Burlington Stores Inc (BURL) 2004 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Burlington Coat Factory first-quarter earnings ended August 30th, 2003 conference call. I would now like to turn the conference call over to Robert LaPenta, Vice President and Chief Accounting Officer for Burlington Coat Factory. Please go ahead, sir.

Thank you, operator. Good morning. Statements made in this conference that are forward-looking involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following -- Deviation of actual from projected sales and earnings; the company's ability to maintain selling margins; general economic conditions; changes in projected store openings; weather patterns; the company's ability to control cost and expenses; 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 its forward-looking statements, even if evidence or future changes make it clear that any projected result, expressed or implied, will not be realized.

I will first cover results of the first quarter ended August 30th, 2003. Following these comments, we will be available to answer questions.

Per-share results -- During the three months ended August 30th, 2003, net loss was 38 cents per share, compared with net loss of 36 cents per share a year ago.

Sales -- During the first quarter ended August 30th, 2003, net sales were 529.6 million, compared with sales of 506.1 million for the prior year's first quarter. Sales increased 4.4 percent for the quarter. Comparative store sales decreased 1.6 percent for this same period. Comparative store sales decreased 1.8 percent in June; decreased 0.9 percent in July, and decreased 2 percent in August.

Other income -- During the quarter, other income decreased four tenths of a million from last year's first quarter. This decrease was due to other miscellaneous income, which in last year's first quarter, had .6 million, or 600,000 in gain from disposal of assets, compared with this year's first quarter that had 700,000 in losses from disposal of assets. Offsetting this $1.3 million swing in miscellaneous income, were increases in rental income.

Cost of sales -- During the quarter, cost of sales were 63.6 percent of sales, compared with 64.4 percent for the same period last year. This decrease was due to slightly higher initial markups in this year's first quarter, versus last year's first quarter, and lower markdown transactions.

Selling and administrative expenses -- During the quarter, selling and administrative expenses increased 10.2 million to 205.2 million. The increase in selling and administrative expenses in the quarter reflect the additional store expenses of 13 stores not opened in last year's first quarter, and the opening of the Edgewater Park Distribution facility, which added $800,000 to selling and administrative expense for the quarter. As a percentage of net sales, selling and administrative expenses were 38.6%, compared with 38.5% percent of sales for the same period last year.

Depreciation expense -- During the quarter, depreciation expense increased 2.9 million to 18.8 million, compared with last year's first fiscal quarter. This increase in depreciation is due to increased levels of fixed assets purchased related to stores opened, relocated and remodeled in fiscal year 2003, and to the new distribution center.

Amortization expense -- During the quarter, amortization expense increased from a million to 1.9 million. This reflects the increase in leasehold purchases from the stores that we purchased in 2003.

Income taxes -- The income tax rate was 38.7 percent, compared to 37.8 percent during the prior period last year. The effective income tax rates increased because of state taxes being up this year over last year.

Balance sheet review -- The stated values are rounded to the nearest million dollars.

Inventory -- Merchandise inventories at August 30th, 2003 were 670 million, a 2.5 percent decrease over last year's level of 687 million. Same-store inventories were down 10.7 percent, with coat inventories down 14.3 percent, compared to the same period last year.

Notes payable were 53.4 million at August 30th, 2003, compared with 43.5 million a year ago. This reflects the normal bank borrowings at this time of the year, as the company builds inventory for the fall season.

Book value -- The company's book value at the end of the current first quarter was 769.7 million, or $17.28 per share, compared with this time last year of 706.5 million, or $15.88 per share.

During the first quarter of fiscal 2004, the company opened 11 Burlington Coat Factory stores, and two stand-alone MJM stores. An additional two Burlington Coat Factory stores were relocated during the current quarter to locations within the same trading market. The company operated 337 stores in 42 states, as of August 30th, 2003.

We will now be available to answer your questions. Monroe Milstein, President and Chief Executive Officer, Andrew Milstein, Executive Vice President and Executive Merchandise Manager, Stephen Milstein, Executive Vice President and General Merchandise Manager, and Bob [Grafsky], Vice President of Real Estate, are also available to answer questions.

Our first question comes from the line of Jeff Black with Lehman Brothers.

Good morning, guys. Can you just discuss how the comp broke down in terms of sales, what categories are performing in line with expectations and where you might be seeing some of the weakness to account for the lower comps?

