Burlington Stores Inc (BURL) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Burlington Coat Factory first quarter ending August 28th, 2004 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 on Wednesday October 6th, 2004. I would now like to turn the conference over to Mr. Robert LaPenta, Vice President, Chief Accounting Officer. Please go ahead.

Thank you. Good morning. Statements made in the 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 filing with 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 result expressed or implied will not be realized. I will first cover results of the first quarter ended August 28th, 2004. Following these comments, we will be available to answer your questions.

First, share results -- during the three months ended August 28th, 2004, net loss was 42 cents per share, compared with net loss of 38 cents per share a year ago. Net loss for the three months ended August 30th, 2003, included a net loss from discontinued operations of 1.3 million or 3 cents a share. Historically, the Company stores have lost money during the first fiscal quarter.

Sales -- during the first quarter ended August 28th, 2004, net sales were 576.9 million compared with sales of 525.5 million for the prior year's first quarter. Sales increased 9.8 percent for the quarter. Comparative store sales increased 2.9 percent for the same period. Comparative store sales increased 1.6 percent in June, 4 percent in July, and 3.5 percent in August.

Other income -- during the quarter, other income increased 1.3 million from last year's first quarter. This increase was due in part to increases in layaway service fees, rent income and miscellaneous nonrecurring items.

Cost of sales -- during the quarter, cost of sales were 64.9 percent of sales, compared with 63.6 percent for the same period last year. This increase was primarily the result of increases in markdown-related expenses, and to a lesser extent, a decrease in the initial markup in the quarter.

Selling and administrative expenses -- during the quarter, selling and administrative expenses increased 10.7 million to 217.8 million. The increase in selling and administrative expense in the quarter reflects the additional store expenses from 13 stores that were not open at the end of last year's first quarter, and the opening of the Edgewater Park distribution facility, which added 2.8 million to selling and administrative expenses for the quarter. As a percentage of net sales, selling and administrative expenses were 37.8 percent of sales compared with 39.1 percent for the same period last year. The percentage decrease reflects decreases as a percent of sales in payroll, occupancy charges, and advertising.

Depreciation expense -- during the first quarter, depreciation expense increased 2.2 million to 21 million compared with last year's first fiscal quarter. This increase in depreciation is due to increased levels of fixed assets related to stores opened, relocated, and remodeled in fiscal year 2004, and to a full year's depreciation being charged for the new distribution center in Edgewater Park.

Interest expense -- during the first quarter, interest expense increased 1 million to a total of 1.8 million compared with last year's first quarter. Interest expense increased due to the $100 million in Senior Notes issued in September 2003.

Income taxes -- the income tax rate was 39.1 percent compared to 38.7 percent during the prior year's first quarter.

Balance sheet review -- the stated values are rounded in nearest million dollars. Merchandise inventory -- merchandise inventories at August 28, 2004, were 727.8 million, or 16.9 percent increase over last year's level of 622.5 million. Same-store inventories are up 3 percent with code inventories up 3 percent at the end of the first quarter.

Book value -- the Company's book value at the end of the current first quarter is 837.3 million, or $18.76 per share compared with this time last year of 769.7 million, or $17.28 per share. During the first quarter of fiscal 2005, the Company opened one Burlington Coat Factory store and relocated two Burlington Coat Factory stores to new locations within their existing trading markets.

We will now be available to answer your questions. Monroe Milstein, Chairman of the Board, President and Chief Executive Officer, Andrew Milstein, Executive Vice President, Executive Merchandising Manager, and Stephen Milstein, Executive Vice President, General Merchandising Manager, and myself, are all available to answer your questions. Maria? Operator?

Sir?

We're ready for questions and answers if you just want to instruct the participants on how to do that.

No problem. (Operator Instructions). The first question comes from Lane Marter (ph) from Lobe (ph) Corp.

Hi. Can you walk us through a little bit on the gross margins? You mentioned an increase in markdowns. Anything odd versus the prior year or weather -- or can you go through that a little bit?

No, I mean, typically, the first quarter is a cleanup quarter; July is a -- and August -- are very big markdown periods as you try to get out of spring and summer merchandise, as we start to build inventories for fall. In general, it was -- we have been focused on trying to keep our aging is current and our -- improve on our turn, so we've been very vigilant in trying to address markdown issues quickly. There wasn't any area that was something that was -- I would say, out of the ordinary, that's not typical for this time of the year.

Okay. And how do you feel about your inventory levels going into the season here?

Inventory levels are up, but they reflect the additional stores this year over last year. We're somewhat optimistic going into the second quarter since we had a very soft second quarter last year. It was very negatively impacted by warm weather, so we feel there's an opportunity that if the weather is normal, we can achieve some better increases in our warm weather products, like our outerwear and sweaters and other typical fall and winter goods.

Okay. And as I'm a relatively new shareholder, I just wanted to understand -- strategically, how do you feel about the store potential for Burlington Coats in the U.S., and as far as penetration in the number of stores you can add over the next couple of years?

