Burlington Stores (BURL 159.03, +10.47, +7.05%) is trading much higher today after
reporting strong Q3 (Oct) earnings this morning. A number of retailers have
been weak lately as TGT and WMT reported disappointing results. BURL eased
investor concerns with nice results.
Burlington Stores operates a national chain of off-price retail stores (679 current locations) offering women's, men's, and children's apparel and accessories, home goods, baby products, and coats, principally under the name Burlington Stores. Its merchandise is deeply discounted, up to 60-70% off department store prices. The company's stores are very large -- two to three times larger than its competitors' stores, which allows BURL to feature merchandise from over 3,500 vendors, although the focus is on nationally-recognized brands. The company's two main competitors are TJ Maxx (TJX) and Ross Stores (ROST). Big Lots (BIG) is probably in the mix as well.
Turning to the OctQ results, non-GAAP EPS jumped 73% yr/yr to $1.21, well above prior guidance of $1.00-1.04. Revenue rose 13.7% yr/yr to $1.63 bln, which was also better than prior guidance of $1.596-1.611 bln. In terms of guidance for Q4 (Jan), BURL expects adjusted EPS of $2.71-2.75, which is slightly below market expectations. Revenue is expected to grow +8-9% yr/yr, which we compute as $2.09-2.11 bln, which is better than expected.
Same store comps are always critical for retailers as this metric filters out the impact of adding new stores. It's a more closely watched metric as it's a better indicator than total sales of the underlying health of the business. Same store comps in OctQ came in at +4.4%, above prior guidance of +2-3%. That was also up from +2.9% comps in JulQ. Looking ahead to the all-important Q4 (Jan) holiday season, BURL expects comps of +2-3% even though JanQ will be lapping a robust +5.9% comp in the prior year period.
On the call this morning, BURL said a key driver for OctQ results was the outstanding performance of its new stores. BURL opened 28 net new stores in the quarter. The company feels very good about the current real estate environment as site availability of attractive locations remains very favorable. The Toys "R" Us bankruptcy contributed three new stores. Over time, BURL views the Toys "R" Us real estate opportunity as similar to The Sports Authority bankruptcy. To date, BURL has opened 32 former Sports Authority locations with a few more stores still in the pipeline.
In terms of categories, BURL's top performing businesses were home including toys, beauty, men's, and ladies' sportswear, athletic shoes and athletic apparel. The Northeast and the Southwest performed above the chain average, while the Midwest comped below. Looking ahead, BURL wants to drive comp growth by enhancing its assortment, improving its marketing message and by expanding underpenetrated categories, particularly home and beauty. Specifically, BURL wants to increase its Home category to 20% of total sales over time, up from 14% currently.
In sum, investors have come to expect strong results/guidance every quarter from BURL as that has been their history. The stock has come under pressure recently falling form $180 a couple of weeks ago to close yesterday under $149. Disappointing results from TGT and WMT spooked investors on the whole retail sector. However, BURL came through with a surprisingly good number and they seemed more upbeat about the upcoming holiday season. BURL seems to be navigating a difficult retail environment quite well.
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