Burlington Stores Inc (BURL) 2003 Q4 法說會逐字稿

Welcome to the Burlington Coat Factory fourth quarter sales and net income conference call. All participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. If you have a question, press the 1 followed by the 4 on the touchtone telephone. This conference is being recorded Friday, August 15, 2003. I would now like to turn the conference call over to Bob LaPenta, Vice President and Chief Accounting Officer.

Thank you. Good morning. Statements made in this press release that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 are not historical facts and involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: general economic conditions, consumer demand, consumer preferences, weather patterns, competitive factors including price and promotional activities of major competitors, availability of desirable store locations on suitable terms, availability selection and purchasing of attractive merchandise on favorable terms, import risks, the company's ability to control costs and expenses, unforeseen computer related problems, any unforeseen loss or casualty, the effect of inflation, and other factors that may be described in the company's filings with the Securities and Exchange Commission.

The company does not undertake to publicly update or revise these forward looking statements even if experience or future changes make it clear that any projected results expressed or implied will not be realized. I will first cover results fourth quarter ended May 31, 2003. Following these comments we will be available to answer your questions.

Per share results, during the three months ended may 31, basic and diluted net income per share was 6 cents compared with basic net income of 20 cents per share and diluted net income of 19 cents per share for the three months ended June 1, 2002. Sales; net sales for the fourth quarter, ended May 31,2003 were $608.6 million compared with sales of $601.6 million for the prior fourth quarter ended June 1, 2002. Comparative store sales for the quarter decreased 4.1%. Comparative store sales decreased 16.5% for the month of March increased 12.8% in April and decreased .9% in May. The big decrease in comparative store sales in March and the large increase in comparative store sales in April were due to the shifting of Easter from April 1st last year to April 20th this year. Cost of sales: during the fourth quarter the cost of sales was 60.8% of sales, compared with 60.6% for the same period last year. The increase was primarily due to an increase in markdowns taken as a percentage of sales. Selling and administrative expenses. During the fourth quarter selling and administrative expenses were 35.8% of sales, compared with 35.2% for the same period last year. The increase as a percentage of sales primarily reflects the comparative store sales decrease of 4.1% during the quarter. Income taxes: the income tax rate for this year's fourth quarter is 35.6%. The income tax rate for the fiscal year is 37.7% compared with 37.8% for the prior fiscal year. Balance sheet highlights: cash and cash equivalents as of May 31, 2003 were $30.5 million compared with $122.8 million a year ago. Merchandise inventories were $583.1 million as of May 31, 2003, a 3.3% increase from this time last year. The increase in inventory is primarily due to the 18 additional Burlington Coat Factory stores and the 4 NJM designer shoe stores open this year. Offsetting the increase of merchandise inventories from new stores was a comparative store decline of merchandise inventories of 1.5%. Stockholders equity: at May 31, 2003 stockholders equity was $788 million or approximately $17.72 per share book value; compared with $722.5 million or $16.27 per share book value a year ago. Store growth: at the end of the fiscal year, the company operated 335 stores in 42 states with a total gross square footage of 25.6 million square feet. During the year the company opened 18 Burlington Coat Factory stores and 4 NJM designer shoes stores; closed 3 Burlington Coat Factory stores and expanded an additional 15 stores. We will now be available to answer your questions. Monroe Milstein, President and Chief Executive Officer; Andrew Milstein, Executive Vice President and Executive Merchandising Manager; Steven Milstein, Executive Vice President and General Merchandising Manager; Lisa Cohen, Senior Divisional Merchandise Manager are also available to answer your questions.

Ladies and Gentleman if you would like to register for a question, please press the 1 followed by the 4 on your telephone. You will hear a 3 tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. If you are using a speaker phone, please lift your handset before entering your request. One moment please for our first question. Our first question will come from the line of Jeff Steinberg with JLS Asset Management. Please go ahead sir.

Thank you very much. Good morning. Can you update us a little bit, from your perspective, in terms of where the consumer's at now? Sort of post the May period-June, July, August. How business is trending. Thank you very much.

Hi this is Steve Milstein.

Hi Steve.

Hi. Obviously sales were not up to plan for the previous quarter. It was a sluggish spring and summer season. We do see some turnaround in the last two weeks. Our back to school has had a nice start. We've already - three weeks we've already been - had our back to school circular has dropped in almost all the country, the last part of the country, the Northeast corridor will drop --with our circular drop we will see-we've seen tremendous sales pick up and we're very optimistic right now because back to school is good.

Okay, forgive me, but give me a sense what type of comp stores sales you would be targeting in a more normal economy. Obviously everyone was affected by the timing and the weather and the war and all those factors in the past; but given where we are now with the improved environment, what type of comps would be realistic?

