shares of common stock for $63.4 million under these repurchase programs. As of May 4, 2024, we had $441.7 million remaining under our share repurchase authorization.
We are authorized to repurchase shares of our outstanding common stock from time to time on the open market or in privately negotiated transactions under our repurchase program. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. Our share repurchase program may be
27
suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common stock under the program.
Dividends
We currently do, and intend to continue to, retain all available funds and any future earnings to fund all of the Company's capital expenditures, business initiatives, and to support any potential opportunistic capital structure initiatives. Therefore, at this time, we do not anticipate paying cash dividends in the near term. Our ability to pay dividends on our common stock will be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions under the terms of current and any future agreements governing our indebtedness. Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to compliance with covenants in our current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors that our Board of Directors deems relevant.
In addition, since we are a holding company, substantially all of the assets shown on our Condensed Consolidated Balance Sheets are held by our subsidiaries. Accordingly, our earnings, cash flow and ability to pay dividends are largely dependent upon the earnings and cash flows of our subsidiaries and the distribution or other payment of such earnings to us in the form of dividends.
Operational Growth
During the three month period ended May 4, 2024, we opened 36 new stores, inclusive of 11 relocations, and closed 11 stores, exclusive of the aforementioned relocations, bringing our store count as of May 4, 2024 to 1,021 stores. During Fiscal 2024, we plan to open approximately 100 net new stores.
Debt and Hedging
As of May 4, 2024, our obligations, inclusive of original issue discount, include $931.2 million under our Term Loan Facility, $453.2 million of 2025 Convertible Notes and 2027 Convertible Notes, and no outstanding borrowings on our ABL Line of Credit. Our debt obligations also include $27.3 million of finance lease obligations as of May 4, 2024.
Term Loan Facility
BCFWC and certain of its subsidiaries and holding companies are party to a Credit Agreement (as amended, supplemented and otherwise modified, the Term Loan Facility) that provides for term loans in an aggregate principal amount as of May 4, 2024 of $931.2 million maturing on June 24, 2028.
On May 11, 2023, we amended the Term Loan Credit Agreement to change one of the reference interest rates for borrowings under the Term Loan Facility from the Term Loan Adjusted LIBOR Rate to the Adjusted Term SOFR Rate (as defined in the Term Loan Credit Agreement), effective as of July 1, 2023. The Adjusted Term SOFR Rate includes a credit spread adjustment of 0.11% for an interest period of one-month’s duration, 0.26% for an interest period of three-months’ duration and 0.43% for an interest period of six-months’ duration, with a floor of 0.00%.
At May 4, 2024, our borrowing rate related to the Term Loan Facility was 7.4%.
ABL Line of Credit
BCFWC and certain of its subsidiaries and holding companies are party to a Second Amended and Restated Credit Agreement (as amended, supplemented and otherwise modified, the ABL Line of Credit) that provides for $900.0 million of revolving commitments (subject to a borrowing base limitation) maturing on December 22, 2026, and, subject to the satisfaction of certain conditions, BCFWC can increase the aggregate amount of commitments up to $1,200 million. The interest rate margin applicable under the ABL Line of Credit in the case of loans drawn at the Secured Overnight Financing Rate (SOFR) is 1.125% to 1.375% in the case of a daily SOFR rate or a term SOFR rate (in each case, plus a credit spread adjustment of 0.10%), and 0.125% to 0.375% in the case of a prime rate, depending on the average daily availability of the lesser of (a) the total commitments or (b) the borrowing base. The ABL Line of Credit is collateralized by a first priority lien on BCFWC’s and each guarantor's inventory, receivables, bank accounts, and certain related assets and proceeds thereof (subject to certain exceptions), and a second priority lien on BCFWC’s and each guarantor's other assets and proceeds thereof (other than real estate and subject to certain exceptions).
On June 26, 2023, BCFWC entered into a Fifth Amendment to the Second Amended and Restated Credit Agreement, which increased the sublimit for letters of credit thereunder from $150 million to $250 million. The letter of credit sublimit was automatically reduced to $237.5 million on April 1, 2024, and will automatically be reduced to (i) $225 million on July 1, 2024, (ii)
28
$212.5 million on October 1, 2024, and (iii) $200 million on January 1, 2025. BCFWC and the agent may extend the foregoing dates under clauses (i) and (ii), as long as the sublimit is reduced to $200 million no later than January 1, 2025.