Well, we're mildly optimistic because those are always appeared (ph) -- new opportunities are always appearing because of the closedown of many department stores in many malls; more and more operators have been approaching this. We also -- if a Wal-Mart moves to a larger store or a Home Depot moves to a larger store, you would be looking at, so we don't anticipate any shortage of opportunities.

We currently have about 350 stores and we believe we can at least double the size of the number of stores in just -- within this country. In terms of specific store openings, it's still opportunistically driven in part. We have gone out and bought lots of stores that have become available. But we still look at our occupancy charges as a very significant factor in whether or not we're going to open in a location, and it's run the gamut. We've opened as few as five or six or as many as 30 stores in a fiscal year.

We have many, many markets all over the country, even right here in our home state of New Jersey, where we have to in-sell the map with more stores. But we are opportunist buyers of real estate, so we wait until the right opportunity comes along. But there's many malls around the country or across from malls, I should say, from market places where we are still not there yet, and those are strong opportunities for us.

Okay. And then just strategically, you have more cash than you need to run the business, even to grow the business. Is that a fair statement? I mean, might you consider buying back your stock or increasing dividends?

Yes, that's correct. We're in a position to do all of the above, and we have to decide which is the most strategic move to take. But the opportunities are out there. We're very optimistic. We have built the additional warehouse facility on the basis that we can handle another 350 stores, so we have put in place everything for continued growth. We really are long-term planners.

Okay. And do these long-term plans include buying back your own stock?

Yes. We currently have a plan in place.

Okay. Because I just noticed that Moments (ph), who is a fraction of your size, got taken out at a multiple point that's 1 point higher than yours, and you seem to have a far superior operation. It just seems like your stock is extraordinarily cheap.

I have to agree with you; I'm not supposed to voice opinions about it!

Thank you very much.

(Operator Instructions). The next question comes from Jeff Black from Lehman Brothers.

Bob, could you talk about the tax rate and what drove the increase in the tax rate, and what sort of rate we can expect for the rest of the year? And maybe, Stephen, can you get into a little bit about the men's, the women's business, and what's driving that, and whether you've -- where you are with fixing the recent difficulties you've had in the women's area? Thanks.

Yes, let me just talk about the tax comment first. We expect the tax rate for the year to be comparable to last year's tax rate. It's actually a tax credit in the first quarter since we had a loss. And the fact that it just differed slightly from the annualized rate of last year is just an anomaly because sometimes there are some adjustments to the tax liability in the quarter that offset the tax credit for this first quarter because it happens to be a loss.

As far as the -- what's been driving the business -- fashion. Items and fashion; color has driven the business.

And sports -- this is Andy. And sportswear -- what's been really driving my business now is ponchos, (indiscernible) plays, it's the colors, printed Georgette blouses are still good. My junior business is very good. So it does -- as my brother said, it's really fashion -- there's a lot of new fashions. In shoes, it's the tweeds, the fabric tweed shoes, and then (indiscernible) inspired fir trim for shoes, and pink and purple. I mean, it's -- fashion seems to be -- there seems to be a new fashion which is up and driving the business.

If anything, Jeff, because they usually tell you when fashion -- when people want fashion, they're optimistic.

And what about the linen business? Where are we there, in terms of having corrected the difficulty from last year?

It's been corrected. We're very optimistic about the continued growth of the linen business. We're very -- I am very optimistic about the coat business. Although I can't predict the future or what business -- it will be weather-related. But what makes me so optimistic is the unusual summer season we had on early fall goods and coats; but we had a period of about eight weeks where we had strong double digit comparative store increases. So this gave us an opportunity to reorder goods early, so we're in a position to have good increases because everything else is in place. A good retailer has to be optimistic, because you have to plan in advance; you have to (technical difficulty) inventory to do the business. So I'd say we have additional coats on the floor this season over last year because the additional stores, because we've built in additional reorders, which you have to do early in order to get invoicing in time for the season. So we're in a position to increase our business, and there's no guarantee, but we're optimistic.

Okay, great. Good luck. Thanks very much.

Your next question comes from Jeremy Rob (ph) from Jefferies Asset Management. Please go ahead, sir.

I was just really wondering if you could provide the breakout between the apparel and the home product sales, and how you see the mix of that going forward.

Apparel and home products represent about 20 percent of the mix. We don't expect that mix to change substantially going forward.

Okay. And do you guys provide, I guess, guidance or maybe some type of expectation on your comp for the second quarter this year?

We do not. We don't make projections or predictions about our comp sales. But I will tell you that last year's comps were significantly off, so that we had very favorable comps that we're competing against. Last year's October was off 15 percent and November was off almost 10 percent. So, and those are very significant volume months for us.

And as the weather -- I know here, it's been getting cooler. Have you seen any pickup in business as that is going along?