We don't like to predict the future, but we are very much encouraged by the increased sales in outerwear, which we're the best in the country in, so that's very encouraging. But we use great caution for predicting the future, because that's not our talent. You always plan for an increase but there is no guarantee that it'll always happen. There's a lot of factors that could affect it, but we do see-we are optimistic for the fall and the winter. While I'm certainly not predicting -if you say what would make me happy at this point in the game, I would say 2 or 3% comps would make me very happy. But we're not predicting those comps.

Okay, but it's good to see that we're doing at least that well with the more recent trend.

More recent trend, last 2 - 3 weeks, we're very encouraged with the back to school, we're very encouraged with outerwear, mens wear; we see things going on or above plan the last 2 - 3 weeks.

What would you attribute the mens wear improvement to, if I may ask?

I really can't specifically pinpoint it. I just know I see the numbers are coming in. Okay, Monroe says he feels there is less competition. Mens suits seem to have hit bottom and are selling again. The mens sportswear, particularly for young men, fashion is driving the business again. And that's where we are seeing the business come in, in the fashion area. We're seeing the same thing in the junior area as the young mens.

Okay, terrific, thank you very, very much. And last followup, which competition has gone by the wayside a little bit.

Well, we have, in New York, Today's Man has disappeared. Lot less people in the men's suit industry right now. Although, men's suit is not uniform for work anymore, it's still a special occasion outfit-people still dress up for weddings and special occasions.

Okay, and forgive me, just two quick followups. In the fourth quarter you just reported, were there any special charges or anything because obviously the comps a little lighter, but the profitability was down pretty dramatically. Were there any special charges in there?

No specific special charges. The profitability was down really primarily because of the 4.1% drop in comp store sales. That eroded the $9 to $10 million in gross profit dollars.

And finally, Steve, if I could just followup, obviously the last 2, 3 years profitability been basically flat, I guess we're down a few percent. I'm just curious, if the environment is like it is now, just wanted to understand. Can you talk a little bit about where you think the margins of the company should be able to get to? Do you feel like we are sort of below our normal margins at this point?

Well, we've seen a slight deterioration this past quarter in margins. Two ways that we can control margins is we're watching our inventories very closely; and we're planning inventories very tight. We can increase margins through more off price. However, the marketplace, meaning the consumer marketplace still will dictate margins because if our competitors are cutting prices because they're overinventoried, such as people like Kohl's. That will cause the marketplace, prices will flip and we have to compete in the marketplace so we'll often have to take markdowns just to be competitive. But because of our competitor's mistakes, not because of our mistakes. So the marketplace in the end still dictates margin.

Okay, thank you so much.

Our trending for margins has been up over the last 5 years I think and I see it continuing. We had to respond to our competitors.

Which type of competitors should we be benchmarking off of?

We look at everybody. We look at the department stores, Kohl's and even more pricing.

Okay, I assume it is mostly Kohl's that had the excess inventory this time.

I believe the department stores did too. May and Federated too.

Is your sense that that's still the case?

You know we are finishing up, summer clearance will finish up by September 15th. Once that flushes out, the inventories have turned now to where the majority now is fall inventories. So that should flush itself out in the next 15 to 30 days.

Okay thank you very much.

Our next call will come from the line of Peter Cires with Gorilla Capital. Please go ahead.

Hi Steve Milstein, I hope you guys have electricity somewhere.

We're okay. We never lost it New Jersey. But 27 stores were affected yesterday by the electricity and power outage. So we're not immune to it, but we don't think it was devastating.

I wanted to ask-what the coat situation is now that we're sort of approaching the winter season. What's the coat inventory like?

I can tell you we are very much encouraged by the fact that the last 10 weeks outerwear and coats have been the biggest plus in our stores. Last week we sold thousands of coats, many of which were winter coats.

Why are people buying winter coats when it's not winter yet?

Well, because many people look ahead. We're not saying everybody looks ahead, but many people look ahead and they want to buy something new and fresh. They know they had a cold winter last year and they're old coats may look shabby by the end of the year. So we're very encouraged by what's happening. Peter, we've even had some reorders on ladies coat styles, again they're junior styles, active styles. But juniors are in the stores, they are buying their wardrobe for back to school and they see a pretty coat, they'll buy it. Yeah, the smart customer does shop earlier. They like to see things as they first come in and they'll often buy something now. They may buy something later too, but they'll shop now and they see something they like, they'll buy now. They want to see things coming in fresh.

