Burlington Stores Inc (BURL) 2004 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Burlington Coat Factory 2004 results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded Friday, August 6, 2004. I would now like to turn the call over to Robert LaPenta, Vice President and Chief Financial Officer of the Burlington Coat Factory.

Thank you. 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 costs and expenses; and other factors that may be described in the Company's filings of the Securities and Exchange Commission. The Company does not undertake to publicly update or revise its 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 of the fourth quarter ended May 29, 2004. Following these comments, we will be available to answer questions.

Per-share results. During the 3 months ended May 29, 2004, basic net income was 48 cents per share, compared with basic net income of 6 cents per share a year ago.

Sales. During the fourth quarter ended May 29, 2004, net sales from continuing operations were 680.8 million, compared with sales of 602.6 million for the prior year fourth quarter. Sales increased 13 percent for the quarter. Comparative store sales increased 3.9 percent in this fourth quarter. Comparative store sales increased 8 percent in March, decreased 1.4 percent in April, and increased 4.6 percent in May. The decrease of 1.4 percent in April is the earlier Easter date this year versus last year. The combination of March and April experienced about a 5 percent increase in the Easter business over last year's Easter business.

Other income. During the quarter, other income increased 3.5 million from last year's fourth quarter. This increase was due primarily to 3.7 million in gains recognized on the sale of 3 properties.

Cost of sales. During the quarter, cost of sales were 59.2 percent of sales, compared with 60.6 percent in the same period last year. This decrease was primarily the result of an $8 million decrease in shrinkage expense recognized in the fourth quarter, which is when the Company takes its physical inventories.

Selling and administrative expenses. During the quarter, selling and administrative expenses increased 11.6 million to 230.6 million for the fourth quarter. The increase in selling and administrative expenses in the quarter reflects the incremental increases in stores from last year's fourth quarter and the additional distribution facility at Edgewater Park. Offsetting these increases were decreases in the selling and administrative expenses of approximately 8.5 million. These decreases reflected tighter cost controls, primarily in comparable store payrolls, advertising, rent, store selling supply, and check protection expenses.

As a percentage of net sales, selling and administrative expenses were 33.9 percent, compared with 36.3 percent for the same period last year.

Depreciation expense. During the fourth quarter, depreciation expenses increased 5.3 million to 22.6 million, compared with last year's fourth fiscal quarter. This increase in depreciation is due to increased levels of fixed assets related to additional stores opened, relocated, and remodeled in fiscal 2004 and to the new distribution center.

Interest expenses. During the fourth quarter, interest expense increased 1.1 million to a total of 1.8 million in the quarter compared with last year's fourth quarter. Interest expense increased primarily to the 100 million in Senior Notes issued in September of 2003.

Income taxes. The income tax rates in the quarter was 33.4 percent, compared to 36.4 percent during the prior year's fourth quarter. The reduction in tax rate in this fourth quarter reflects a lower annual state tax expense this year compared to last year.

Balance sheet review. The following stated values will be in the nearest million dollars.

Inventory. Merchandise inventories at May 29, 2004 were 622.5 million, a 6.8 (ph) percent increase over last year's level of 583.1 million. Same-store inventories were down 2/10ths of a percent at the end of the year.

Book value. The Company's book value at the end of current fiscal year is 855.9 million or $19.18 per share, compared with this time last year of 788 million or $17.71 per share. During the fiscal year ended May 29, 2004, the Company opened 21 Burlington Coat Factory stores and 3 freestanding MJM Designer Shoes stores. An additional 9 Burlington Coat Factory stores were relocated during the current fiscal year to locations within the same trading market. Three store locations previously operated as the Decelle stores were converted to Burlington Coat Factory stores.

Offsetting these openings, the Company closed 8 stores. Two additional locations previously operated as the Decelle stores are expected to be converted to Cohoes stores in fiscal 2005. Burlington Coat Factory operates at year-end 349 stores in 42 states principally under the name Burlington Coat Factory.

With me now is Monroe Milstein, our Chief Executive Officer and Stephen Milstein, our Executive Vice President and General Merchandising Manager. And Jennifer, we will now be available to answer any questions.

(OPERATOR INSTRUCTIONS) Gary Coulter (ph).

Lynch Capital Management (ph). It looks like a great quarter. Am I right to say even taking out some one-time gains? It looks like you are well over 30 cents in the quarter and we've been following this Company for a long time, that's the best fourth quarter I've seen period. Has there been a real change in the business? Have expenses -- are you really starting to reach some critical mass on the new stores? Are there any other explanations?

