Summary
- BURL's quarterly revenue fell 39% Y/Y, an improvement over the May quarter.
- The inability to make deep cuts to store-related costs led to an EBITDA loss.
- Cash burn through the first six months was over $600 million. Operating losses could trigger more cash burn.
- BURL could survive the pandemic, yet its balance sheet could deteriorate. The stock remains a sell until operating losses subside.
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Source: Barron's
Burlington Stores (BURL) reported revenue of $1.01 billion, Non-GAAP EPS of -$0.56 and GAAP EPS of -$0.71. The company missed on revenue, but beat on earnings. BURL is up in the high-single-digit percentage range post-earnings. I had the following takeaways on the quarter.
Revenue Slide Continues
COVID-19 led to shelter-in-place policies, causing millions of consumers to be stuck at home. In March, Burlington began temporarily closing stores to help stem the spread of the pandemic. Store closings caused revenue in the May quarter to fall 50% Y/Y. The company began re-opening stores in early May, with the majority being re-opened by mid-June. It is still uncertain how social distancing rules will impact sales or if consumers will patronize Burlington stores at the same level as before.
Off-price retailers like Burlington and Ross Stores (ROST) have traditionally provided a larger value proposition to consumers vis-a-vis other retailers. Burlington experienced pent-up demand for its offerings initially during the quarter, yet sales may have fizzled out towards the end:
"We began re-opening stores in the middle of May and by the end of June we had re-opened all but a sample of our stores. Following the re-opening of our stores, we experienced an exceptionally strong sales trend, driven by pent-up demand and by our own great [Indiscernible]. This strong sales trend continues into the second half of June, but then fell off dramatically as we struggled to replenish the depleted inventory levels in our stores. I realized that by now this is a familiar narrative; our off-price peers have described a similar pattern. But I would say that we probably experienced more significant highs and lows than they did, our trajectory was more V shaped if you like."
The company was aggressive in clearing aged inventory, which appears to have been a smart move. However, the slowdown in sales may have occurred after the aggressive discounts ended. It begs the question, "Will consumer demand return without aggressive discounts in the future?" If not, then management may have to continue its markdowns in order to drive traffic into stores. Over the long term, off-price retailers should continue to be successful amid a difficult economic environment. For now, Burlington and other retailers may have to continue discounting amid a cut throat retail environment.