But last year was a cold winter, so I would have thought the coat guys would have sold better last year than the average years when we would have had less good stuff available. But that's not the case, they've got a lot of good stuff available?

Most of our coats and outerwear we buy upfront, we buy the best styles and we buy them at very good prices because we place our orders early. We did buy some closeouts, but the goods that are coming into our stores today are coming right from the factories.

One more question, how come people complain when you guys have to have 1% comp but when Kohl's comes in with a negative 3% comp, the stock goes down?

That's a good question, we don't argue with the market. We accept it.

Thanks guys.

Our next question will come from the line of John Kurdy with Principal Global Investors. Please go ahead.

Good morning gentleman. I noticed that the amortization expense went up by about $3.5, $3.6 million in the fourth quarter. Is that going to be a new run rate? Or was there some write off there?

No that reflected the Kmart stores that were acquired earlier in the year that were opened later in the year. We purchased leasehold improvements this year to get the rights of the 12 Kmart stores and we had a purchase last year of some leases that we only had half the year's amortization and this year we had a full year. So the full year amortization you saw for 12 months is what you can expect to see going forward.

About $7.5 million.

Yes.

Okay, all righty. And then, what was your capital spending in the year that just ended? And what are your store plans and cap ex plans for the upcoming year please?

For fiscal 2003, we spent around $165 million in Cap Ex. The budget for 2004 is currently about $115 million. Now that could change as opportunities become available to acquire leases or actual real estate. But right now with the range of 20-25 stores this year and about 15 remodels, we're looking at about $115 million.

And what's kind of the breakdown of this 20 -25 between the Burlington Coat Factory stores and any of your other concepts.

It's predominantly Burlington stores. Bob Grabtzke, Vice President of Real Estate is here. Bob, why don't you just give them the highlights for 2004.

Okay, for fall, we are looking at 15 Burlington's for the fall only. And then 9 more in the spring, Burlington Coat Factories. Then you have a couple of conversions, and we have a total of 3 NJM stores this year.

Okay. All righty. And on the balance sheet, what did you end with in terms of debt and cash please.

Give me just a second. Total cash of approximately $52 million at year end and we had long term debt of $34.5 million which included the capital leases. We capitalized 2 leases last year, so that increased long term debt. In the first quarter of this year we went out and raised $100 million in the private placement market and that will be funded on September 30th, but that will be senior unsecured debt.

So obviously you are kind of getting a war chest together believing there are going to be some opportunities out there?

Well, we believe there are going to be opportunities out there and we already took advantage of some opportunities. I mean the cash position this year over last year has dropped. And it's dropped substantially because of the cap ex spending that we've done. We feel that there are a lot of big box locations at some very reasonable rates and we've been very aggressive. And it's no secret, we said we were going to be aggressive. We think this is an opportunity, it won't be here forever so we're going to take advantage of it now.

All right, very good, thank you.

Thank you.

Ladies and gentleman, as a reminder, to register for a question press the 1 followed by the 4. Our next question is from the line of Peter Cires with Gorilla Capital. Please go ahead.

Last question, I promise. With the new tax laws [inaudible].

Peter, this is Bob LaPenta. I don't know if you saw that, but when we announced earnings, we increased our dividend from 2 cents to 3 cents a share. And part-we looked at a lot of different factors, the board looked at a lot of different factors when they declared the dividend. But one of the things that they wanted to consider was the growing wave by investors to look at dividend yield as a measure of investor's value. So that certainly played a part in it.

You know 2 cents to 3 cents, I guess what I'm asking Bob is, you've got big insider ownership, wouldn't the higher dividends be tax free?

To my knowledge they're happy. I don't want to speak for them. The game plan is not to take the equity out of the company. That's not the intent. Certainly I think the cash flow of the company, the success of the company and the growth of the store base that we've seen over the past few years certainly supports raising the dividends. But we're a conservative company and we want to reward the investors; and we hope to be able to be in a position to continue to reward them going forward. But I don't think the general overall strategy is going to change substantially in how much of the earnings we dividend out.

Great, thanks a lot.

Peter, we also wanted to while we are going forward and increasing dividends; that's what the additional penny dividend increase was about. We felt it would be sending a wrong signal in a year of decreased earnings to significantly increase dividends.

I think that's fine. Thanks guys.

Ladies and gentlemen, if there are any additional questions, please press the 1 followed by the 4 at this time. Gentleman, I'm showing no further questions. I will turn the conference call back to you.

If there are no further questions, we thank you. We hope not too many of you were affected by the blackout. Thank you for participating on the conference call. Goodbye.

Ladies and gentlemen, that does conclude your conference call today. We thank you for your participation and ask that you please disconnect your lines.