At May 4, 2024, we had $779.1 million available under the ABL Line of Credit. There were no borrowings on the ABL Line of Credit during the three month period ended May 4, 2024.
2025 Convertible Notes
On April 16, 2020, we issued $805.0 million of 2025 Convertible Notes. The 2025 Convertible Notes have an initial conversion rate of 4.5418 shares per $1,000 principal amount of 2025 Convertible Notes (equivalent to an initial conversion price of approximately $220.18 per share of the Company’s common stock), subject to adjustment if certain events occur.
The 2025 Convertible Notes are general unsecured obligations of the Company. The 2025 Convertible Notes bear interest at a rate of 2.25% per year, payable semi-annually in cash, in arrears on April 15 and October 15 of each year, beginning on October 15, 2020. The 2025 Convertible Notes will mature on April 15, 2025, unless earlier converted, redeemed or repurchased.
During the first quarter of Fiscal 2023, we entered into separate, privately negotiated exchange agreements with certain holders of the 2025 Convertible Notes. Under the terms of the exchange agreements, the holders exchanged $110.3 million in aggregate principal amount of 2025 Convertible Notes held by them for $133.3 million in cash. These exchanges resulted in aggregate pre-tax debt extinguishment charges of $24.6 million.
Prior to the close of business on the business day immediately preceding January 15, 2025, the 2025 Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the 2025 Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The 2025 Convertible Notes have an initial conversion rate of 4.5418 shares per $1,000 principal amount of 2025 Convertible Notes (equivalent to an initial conversion price of approximately $220.18 per share of our common stock), subject to adjustment if certain events occur. The initial conversion price represents a conversion premium of approximately 32.50% over $166.17 per share, the last reported sale price of our common stock on April 13, 2020 (the pricing date of the offering) on the New York Stock Exchange. During the first quarter of Fiscal 2021, the Company made an irrevocable settlement election for any conversions of the 2025 Convertible Notes. Upon conversion, we will pay cash for the principal amount. For any excess above principal, we will deliver shares of its common stock. We were not permitted to redeem the 2025 Convertible Notes prior to April 15, 2023. From and after April 15, 2023, we are able to redeem for cash all or any portion of the 2025 Convertible Notes, at its option, if the last reported sale price of the Company’s common stock is equal to or greater than 130% of the conversion price for a specified period of time, at a redemption price equal to 100% of the principal aggregate amount of the 2025 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
Holders of the 2025 Convertible Notes may require us to repurchase their 2025 Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the 2025 Convertible Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase. In connection with certain corporate events or if we issue a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their 2025 Convertible Notes in connection with such corporate event or during the relevant redemption period for such 2025 Convertible Notes.
2027 Convertible Notes
On September 12, 2023, we closed the issuance of approximately $297.1 million aggregate principal amount of our 2027 Convertible Notes pursuant to separate, privately negotiated exchange and subscription agreements with a limited number of holders of our 2025 Convertible Notes and certain investors, in each case pursuant to exemptions from registration under the Securities Act of 1933. We exchanged approximately $241.2 million in aggregate principal amount of the 2025 Convertible Notes for approximately $255.0 million in aggregate principal amount of the 2027 Convertible Notes. We also issued approximately $42.1 million in aggregate principal amount of 2027 Convertible Notes in a private placement to certain investors. An aggregate of up to 1,422,568 shares of common stock may be issued upon conversion of the 2027 Convertible Notes, which number is subject to adjustment up to an aggregate of 1,911,372 shares following certain corporate events that occur prior to the maturity date or if we issue a notice of redemption, and which is also subject to certain anti-dilution adjustments.
The 2027 Convertible Notes will bear interest at a rate of 1.25% per year, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2023. The 2027 Convertible Notes will mature on December 15, 2027, unless earlier converted, redeemed or repurchased.