(multiple speakers). I mean it's typical we start to see our weeks grow this time of the year. It will continue to escalate into the Christmas season as weather gets cooler, typically, but we're always comparing against last year. I mean this is the same thing that happened last year. So we expect the weeks to get bigger. We expect sales to grow --

No guarantee. No guarantee.

Okay, great. Thank you.

Our next question comes from Gary Coulter (ph) from Lynch (ph) Capital.

Hey, good morning, everybody. Is it -- you guys had a really strong fourth quarter, with respect to earnings and you really had some strong expense controls. I know in the first quarter, it is typically a lost quarter, and anything, I know the loss can be a little bit higher just because you have more stores and it's not indicative of how the business is going. So, is it fair to assume, kind of going forward, if we can continue to comp positive -- that we will continue to see the good SG&A type leverage that you showed in the previous quarter?

That's our goal.

We hope so. We expect so. But we can't assume anything in business. The retail business, it's not like manufacturing where you have a backlog. Every day, you start fresh.

As you know, the fixed -- as your sales go up, your comp store sales go up. Obviously, your fixed expenses as a percentage of sales have to go down.

But is it also -- I mean it seems like you guys have particularly made an effort over the last year or so to really get those -- to kind of eek out even some more cost controls than even in the past. And I know you guys have done a good job of that through the years, but even in this quarter, we saw some also nice SG&A leverage on even in a loss type quarter.

Yes, and the goal is to continue to do that. And as Andy said, if your comp sales go up in the quarter, it helps tremendously because your fixed expenses as a percentage will drop, but even over and above that, we've been managing store payrolls very carefully; it's their single biggest expense, variable expense line item. We've been able to take advantage of some economies of scales with advertising. And all of these things have helped us reduce expenses as a percentage of sales, and the plan is to continue to do that, or try to continue to do that.

Would you say that the first quarter, with respect to sales and net loss were pretty much within plan of what you guys had expected at the beginning of the quarter -- is that fair to say?

Yes, we expected the loss to be comparable to last year's loss. And as you suggested, with adding more stores that lose money in the first quarter, you're always struggling to try to keep that loss at or below last year's loss because of that situation in your first quarter.

Right. And moving on, I know, obviously, you're not going to give any forward looking comp type guidance, but you made a comment about maybe having a little bit more of a fashion trend right now. Would you say compared to last year where you sit right now, does the retailing environment feel a little bit better for you guys than it did in previous years? Or is it still going to be completely swamped by what the weather is going to be like over the next few months?

I think coats is the most wet-weather driven. Everybody is weather-driven to some extent. But is that right, then (ph)?

Coats are the most weather-driven of all items. But within men's wear, obviously, sweaters sell when it gets cold. Gloves and hats sell when it gets cold. Thermal underwear sells when it gets cold. Flannel pants sell when it gets cold. But --

In ladies wear, people will buy them whether it gets cold or not if the fashion is there.

So it sounds like the non-weather-dependent goods are perhaps selling a little bit better this year as compared to last year. Is that a fair statement, just given your optimism that maybe there's a little bit more of a fashion cycle going on right now?

Seems to be, yes. Definitely.

Great. That's great. Good work, and we appreciate -- we appreciate it. Thank you.

Our next question comes from Lane Marter from Lobe Corp.

Yes, hi. I just wanted to chime back in. I mean, going through your disclosures, to follow up on that, the last question, you spent a lot on systems -- making your stuff more efficient; warehouses; distribution centers; point-of-sale systems; this year, warehouse management system. Can you just give us a sense, even maybe, not quantitatively, but qualitatively, how you're improving your efficiencies, and I guess, over the next couple of years, what you would expect and how to kind of turn that into profit.

It's all geared towards trying to improve inventory management, and getting goods to the right place at the right time, in the shortest amount of time, so that we can continue to improve on turnover and reduce unnecessary markdowns. It's also hopeful that these system improvements will improve the efficiency of the operation and allow us to take advantage of freight opportunities and also be able to process the goods cheaper than what we're currently doing.

Bob, can I ask you an accounting question about how you handle the discontinuing operations? Would you expect -- how many discontinued operations this year -- how many stores are you going to close, and how you account for them? It appears that you restate prior years when you report; is that what you do?

Well, we restated because this was a change this past year, whereas for stores that are closed, we now pull those results out of the income statement and we report them below the line -- net of sales and expenses. And it's an ongoing process. We're always looking at stores. And if we make a decision to close or move a store, that's how we're going to account for that going forward.

Okay. The only problem is when you try and project out quarters, I don't have all the restatements for your fiscal year for every quarter, fiscal year '04, on some line items, like SG&A and then other income. It just makes it kind of difficult.

Do me a favor, call me after and I will get that information to you.

Thank you. (multiple speakers). Thank you.

Mr. LaPenta, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Okay. If there are no further questions, we thank everybody for their interest, and you can reach us if you think of something later. Thank you very much.

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