SEC Filing | Burlington Stores, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 3, 2019

☐	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 001-36107

BURLINGTON STORES, INC.

(Exact name of registrant as specified in its charter)

Delaware		80-0895227
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2006 Route 130 North Burlington, New Jersey		08016
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (609) 387-7800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common stock

BURL

New York Stock Exchange

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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.

Large accelerated filer	☒	Accelerated filer	☐

Non-Accelerated filer	☐	Smaller reporting company	☐
		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 66,270,608 shares of common stock outstanding as of August 3, 2019.

BURLINGTON STORES, INC.

INDEX


		Page
Part I—Financial Information		3

Item 1. Financial Statements (unaudited)		3

Condensed Consolidated Statements of Income - Three and Six Months Ended August 3, 2019 and August 4, 2018		3

Condensed Consolidated Statements of Comprehensive Income – Three and Six Months Ended August 3, 2019 and August 4, 2018		4

Condensed Consolidated Balance Sheets – August 3, 2019, February 2, 2019 and August 4, 2018		5

Condensed Consolidated Statements of Cash Flows – Six Months Ended August 3, 2019 and August 4, 2018		6

Notes to Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

Item 3. Quantitative and Qualitative Disclosures About Market Risk		36

Item 4. Controls and Procedures		36

Part II—Other Information		36

Item 1. Legal Proceedings		36

Item 1A. Risk Factors		37

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		37

Item 3. Defaults Upon Senior Securities		37

Item 4. Mine Safety Disclosures		37

Item 5. Other Information		37

Item 6. Exhibits		38

SIGNATURES		39

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)

	Three Months Ended						Six Months Ended
	August 3,			August 4,			August 3,			August 4,
	2019			2018			2019			2018
REVENUES:
Net sales	$	1,656,363		$	1,498,633		$	3,284,910		$	3,017,079
Other revenue		5,659			6,109			11,306			12,371
Total revenue		1,662,022			1,504,742			3,296,216			3,029,450
COSTS AND EXPENSES:
Cost of sales		970,421			877,474			1,931,739			1,770,156
Selling, general and administrative expenses		531,843			479,077			1,049,221			947,424
Costs related to debt amendments		7			79			(375	)		79
Depreciation and amortization		52,261			56,923			102,902			107,432
Other income - net		(1,663	)		(4,022	)		(3,754	)		(5,372	)
Loss on extinguishment of debt		—			1,361			—			1,361
Interest expense		13,435			14,581			26,805			29,103
Total costs and expenses		1,566,304			1,425,473			3,106,538			2,850,183
Income before income tax expense		95,718			79,269			189,678			179,267
Income tax expense		11,151			8,312			27,346			25,723
Net income	$	84,567		$	70,957		$	162,332		$	153,544

Net income per common share:
Common stock - basic	$	1.28		$	1.06		$	2.46		$	2.29
Common stock - diluted	$	1.26		$	1.03		$	2.40		$	2.23
Weighted average number of common shares:
Common stock - basic		65,918			66,890			66,011			66,937
Common stock - diluted		67,274			68,769			67,502			68,870

See Notes to Condensed Consolidated Financial Statements.

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(All amounts in thousands)

	Three Months Ended						Six Months Ended
	August 3,			August 4,			August 3,			August 4,
	2019			2018			2019			2018

Net income	$	84,567		$	70,957		$	162,332		$	153,544
Other comprehensive (loss) income, net of tax:
Interest rate cap contracts:
Net unrealized (losses) gains arising during the period		(10,222	)		(14	)		(13,494	)		972
Reclassification into earnings during the period		150			360			(35	)		1,017
Other comprehensive (loss) income, net of tax		(10,072	)		346			(13,529	)		1,989
Total comprehensive income	$	74,495		$	71,303		$	148,803		$	155,533

See Notes to Condensed Consolidated Financial Statements.

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(All amounts in thousands, except share and per share data)

	August 3,			February 2,			August 4,
	2019			2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	97,207		$	112,274		$	89,585
Restricted cash and cash equivalents		21,882			21,882			21,882
Accounts receivable—net		98,201			58,752			71,026
Merchandise inventories		823,787			954,183			843,926
Prepaid and other current assets		144,832			124,809			147,574
Total current assets		1,185,909			1,271,900			1,173,993
Property and equipment—net		1,317,562			1,253,705			1,178,989
Operating lease assets		2,160,828			—			—
Tradenames		238,000			238,000			238,000
Favorable leases—net		829			164,324			178,448
Goodwill		47,064			47,064			47,064
Deferred tax assets		4,125			4,361			6,496
Other assets		92,120			99,818			107,631
Total assets	$	5,046,437		$	3,079,172		$	2,930,621

