Burlington Stores Inc (BURL) 2013 Q2 法說會逐字稿

Good morning and welcome to Burlington Coat Factory Investments Holdings, Inc. 2013 second-quarter earnings conference call. Today's call is being recorded.

At this time, I would like to turn the conference call over to Bob LaPenta, Treasurer at Burlington. Please go ahead, sir.

Thank you, Operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's second-quarter fiscal 2013 operating results. I am Bob LaPenta, Treasure of the Company. Our presenters today are Tom Kingsbury, our President and Chief Executive Officer; Paul Metcalf, our Chief Merchandising Officer; and Todd Weyhrich, our Chief Financial Officer. Todd will begin with a review of our operating results, followed by a discussion of our business performance. Paul and Tom will then briefly discuss sales results and some general comments about the business.

Before we begin the call, I would note that on June 27, 2013, Burlington Holdings, Inc. filed a Form S-1 with the Securities and Exchange Commission. And due to the restrictions surrounding the quiet period requirements for such a filing, we will not be able to have a Q&A session at the end of today's call. We are also limited in what we can discuss about Burlington Holdings and our current financial results outside of today's call due to these same restrictions. This call may not be transcribed, recorded or broadcast without our expressed permission. A replay of the call will be available for 24 hours.

In addition, I need to remind everyone that information on today's call is primarily related to the Company's results of operations for the second quarter ended August 3, 2013. Remarks made on this call concerning future expectations, events, strategies, objectives, trends or projected financial results are forward-looking statements and are subject to certain risks and uncertainties. Actual results or events may differ materially from those that are projected in such forward-looking statements. Such risks and uncertainties include those that are described in the Company's annual report on Form 10-K and our other filings with the SEC, all of which are expressly incorporated herein by reference. Now I'd like to call over to Todd.

Thank you, Bob, and good morning, everyone. Thank you for joining us today. We're very pleased with our performance for the quarter which include a net sales increase of 11.5% and a comp store sales increase of 7.8%. On a year-to-date basis, net sales have increased by 9.9% and comp store sales have grown by 5.5%. Gross margin rate for the quarter improved 60 basis points from 37.1% last year to 37.7% this year. Year to date, margin rate has improved by 50 bips to 37.5%. This improvement was primarily driven by higher initial margins driven by continued improvements in the freshness of our inventory and a lower shrink accrual rate partially offset by acceleration in the timing of mark downs.

As a percentage of net sales, selling and administrative expenses decreased to 33.9% during the quarter compared with 35.1% in the prior year. For the half year, this metric is 32.3%, 70 basis points better than last year's half year result. The improvement is primarily driven by leverage on fixed store related costs as a result of stronger comparable store sales. Interest expense decreased by $3 million for the quarter and $6 million year to date, due to lower average borrowings and lower average interest rates on our term loan and lower average borrowings on our ABL line of credit. Last quarter we explained to you that we were moving away from the definition that we had been using for adjusted EBITDA, that in the past had been helpful as a measurement of cash flow generated from the business and as a primary metric for debt covenant compliance. As our covenant cushions have grown, this has become a less relevant measure.

Going forward, we will continue to disclose this metric in our SEC filings, but we will refer to this measure as covenant EBITDA. Our primary focus is to shift to a new definition of adjusted EBITDA refined slightly from the reported EBITDA metric we focused on during our first-quarter call. This definition adjusts reported EBITDA for expenses that we believe are not representative of the normal operating results of the business. These include costs related to our debt amendments, impairment charges, stock option modification expense and advisory fees. We believe this provides an improved measurement of performance internally as well as being a more useful tool to you for analytical purposes. This measure of adjusted EBITDA is a key measurement in our day-to-day management of the business.

Adjusted EBITDA during the quarter increased $19 million to $46.9 million, representing a 68% increase versus last year. Year to date, adjusted EBITDA increased by $33.8 million and 36.5%. Last quarter we introduced another key metric that we believe will be helpful to you, adjusted net income. This disclosure adjusts for the effects of net favorable lease amortization, costs related to our debt amendments, impairment charges, advisory fees, stock option modification expense and the related tax effects of these items. Adjusted net income improved by $13.9 million during the quarter and by $24 million year to date, compared with the prior year, primarily driven by the operating results mentioned above and decreased interest expense partially offset by increased depreciation and amortization.