Yes. In the first quarter, coats were up low single digits. Men's was up low single digits. Sportswear was off low single digits. Accessories were off low single digits. Linens were off 10 percent. Youth was up low single. Outerwear up low single. Kids up low single, and shoes up mid-single digits.

A couple of other questions just related to inventory. There was a nice performance there. I mean, where have you pared back inventory, given that you added 11 stores?

This is Stephen Milstein. We pared back some store inventory. I don't want to break it out.

It's pretty much across the board. Every department has dropped inventory by about 10 percent.

So how do you --(multiple speakers)

A little more than the other departments.

How the feel about, sort of, assortments going into the fall period? What are you seeing going in to October and sort of late September?

There are lots of opportunities out there to buy merchandise for the fourth quarter at advantageous prices. And, because we have a liquid inventory position, or liquidity, and we have lower comp store inventories, we feel we're in a position to take advantage of those opportunities.

And when he says fourth quarter, he means fourth calendar quarter, not our fiscal.

Right. And, in terms of the store performance, how are the new stores tracking, you know, in line with plan?

I think they are exceeding plan right now -- the new stores.

And do you see -- (multiple speakers)

We're very happy with the new store openings so far. We have, I believe two openings today. We have an additional three next week. We are almost at the end of our fall opening cycle. I think I have one for one week after that. Yeah -- one straggler. There is always a construction delay of one, but I would say that overall, we started out doing or openings in August. And it allowed our organization to digest those new stores in a timely manner, as opposed to opening them all at one week.

Right. Okay, guys. Good luck, and thanks a lot.

Chris Percy with SunTrust Bank.

Bob this is Chris Percy with SunTrust. I have a question regarding the $100 million senior notes. With those issued, how will that impact your borrowings, going forward? And, with your inventory down, your note payables were up slightly. What was that attributable to?

Okay. First of all, payables were up just due to defect that it's the new stores and it's just the timing of when the payables are due this year or last year. It is not always that uniform.

We opened more new stores early this year -- early August. So you have a spiking of payables for those to stores. Sometimes that merchandise is brought in, in June or July for August openings. It is not that productive, while the store is not opened.

And the 100 million has made us more liquid. I mean, we are out of bank borrowings now. And we are investing excess cash overnight. The decision to borrow the money, long-term, was because of the level of CapEx we were spending because of the opportunities we feel are out there with new stores and with remodeling and with relocations.

Chris Percy Very good. And those notes are unsecured. Is that correct?

Yes, that is correct.

Very good. Thank you very much guys.

John [Kerty] with Principal Global Investors.

Good morning. What is your planned square footage expansion for this year?

Yes -- it's about 30 stores. And you figure an average of 80,000 square feet per store -- it's about 2.4 million. So, it would be 2.2, because the shoe store is smaller.

So, between 2.2 and 2.5, depending on size of the store.

And depending on the opportunity. If we don't see opportunities, we might only open 22 stores instead of 30 stores.

And your planned CapEx based on 30 stores if it comes to pass?

CapEx for this year, fiscal 2004 right now, is around 120 million, but that could change. That could grow if there is more opportunities throughout the year.

The Decelle stores that are being closed -- what are those going to be converted to?

Three went to Burlington and two Cohoes. The three that are converted to Burlington will open next weekend.

Okay, and then you'll also be relocating five Burlington's? Are those all Burlingtons that are being relocated?

Yes. In addition to Cohoes, there's five other stores scheduled in the spring, I believe. I don't think any of them are scheduled for the fall, but for relocation in the spring. We had two already, but there are still 5 remaining.

The relocations are closed and opened in the same neighborhood -- simultaneous.

You mentioned $800,000 of incremental expense for the new distribution center. Was that center open for the entire quarter?

No, it had very limited use in the first quarter. There were some glitches with equipment that had to be worked out. And, even for the second quarter -- because we made the decision to re-divert freight -- it is not going to really be utilized to the extent we want to until the third and fourth quarters of this year.

Will there be at least a small drag in the second quarter, but moving towards breakeven third and fourth quarters?

That is the goal. There will be more drag in the second quarter. In the third and fourth quarter, we are hoping for some opportunities of savings at store level, but also we will be closing one of our distribution centers in Bristol. There will be occupancy savings from that, that will offset the increase in expenses as well.