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Prior to the close of business on the business day immediately preceding September 15, 2027, the 2027 Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the 2027 Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The 2027 Convertible Notes have an initial conversion rate of 4.8560 shares per $1,000 principal amount of 2027 Convertible Notes (equivalent to an initial conversion price of approximately $205.93 per share of our common stock), subject to adjustment if certain events occur. The initial conversion price represents a conversion premium of approximately 32.50% over $155.42 per share, the last reported sale price of our common stock on September 7, 2023 on The New York Stock Exchange. Upon conversion, we will pay cash up to the aggregate principal amount of 2027 Convertible Notes being converted, and pay (and deliver, if applicable) cash, shares of our common stock or a combination thereof, at its election, in respect of the remainder (if any) of our conversion obligation in excess of such aggregate principal amount. We will not be able to redeem the 2027 Convertible Notes prior to December 20, 2025. On or after December 20, 2025 and prior to the 21st scheduled trading day immediately preceding December 15, 2027, we will be able to redeem for cash all or any portion of the 2027 Convertible Notes, at its option, if the last reported sale price of our common stock is equal to or greater than 130% of the conversion price for a specified period of time, at a redemption price equal to 100% of the aggregate principal amount of the 2027 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
If we undergo a fundamental change, subject to certain conditions, holders of the 2027 Convertible Notes may require us to repurchase for cash all or any portion of our 2027 New Convertible Notes. The fundamental change repurchase price will be 100% of the aggregate principal amount of the 2027 Convertible Notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
Hedging
We have an interest rate swap which hedges $450 million of variable rate exposure under our Term Loan Facility. The interest rate swap is designated as a cash flow hedge and expires on June 24, 2028. Refer to Note 5, “Derivative Instruments and Hedging Activities,” for further discussion regarding our derivative transactions.
Certain Information Concerning Contractual Obligations
We had $1,685.0 million of purchase commitments related to goods that were not received as of May 4, 2024, and had $4,301.1 million of future minimum lease payments under operating leases as of May 4, 2024. See Note 4, “Long Term Debt" for additional information related to our debt transactions. Other than the items disclosed here, and in the "Debt and Hedging" section above, there were no other significant changes regarding our obligations to make future payments under current contracts from those included in our Fiscal 2023 10-K.
Critical Accounting Policies and Estimates
Our Condensed Financial Statements have been prepared in accordance with GAAP. We believe there are several accounting policies that are critical to understanding our historical and future performance as these policies affect the reported amounts of revenues and other significant areas that involve management’s judgments and estimates. The preparation of our Consolidated Financial Statements requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements; and (iii) the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, inventories, long-lived assets, intangible assets, goodwill, insurance reserves, leases and income taxes. Historical experience and various other factors that are believed to be reasonable under the circumstances form the basis for making estimates and judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods. A critical accounting estimate meets two criteria: (1) it requires assumptions about highly uncertain matters and (2) there would be a material effect on the Consolidated Financial Statements from either using a different, although reasonable, amount within the range of the estimate in the current period or from reasonably likely period-to-period changes in the estimate.
Our critical accounting policies and estimates are consistent with those disclosed in Note 1, “Summary of Significant Accounting Policies,” to the audited Consolidated Financial Statements, included in Part II, Item 8 of the Fiscal 2023 10-K.
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Safe Harbor Statement
This report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, the industry in which we operate and other matters, as well as management’s beliefs and assumptions and other statements regarding matters that are not historical facts. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). Such statements may include, but are not limited to, future impacts of current macroeconomic conditions, proposed store openings and closings, proposed capital expenditures, ongoing strategic initiatives and the intended results of those initiatives, future performance or results, the effect of the adoption of recent accounting pronouncements on our consolidated financial position, results of operations and cash flows, and the outcome of contingencies such as legal proceedings. Our forward-looking statements are subject to risks and uncertainties. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual events or results to differ materially from those we expected include: general economic conditions, such as inflation, and the domestic and international political situation and the related impact on consumer confidence and spending; competitive factors, including the scale and potential consolidation of some of our competitors, rise of e-commerce spending, pricing and promotional activities of major competitors, and an increase in competition within the markets in which we compete; seasonal fluctuations in our net sales, operating income and inventory levels; the reduction in traffic to, or the closing of, the other destination retailers in the shopping areas where our stores are located; our ability to identify changing consumer preferences and demand; our ability to meet our environmental, social or governance (“ESG”) goals or otherwise expectations of our stakeholders with respect to ESG matters; extreme and/or unseasonable weather conditions caused by climate change or otherwise adversely impacting demand; effects of public health crises, epidemics or pandemics; our ability to sustain our growth plans or successfully implement our long-range strategic plans; our ability to execute our opportunistic buying and inventory management process; our ability to optimize our existing stores or maintain favorable lease terms; the availability, selection and purchasing of attractive brand name merchandise on favorable terms; our ability to attract, train and retain quality employees and temporary personnel in sufficient numbers; labor costs and our ability to manage a large workforce; the solvency of parties with whom we do business and their willingness to perform their obligations to us; import risks, including tax and trade policies, tariffs and government regulations; disruption in our distribution network; our ability to protect our protect our information systems against service interruption, misappropriation of data, breaches of security, or other cyber-related attacks; risks related to the methods of payment we accept; the success of our advertising and marketing programs in generating sufficient levels of customer traffic and awareness; damage to our corporate reputation or brand; impact of potential loss of executives or other key personnel; our ability to comply with existing and changing laws, rules, regulations and local codes; lack of or insufficient insurance coverage; issues with merchandise safety and shrinkage; our ability to comply with increasingly rigorous privacy and data security regulations; impact of legal and regulatory proceedings relating to us; use of social media by us or by third parties our direction in violation of applicable laws and regulations; our ability to generate sufficient cash to fund our operations and service our debt obligations; our ability to comply with covenants in our debt agreements; the consequences of the possible conversion of our convertible notes; our reliance on dividends, distributions and other payments, advance and transfers of funds from our subsidiaries to meet our obligations; the volatility of our stock price; the impact of the anti-takeover provisions in our governing documents; impact of potential shareholder activism and other risks discussed from time to time in our filings with the Securities and Exchange Commission (SEC), including those under the heading “Risk Factors” in the Fiscal 2023 10-K.
Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law, even if experience or future changes make it clear that any projected results expressed or implied in such statements will not be realized. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.
Recent Accounting Pronouncements
Refer to Note 1, “Summary of Significant Accounting Policies,” to our Condensed Consolidated Financial Statements in Part I, Item 1 for a discussion of recent accounting pronouncements and their impact on our Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes to our quantitative and qualitative disclosures about market risk from those included in the Fiscal 2023 10-K.
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Item 4. Controls and Procedures.
Our management team, under the supervision and with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of the last day of the fiscal period covered by this report, May 4, 2024. The term disclosure controls and procedures means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of May 4, 2024.
During the quarter ended May 4, 2024, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
In the course of business, the Company is party to class or collective actions alleging violations of federal and state wage and hour and other labor statutes, representative claims under the California Private Attorneys’ General Act and various other lawsuits and regulatory proceedings from time to time including, among others, commercial, product, employee, customer, intellectual property and other claims. Actions against us are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties. Refer to Note 11, "Commitments and Contingencies," to our Condensed Consolidated Financial Statements for further detail.
Item 1A. Risk Factors.
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Fiscal 2023 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information regarding our purchases of common stock during the three fiscal months ended May 4, 2024:
Month |
|
Total Number |
|
|
Average Price |
|
|
Total Number |
|
|
Approximate |
|
||||
February 4, 2024 through March 2, 2024 |
|
|
49,326 |
|
|
$ |
197.61 |
|
|
|
49,326 |
|
|
$ |
495,337 |
|
March 3, 2024 through April 6, 2024 |
|
|
134,554 |
|
|
$ |
217.35 |
|
|
|
134,554 |
|
|
$ |
466,092 |
|
April 7, 2024 through May 4, 2024 |
|
|
128,358 |
|
|
$ |
190.15 |
|
|
|
128,358 |
|
|
$ |
441,684 |
|
Total |
|
|
312,238 |
|
|
|
|
|
|
312,238 |
|
|
|
|
||
32
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
On
During the three-month period ended May 4, 2024, other than the trading arrangement noted above, no director or officer of the Company
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Item 6. Exhibits.
Exhibit |
|
Incorporated by Reference |
|
Number |
Exhibit Description |
Form |
Filing Date |
3.1† |
Amended and Restated Certificate of Incorporation of Burlington Stores, Inc. |
|
|
31.1† |
|
|
|
31.2† |
|
|
|
32.1† |
|
|
|
32.2† |
|
|
|
101.INS† |
Inline XBRL Instance Document – the instance document does not appear in Interactive Data File, because its XBRL tags are embedded within the Inline XBRL document. |
|
|
101.SCH† |
Inline XBRL Taxonomy Extension Schema Document |
|
|
101.CAL† |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
101.DEF† |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
101.LAB† |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
101.PRE† |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
104† |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
|
|
† Filed or furnished herewith.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BURLINGTON STORES, INC. |
|
/s/ Michael O’Sullivan |
Michael O’Sullivan Chief Executive Officer (Principal Executive Officer) |
|
/s/ Kristin Wolfe |
Kristin Wolfe Chief Financial Officer (Principal Financial Officer) |
Date: May 30, 2024
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