When you separate the items of shrinkage expense, which is a reconciliation we do in the fourth quarter because that is when we take a full chain-wide inventory and that was $8 million pick up in the quarter because the actual rate that shrinkage came in at was below where we were providing shrinkage at throughout the year. So there was an $8 million pick up in the fourth quarter due to that. There was a $3.7 million pick up for the sale of properties, and there was an $8.5 million pickup in SG&A from very tight expense control on our part in the fourth quarter.

When you separate those from the performance of the quarter, the quarter would have still made 19 cents compared to 6 cents, so it was still a very successful quarter, driven by the fact that we had nice comp store sales increases almost a 4 percent increase in the quarter, additional stores this year over last year that are also contributing and making money in the fourth quarter.

Am I right to assume that last item you talked about, the $8 million reflecting better expense control, is there any reason to believe that was one-time in nature, or is that an ongoing benefit that you should have?

We hope it is ongoing.

We hope it is ongoing but there's never any guarantee where your shrinkage is going to come in. we're focused on trying to minimize shrinkage in the chain. We have taken certain security issues and tried to enhance things where we have identified an opportunity to do that. But again, its going to come down to execution throughout the year. It is a moving target to a certain extent. We're going to stay focused on it, but again, it is not something that you can guarantee will come in that low the following year, but certainly we are continuing to (multiple speakers).

I was actually more referring to the tighter expense control where you reduced expenses by 8.3 million. Sound like those were not one-time type adjustments. As Monroe was chiming in -- is the assumption there that you hope that that can be a continuing benefit going forward?

We're hopeful that it can be. We're continuing to make significant changes in our check protection or check credit policy at the register to try to limit bad check losses at the store, and we are optimistic that that will continue to drive down that expense. Advertising is a controllable expense. There were certain things that happened in the fourth quarter that reduced advertising expense. By design, we cut 400,000 out of the TV budget. We had going out of business advertisement from the Decelle chain last year that was not there this year. So we continue to look at ways to get leveraging on advertising as we add more stores. I would not expect that to go down much lower as a percent of what we have seen this year. Stephen, I don't want to say anything that is not accurate, but would you agree with that?

Well, we watch advertising very closely but advertising rates continue to go up 3 to 5 percent for next year and we have already gotten notice from the networks on those increases. (multiple speakers) And we accept that and we watch that budget very closely.

Store payroll, we have been micromanaging store payroll down to the district in store level. We have been very aggressive there. We're going to continue to manage it in the way we have to try to take advantage wherever there is an opportunity to reduce that expense. That is the single biggest expense after cost of goods sold in the Company, so it is a controllable expense to an extent and it is something that we're going to continue to be focused on.

It still looks like on the gross margin line even taking out the shrink one-time benefit this quarter -- it still looks like you and some gross margin expansion. Is that correct, or is it mostly the same store sale leverage there?

No. We really did not have -- you're saying gross margin expansion or cost of goods sold?

Gross margin looked like if I even backed out the 8 million --am I right to say that gross margins would still have been up slightly?

Yes, okay, I was (multiple speakers)

Gross margins were better this year because we had good early sales. Spring merchandise sold well before it was marked down. We were up against a cold spring the year before. It rained every weekend in the Northeast. So that we had improving margins because of more sales.

Well, good. It looked like a strong quarter. Like I said, if I'm assuming some of those expenses that you have taken out, hopefully, permanently (multiple speakers) and it looked like it could've been a 30 plus cent quarter, which in the last 10 years I don't know if Burlington has ever earned that much in the fourth quarter. Is that a fair statement?

We changed our fiscal year end in 1999, so since 1999, where our fourth quarter consisted of March, April and May, I think this is probably our biggest quarter.

And I know you are not going to talk about any same-store sales going forward, but can you give me any tone of business leaving the quarter, given the news recently from other retailers I would say as at best mixed?

Listen, we want to say that whatever happened yesterday is no indicator of what is going to happen tomorrow, as you well know. But we are very much encouraged by the business that we have seen in June and July and the beginning of August and on that basis we have seized the opportunity to reorder more goods for the fall. We feel that it is a window of opportunity. If business does not continue in the rate that it's going, then it will be a mistake, but a good retailer must be optimistic and must have the merchandise ready for the customers when they're coming in. And we are very encouraged by what we have seen so far this season, but we want to caution that it is not always a sure guarantee of what is going to happen tomorrow.

I understand. I just want commend you on the real strong fourth quarter and then good luck with this fiscal year.

Thank you very much.

(OPERATOR INSTRUCTIONS) There are no further questions at this time. I will now turn the call back to you. Please continue with you presentation or closing remarks.

If there's no further questions, we thank you. Certainly we are available if you were to think of something at a later date. Thank you everyone.

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