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	690,597		$	848,561		$	761,658
Current operating lease liabilities		277,411			—			—
Other current liabilities		344,584			396,257			355,676
Current maturities of long term debt		3,176			2,924			2,755
Total current liabilities		1,315,768			1,247,742			1,120,089
Long term debt		1,079,775			983,643			1,155,671
Long term operating lease liabilities		2,069,613			—			—
Other liabilities		94,601			346,298			320,343
Deferred tax liabilities		171,543			178,779			181,225
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.0001 par value: authorized: 50,000,000 shares; no shares issued and outstanding		—			—			—
Common stock, $0.0001 par value:
Authorized: 500,000,000 shares;
Issued: 79,605,368 shares, 79,224,669 shares and 78,950,536 shares, respectively;
Outstanding: 66,270,608 shares, 67,145,097 shares and 67,550,710 shares, respectively		7			7			7
Additional paid-in-capital		1,545,185			1,508,996			1,485,418
Accumulated deficit		(97,987	)		(260,919	)		(522,120	)
Accumulated other comprehensive (loss) income		(17,142	)		(3,613	)		102
Treasury stock, at cost		(1,114,926	)		(921,761	)		(810,114	)
Total stockholders' equity		315,137			322,710			153,293
Total liabilities and stockholders' equity	$	5,046,437		$	3,079,172		$	2,930,621

See Notes to Condensed Consolidated Financial Statements.

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(All amounts in thousands)

	Six Months Ended
	August 3,			August 4,
	2019			2018
OPERATING ACTIVITIES
Net income	$	162,332		$	153,544
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		102,902			107,432
Amortization of deferred financing costs		641			929
Accretion of long term debt instruments		406			383
Deferred income taxes		(1,817	)		1,434
Non-cash loss on extinguishment of debt		—			1,361
Non-cash stock compensation expense		20,974			16,749
Non-cash lease expense		7,318			—
Non-cash rent		—			(12,663	)
Cash received from landlord allowances		23,427			14,477
Changes in assets and liabilities:
Accounts receivable		(22,754	)		(6,497	)
Merchandise inventories		129,890			(91,363	)
Prepaid and other current assets		(21,729	)		(27,374	)
Accounts payable		(158,675	)		25,180
Other current liabilities		(16,189	)		(27,417	)
Other long term assets and long term liabilities		1,829			7,921
Other operating activities		868			2,211
Net cash provided by operating activities		229,423			166,307
INVESTING ACTIVITIES
Cash paid for property and equipment		(163,480	)		(121,966	)
Lease acquisition costs		(459	)		(8,543	)
Proceeds from insurance recoveries related to property and equipment		—			2,147
Other investing activities		(44	)		3,178
Net cash (used in) investing activities		(163,983	)		(125,184	)
FINANCING ACTIVITIES
Proceeds from long term debt—ABL Line of Credit		1,053,500			694,100
Principal payments on long term debt—ABL Line of Credit		(956,600	)		(523,800	)
Principal payments on long term debt—Term B-5 Loans		—			(152,808	)
Purchase of treasury shares		(193,165	)		(117,227	)
Proceeds from stock option exercises		15,216			11,464
Other financing activities		542			(2,471	)
Net cash (used in) financing activities		(80,507	)		(90,742	)
(Decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents		(15,067	)		(49,619	)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period		134,156			161,086
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	119,089		$	111,467
Supplemental disclosure of cash flow information:
Interest paid	$	25,461		$	27,380
Income tax payments - net	$	70,628		$	53,588
Non-cash investing activities:
Accrued purchases of property and equipment	$	47,754		$	43,159
Acquisition of finance leases	$	-		$	13,538

See Notes to Condensed Consolidated Financial Statements.

BURLINGTON STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 3, 2019

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

As of August 3, 2019, Burlington Stores, Inc., a Delaware corporation (collectively with its subsidiaries, the Company), through its indirect subsidiary Burlington Coat Factory Warehouse Corporation (BCFWC), has expanded its store base to 691 retail stores, inclusive of an internet store.

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 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 2, 2019 (Fiscal 2018 10-K). The balance sheet at February 2, 2019 presented herein has been derived from the audited Consolidated Financial Statements contained in the Fiscal 2018 10-K. Because the Company’s business is seasonal in nature, the operating results for the three and six month periods ended August 3, 2019 are not necessarily indicative of results for the fiscal year.

Accounting policies followed by the Company are described in Note 1 to the Fiscal 2018 10-K, “Summary of Significant Accounting Policies.”

Fiscal Year

The Company defines its fiscal year as the 52- or 53-week period ending on the Saturday closest to January 31. The current fiscal year ending February 1, 2020 (Fiscal 2019) and the prior fiscal year ended February 2, 2019 (Fiscal 2018) both consist of 52 weeks.

Adopted Accounting Standards

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2016-02, “Leases” (ASU 2016-02). The standard’s core principle is to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. The Company adopted this ASU as of the beginning of Fiscal 2019.