In terms of the gross margin performance, it was a nice, and you have talked about higher IMUs and, I guess, lower markdown. Do you feel like, as you head into the balance of the year with your inventories in pretty good shape -- assuming that we do not have an intensification of competition -- that that margin improvement kind of holds through the year?

There is no guarantee. It comes down to performance and making your plans. It is certainly a function of keeping inventories down, because you have minimized markdown risks when you do that. But, you got to sell what you buy the way you plan to sell it. And if that doesn't happen, we will have to take more markdowns, and that will impact margins.

And then in the back half of the year, as you finish up opening up your stores -- and obviously, the first quarter is a seasonally weak quarter -- Should we anticipate, maybe, some SG&A leverage, or still some further deleverage?

In the fourth quarter?

In the back half of the year.

Well, it is going to depend on comp sales. If we cannot generate positive low- to mid-single digit comp store sales increases, you're going to see pressure from SG&A as a percentage of sales. If we can generate nice comp store sales, because of the nature of the fixed expenses that we have -- in the past we have tended to see some benefits on leveraging in SG&A.

Lastly, what would you anticipate your depreciation and amortization expense to run for the year?

Actually, I don't have that number in front of me, but it is going to grow. If you look at prior years, it creeps every quarter because of the additional acquisitions during the year. But, you can expect in the same level that you've seen in the first quarter. But it will grow, quarter-by-quarter.

Bob, can you call him back after the meeting and tell him exactly what he wants to know?

We usually don't publish our projections, but -- I mean, I think it is safe to say if you look at what the level was in the first quarter, it would be consistent with that. But it will increase, quarter-by-quarter. And if you look at last year, at the way -- the same typical increases that you see quarter-by-quarter, you can expect to see that this year.

Okay that is fine. Thank you. That is all my questions.

Bernie Sosnick with Oppenheimer.

Closing Decelles-- it was my recollection that Decelles' average store size is much smaller than Burlington Coat Factory. Could you review a little bit about the sales? And putting it to use for Cohoes and Burlington?

All right. Well, there were three stores that fit the demographic customer of Burlington. They were very strong, high dollar-per-square foot stores; higher than the average Burlington dollar-per-square foot stores. And we made a decision these stores will be in the 25 to 30,000 foot range. We will not have Baby Depot. We will not have linens in these three stores. And we will focus on our highest volume Burlington departments. The sales had some strength in lingerie and children's wear. We have given those two departments a little higher proportion of space than we would in a Burlington store to try to keep that business or try to preserve that strong -- maximize the businesses. So, we are working on a much smaller format.

Burlington does operate a handful of smaller stores, older stores. So, we do have experience with operating smaller stores. And, we have kept the operations people from Decelles to run these stores.

And the lingerie -- they had a strong foundation department -- underwear.

Intimates, yes. Now, are you suggesting, perhaps, there might be a preference for running more Burlington stores without baby and linen?

Well, not a preference. It might be an option for smaller markets of for opportunities in the future in urban locations where we cannot find 80,000 square foot boxes. So, it is always a possibility that we could operate a pared down Burlington possibly. In market square, 80,000 feet doesn't work.

Now, you're converting stores to Cohoes. Does that mean that Cohoes is looking better than it had over the previous years?

Yes.

Could you just amplify on that a little bit?

Well, it is getting better and better. And I had a distinctive customer niche in the two stores that have been picked out to be Cohoes are high-income areas, which would fit into Cohoes. The family income in those places is over $110,000 a family.

(inaudible) we have two stores in the same market in the Boston area (inaudible). And that will keep the advertising price (indiscernible).

Okay.

Years ago when we took over Decelles, one of the stores in Rhode Island was converted from (technical difficulty) to a (technical difficulty) almost immediately (technical difficulty) successful (technical difficulty)

Your voice keeps fading out, fellows. I don't know why.

(inaudible) And also, I have to remind you (technical difficulty) We get a lot of (indiscernible) Cohoes that you don't see (technical difficulty) We started our shoe department here. The experience we got (technical difficulty) based on our experience with shoes in Cohoes. (technical difficulty)

How is MJM doing?

MJM is doing well. The comps have been really very, very strong. What happens, I think, when our store anniversary (inaudible) (technical difficulty) I guess the level (technical difficulty) market (technical difficulty) (multiple speakers)

After the grand opening anniversary. (multiple speakers)

(technical difficulty) They have been very strong.

