Business Overview and History
Burlington Stores, Inc. is a leading off-price retailer in the United States, known for its diverse product offerings and ability to adapt to changing market conditions. With a history dating back to 1972, the company has established itself as a go-to destination for bargain-hunting consumers seeking brand-name merchandise at discounted prices.
Burlington Stores was founded in 1972 in Burlington, New Jersey, initially focusing on the sale of coats and outerwear. Over the years, the company has expanded its product categories to include a wide range of merchandise, including women's ready-to-wear apparel, menswear, youth apparel, baby items, beauty products, footwear, accessories, home goods, toys, and gifts. This diversification has allowed Burlington to cater to a broader customer base and capitalize on evolving consumer preferences.
The company's growth strategy has been centered around expanding its store base and offering an extensive selection of in-season, fashion-focused merchandise at up to 60% off other retailers' prices. This approach has proven successful in attracting value-conscious customers. In 2006, Burlington underwent a significant change when Bain Capital acquired Burlington Coat Factory Warehouse Corporation. This acquisition resulted in the company recording favorable and unfavorable lease costs on its balance sheet, which have been amortized over time.
During the Great Recession in the late 2000s, Burlington faced challenges related to reduced consumer spending. The company had to carefully manage its inventory and expenses to navigate through this difficult economic period. Despite these obstacles, Burlington has continued to grow and adapt to changing market conditions.
In recent years, Burlington has had to contend with the rise of e-commerce and fast fashion retailers. To remain competitive, the company has invested in enhancing its merchandising capabilities, improving its supply chain, and upgrading the in-store experience for customers. These efforts have helped Burlington maintain its position in the off-price retail sector and continue its growth trajectory.
As of the end of fiscal year 2024, Burlington operated 1,108 retail stores across 46 states, Washington D.C., and Puerto Rico, representing a net increase of 101 stores compared to the prior year. The company's strategic approach to real estate has been a key driver of its growth, with a focus on market-focused and financially disciplined store expansion.
Financial Performance and Operational Efficiency
Burlington's financial performance has been impressive, with the company reporting strong top-line growth and margin expansion in recent years. In fiscal year 2024, the company achieved total sales growth of 11%, building on the 10% growth seen in the previous year. This sales growth was driven by a combination of new store openings and a 4% increase in comparable store sales.
The company's focus on operational efficiency has also yielded favorable results. In fiscal year 2024, Burlington's adjusted EBIT margin expanded by 100 basis points, reaching 11.1%. This margin expansion was driven by several factors, including higher merchandise margins, improved freight costs, and increased supply chain productivity. The company's ability to control costs and leverage its scale has been a significant contributor to its profitability.
Adaptability and Off-Price Retail Advantage
One of Burlington's key strengths is its ability to adapt to changing market conditions. The company's off-price business model, which involves purchasing brand-name merchandise opportunistically and selling it at significant discounts, has proven to be highly resilient. This flexibility allows Burlington to respond quickly to shifts in consumer demand and capitalize on merchandise availability in the market.
During periods of economic uncertainty or disruption, such as the recent pandemic, the off-price retail segment has often outperformed the broader retail industry. Consumers seeking value and bargains tend to gravitate towards off-price retailers like Burlington, which can offer them high-quality merchandise at attractive prices.
Risks and Challenges
While Burlington's off-price model has historically provided a level of resilience, the company is not immune to broader macroeconomic and industry-specific risks. The ongoing inflationary pressures and potential changes in consumer spending patterns pose challenges that the company will need to navigate.
Additionally, the highly competitive nature of the retail industry, with the presence of other off-price players and the threat of e-commerce, requires Burlington to continuously innovate and enhance its customer experience to maintain its market position.
Outlook and Future Prospects
Looking ahead, Burlington remains cautiously optimistic about its prospects. For fiscal year 2025, the company has provided guidance for total sales growth in the range of 6% to 8%, driven by the addition of 100 net new stores. Comparable store sales are expected to increase by 0% to 2%, while adjusted EBIT margin is projected to expand by 0 to 30 basis points.
The company's focus on elevating its merchandise assortment, enhancing supply chain efficiency, and optimizing its store network suggests that Burlington is well-positioned to navigate the uncertain economic landscape and continue delivering value to its shareholders.
Financials
Burlington's financial performance has been strong in recent years, with consistent revenue growth and margin expansion. The company's total sales have increased steadily, reaching $9.73 billion in fiscal year 2024, representing an 11% growth from the previous year. This growth has been driven by both new store openings and comparable store sales increases.
The company's gross margin has also shown improvement, reaching 41.2% in fiscal year 2024, up from 40.8% in the previous year. This margin expansion has been attributed to improved merchandise margins and more efficient inventory management.