The Company applied the changes from the new guidance at the adoption date and recognized a cumulative effect adjustment to retained earnings in the period of adoption, as allowed under ASU 2018-11, “Leases: Targeted Improvements.” The Company did not adjust prior periods. The Company made an accounting policy election not to capitalize leases with an initial term of twelve months or less. The Company elected the transition package of practical expedients, which allows the Company to carry forward for its existing leases: i) the historical lease classification as either operating or capital; ii) assessment of whether any expired or existing contracts are or contain leases; and iii) capitalization of initial direct costs. Additionally, the Company elected the practical expedients to not separate lease and non-lease components for both its real estate and non-real estate leases, to not assess whether existing or expired land easements contain a lease, and to employ hindsight when determining lease terms for existing leases on the date of adoption.

As a result of this standard, the Company has recognized approximately $2.2 billion of additional right-of-use assets and approximately $2.3 billion of additional lease liabilities (current and long-term combined) on its Condensed Consolidated Balance Sheet as of August 3, 2019. The right-of-use lease liability for operating leases is based on the net present value of future minimum lease payments. The right-of-use asset for operating leases is based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as favorable leases, the long term portion of straight line rent liability, purchased lease rights and landlord allowances. In addition, the Company also recorded an approximate $0.6 million cumulative-effect adjustment to retained earnings,

related to a deferred gain on a previous sale-leaseback transaction that was being recognized into the line item “Other income” over a 13 year period.

Adoption of this standard also resulted in a change in the timing of certain expense recognition, primarily related to net favorable lease cost, as well as a reclassification of favorable lease cost from “Depreciation and amortization” to “Selling, general and administrative expenses” on the Company’s Condensed Consolidated Statement of Income for the three and six months ended August 3, 2019. This guidance did not have a material impact on the Company's liquidity. Refer to Note 3, “Lease Commitments,” for further detail of the Company’s future minimum lease payments.

Pending Accounting Standards

Intangible Assets

On January 26, 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment,” which aims to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, goodwill impairment will be measured as the amount by which the carrying value exceeds the fair value. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The new guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods. This ASU will be effective for the Company as of the beginning of the fiscal year ending January 30, 2021 (Fiscal 2020). Early adoption is permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not anticipate that the new guidance will have a significant impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” This ASU requires that implementation costs incurred in a hosting arrangement that is a service contract be assessed in accordance with the existing guidance in Subtopic 350-40, “Internal-Use Software.” Accordingly, costs incurred during the preliminary project stage must be expensed as incurred, while costs incurred during the application development stage must be capitalized. Capitalized implementation costs associated with a hosting arrangement that is a service contract must be expensed over the term of the hosting arrangement. Additionally, the new guidance requires that the expense of these capitalized costs be presented in the same line item in the statement of income as the fees associated with the hosting element of the arrangement. The new guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods. This ASU will be effective for the Company as of the beginning of Fiscal 2020. Early adoption is permitted for annual or interim periods. While the Company is still in the process of determining the impact of the adoption of this guidance on its consolidated financial statements or notes thereto, it does not anticipate that the new guidance will have a significant impact on its consolidated financial statements.

There were no other new accounting standards that had a material impact on the Company’s Condensed Consolidated Financial Statements during the three and six month periods ended August 3, 2019, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of August 3, 2019 that the Company expects to have a material impact on its financial position or results of operations upon becoming effective.

2. Stockholders’ Equity

Activity for the three and six month periods ended August 3, 2019 and August 4, 2018 in the Company’s stockholders’ equity are summarized below:

	(in thousands, except share data)
	Common Stock					Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Treasury Stock
	Shares			Amount		Capital		Deficit			Loss			Shares			Amount			Total
Balance at February 2, 2019		79,224,669		$	7	$	1,508,996	$	(260,919	)	$	(3,613	)		(12,079,572	)	$	(921,761	)	$	322,710
Net income		—			—		—		77,765			—			—			—			77,765
Stock options exercised		110,493			—		1,821		—			—			—			—			1,821
Shares used for tax withholding		—			—		—		—			—			(45,447	)		(7,538	)		(7,538	)
Shares purchased as part of publicly announced programs		—			—		—		—			—			(841,460	)		(122,780	)		(122,780	)
Forfeiture of restricted shares, net of issuance of 1,759 restricted shares		(2,585	)		—		—		—			—			—			—			—
Stock based compensation		—			—		9,427		—			—			—			—			9,427
Unrealized losses on interest rate cap contracts, net of related tax benefit of $1.3 million		—			—		—		—			(3,272	)		—			—			(3,272	)
Amount reclassified into earnings, net of related taxes of $0.1 million		—			—		—		—			(185	)		—			—			(185	)
Cumulative-effect adjustment		—			—		—		600			—			—			—			600
Balance at May 4, 2019		79,332,577