When you say that there are opportunities to open stores, and it could range from 22 stores this year to 30 or perhaps more, what do you have in mind in terms of what might be out there in the marketplace that might look desirable in general terms? And, how close are you to finalizing on stores, so they we can assume that it will be closer to 30 openings this year?

Well let's say when -- Bernie, you are right because (indiscernible). I wasn't thinking through May 30th, which is the end of our fiscal year. That is the (indiscernible) How many stores -- what does it look like right now? (multiple speakers)

Let me just say this first -- We've already opened through the first quarter 11 stores -- okay? What we're talking about now, Bob, is from August 30th. September is already done. (multiple speakers) September 1st through the end of May.

September, we opened -- in October we've opened how many stores already? I don't know. Bob has a list, but I wanted him to make sure he included those. (multiple speakers)

Well, total -- we count spring of '04 in this total (multiple speakers)

(indiscernible) Yes, signed deals.

Well, we have nine deals for spring of '04 that are done(multiple speakers) (technical difficulty) and moving (technical difficulty)So, the openings remaining for the fall -- (multiple speakers)

And September? You did not mention September.

How many openings for September? No one has the figure?

My count is with the nine spring -- from September one on, we will have 16 openings that are definite, unless something happens (technical difficulty) that delays it. So, 16 plus 11 is going to give us 27. (technical difficulty) (multiple speakers) It looks real good that well -- (multiple speakers) We are going to be between -- we're going to be close to 30.

But our minimum is 27?

Minimum of 27.

It that all new stores?

Yes. That doesn't count the relocations. (multiple speakers)

So the 3 Burlington's that were conversions from Cohoes -- are they figured as new stores?

Yes.

Okay. Can I also get a little bit of a clue as to what you are seeing in terms of customer response, especially when the weather got a little bit colder over the last 10 days or so?

Bernie, it has been fantastic. A good retailer must always be optimistic. Because if you plan and increase, you may or may not make it. If you plan to decrease, you will surely make it. The last week in September for us -- and I guess the rest of the world of retailing -- was a very sharp upward response. We are not smart enough to predict that it will continue. But, it is very encouraging. And, in some areas, coats have been so positive that we are even contracting to fly in more merchandise for the winter quarters.

Okay. Well, that is good to hear. Well, thanks, and good luck as the season progresses.

Peter Cyrus with Guerrilla Capital.

It's Peter Cyrus. Monroe, I have been on these calls for, I don't know, 20 or 25 years. I don't think I have ever once before heard you say you were flying goods in. Is that a reasonable statement?

We've flown goods in at times in the past. But I am saying, for us to get an indication so strong early in the season is very encouraging. We don't want adjust it; we have to plan for it. We are planning for an increase, whether it's going to materialize or not, we cannot tell.

Peter, I don't want you to read too much into this, but if there are goods available from overseas this time of the year, you almost have to fly them in, because it's too late to put them on a boat.

I do understand that. When the weather turns cold this early, shouldn't that be good for margins, because doesn't that mean that coats and jackets sell earlier?

Yes. Yes. Yes.

The earlier the better, because you sell at all retail.

There is less markdowns. But, flying goods in late can increase cost slightly.

But it was reasonable to assume that you had --

But, what we are trying to fly in is things that are selling so strong now that we fear that there is minimum risk in it.

But when the weather turned cold, you had a few coats sitting around the store, right?

Yes. We were not empty of coats. Even though our inventories were down lower, we were not empty of coats.

And it's reasonable to assume that when the weather turned cold, you did a fair amount of selling at pretty decent markups right?

We did fantastic during that brief period. That got us excited, but we do not want to over-excite.

No, no. I understand. But, is it reasonable to say that, even though it was a brief period, it is an important brief period because -- I mean, it's better to have cold weather in September than in the beginning in November?

Much better. It means you have the money in the bank earlier.

Okay. I'm sorry I did not get my coat yet. I know it must be picked over, but I will go down to the store this afternoon and see if there is any -- (multiple speakers).

Our stores will not be empty; we are prepared for you.

Thank you, sir.

Gentlemen, there are no further questions at this time. Please continue with your presentation or any closing remarks.

All right, if there are no more questions, this concludes our first-quarter conference call. We just want to thank all of our participants who were involved.

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