For fiscal year 2024, Burlington reported annual net income of $339.65 million, annual operating cash flow of $868.74 million, and annual free cash flow of $351.45 million. These figures demonstrate the company's ability to generate strong cash flows and maintain profitability.
In the most recent quarter (Q4 2024), Burlington's revenue was $3.28 billion, representing a 4.8% year-over-year increase. Net income for the quarter stood at $260.77 million. The company cited strong sales growth driven by an elevated assortment with a higher mix of well-known national brands, as well as effective execution in responding to volatility in the sales trend.
Liquidity
Burlington maintains a strong liquidity position, which provides financial flexibility and supports its growth initiatives. As of the end of fiscal year 2024, the company had $925.36 million in cash and cash equivalents on its balance sheet. Additionally, Burlington has access to a $900 million asset-backed revolving credit facility maturing in 2026, with $847.5 million available as of the most recent quarter end.
The company's strong cash flow generation has allowed it to invest in store growth, technology improvements, and supply chain enhancements while maintaining a healthy balance sheet. This financial strength positions Burlington well to weather potential economic headwinds and pursue strategic opportunities as they arise.
The debt-to-equity ratio was 4.81 as of the most recent fiscal year end, indicating a relatively high level of leverage. However, the company's current ratio of 1.15 and quick ratio of 0.61 suggest adequate liquidity to meet short-term obligations.
Product Segments and Offerings
Burlington Stores operates as an off-price retailer of branded merchandise in the United States, offering a wide range of products across various categories. The company's product offerings are organized into the following key segments:
Women's Ready-to-Wear Apparel: This segment includes a broad selection of branded women's apparel such as dresses, blouses, skirts, pants, and outerwear. The company aims to offer these products at up to 60% off other retailers' prices.
Menswear: The menswear segment offers a variety of branded apparel for men, including suits, dress shirts, casual shirts, pants, and outerwear. Similar to the women's segment, the company seeks to provide these products at significant discounts compared to full-price retailers.
Youth Apparel: The youth apparel segment features branded merchandise for children and teenagers, such as clothing, shoes, and accessories. This allows the company to cater to the entire family.
Beauty: The beauty segment offers a selection of branded cosmetics, fragrances, and other beauty products at discounted prices. This category has been an area of focus for growth and expansion.
Home Goods: The home goods segment includes a variety of branded home furnishings, housewares, and decor items. This allows the company to leverage its off-price model to provide value to customers in the home category.
Accessories and Footwear: The accessories and footwear segment features branded handbags, luggage, sunglasses, jewelry, and shoes. These categories complement the apparel offerings and allow the company to provide a well-rounded shopping experience.
Recent Performance and Future Guidance
Burlington's recent performance has been strong, with the company exceeding its own guidance in several key metrics. In Q4 2024, Burlington achieved a 6% increase in comparable store sales, significantly outperforming its guidance of 0-2%. Similarly, the company's adjusted EBIT margin increased by 10 basis points, compared to the guided decrease of 50-80 basis points.
For the full fiscal year 2024, Burlington achieved 11% total sales growth and 4% comparable store sales growth, both above their long-range model. The company also expanded its operating margin by 100 basis points, well ahead of the initial guidance of 10-50 basis points.
Looking ahead to fiscal year 2025, Burlington has provided the following guidance:
- Total sales growth of 6-8%, driven by 100 net new store openings and comparable store sales growth of 0-2%. - Operating margin expansion of 0-30 basis points, based on the 0-2% comparable store sales guidance. - Adjusted EPS guidance of $8.70-$9.30, representing an expected increase of 4-11% compared to fiscal 2024.
For Q1 2025, the company expects:
- Total sales growth of 5-7% and flat comparable store sales. - Adjusted EBIT margin to decrease 50-90 basis points compared to Q1 2024. - Adjusted EPS outlook of $1.30-$1.45, compared to $1.42 in Q1 2024.
Burlington's capital expenditures are expected to be approximately $950 million in fiscal 2025, driven by the purchase of their currently leased Cactus distribution center in Southern California.
Conclusion
Burlington Stores has established itself as a prominent player in the off-price retail sector, leveraging its flexible business model and adaptability to drive consistent growth and profitability. With a proven track record of expanding its store base, improving operational efficiency, and meeting evolving consumer demands, Burlington appears poised to continue its successful trajectory.
As the retail industry navigates various challenges, Burlington's off-price strategy, emphasis on value, and ability to capitalize on market opportunities make it a compelling investment proposition for those seeking exposure to the resilient off-price retail segment. The company's strong financial performance, diverse product offerings, and strategic focus on growth and efficiency position it well for continued success in the competitive retail landscape.