At the end of the quarter we had $31 million in cash, $15 million in borrowings on our ABL and $448 million in unused credit availability. Debt net of cash improved $72 million since the prior year's quarter, primarily related to payments on our term loan. Today we have $25 million in borrowings on our ABL and have availability of $469 million. Merchandise inventory at the end of the quarter was $748 million compared with $637 million last year. The increase primarily reflects increases in pack and hold inventory and the results of opening 21 net new stores since July 28, 2012. Comparable store inventories decreased 2% from the second quarter last year, driven by our merchandising initiatives. Accounts payable increased $109 million to $556 million at the end of the quarter, representing 77 days of accounts payable outstanding reflective of our payment terms for inventory at quarter end.

For the first half of the year, we had a net use of cash of $13 million. Cash flow from operations was $58 million, which was offset by a $68 million gross spend in capital expenditures and a $3 million spend in financing activities. Included in our cash flow from operations were $18 million of landlord allowance payments which reduced our year-to-date capital expenditures to $50 million on a net basis. Our expectation for full year capital expenditures remains in line with what we discussed on our previous call. During the quarter we opened four new stores and closed one existing store, bringing our total store count to 503. I will now turn the call over to Paul.

Thank you, Todd, and good morning, everyone. As Todd mentioned previously, total sales for the quarter increased 11.5% and our comp store sales increased 7.8%. This is on top of a 2.9% comp increase in the prior year. We've experienced strong performances in key businesses that cater to our female customer, such as missy sportswear, intimate apparel, dresses and suits, shoes and accessories. In addition, our home business outperformed our Company average during the quarter. We were able to achieve these results by continuing to improve our execution of the off-price model. We are accomplishing this through the appropriate balance of upfront versus in season purchasing, maintaining liquidity, expanding our vendor base, testing and reacting to new trends and delivering exceptional value and flowing goods weekly to ensure freshness on the floor.

By geographic region, the west and the northeast outperformed and we were weaker in the southeast. Inventory management continues to be an important initiative for us. Overall, we're pleased with the level and currency of our inventories at the end of the second quarter. Our comp store inventory level was down 2% versus last year, which contributed to a 13% faster turnover. In addition, the level of inventory aged 91 days and older continues to decrease versus last year.

At the end of the quarter, pack and hold inventory represented 23% of the total inventory. As we stated before, we do not set targets for pack and hold product. The amount is totally dependent on the availability of highly desirable branded product, or key seasonal merchandise at great values. We are excited about the brands and values that we have been able to secure through our pack and hold program. Our gross margin for the quarter was 60 basis points over last year. The improvement was driven by higher initial mark ups and a lower shrink accrual, partially offset by higher mark down rate.

As we stated before, while we may have fluctuations by quarter, we continue to believe that our full-year gross margin rates will continue to be in line with our historical levels. The consumer remains extremely value conscious. We will stay focused on maintaining liquidity to ensure we have the appropriate amount of open to buy to take advantage of the continuous flow of desirable product so that we continue to deliver great values to our consumers. I will now turn the call over to Tom.

Thank you, Paul, and good morning, everyone. We are extremely proud of our second-quarter results which included a 68% increase in adjusted EBITDA, largely driven by our 7.8% comparable store sales increase. We believe that we are executing the off-price model well right now and our comp sales performance is a result of that. Almost every merchandising area delivered a positive comp and every geographic area did deliver a positive comp. We continue to be very excited about 2013. We believe that the level and currency of our inventories, the maturity of our buying organization, the implementation of our mark down allocation optimization systems as well as the outstanding support we are receiving from the vendor community has us well positioned for 2013 and beyond.

From a new store point of view, similar to our recent pace, we will open 23 new stores this year. These stores will span the country from East Harlem, New York to Cincinnati, Ohio and Scottsdale, Arizona. In addition, we recently launched a new marketing campaign. In a couple of weeks, we will open up a West Coast buying office to increase our access to brands and vendors.

In closing, I'd like to thank our store and Corporate team for contributing to our strong 7.8% comparative store sales increase and our significant growth in adjusted EBITDA. With these comments, I'm going to conclude our prepared remarks. Thank you, everyone.

That concludes our prepared remarks on the financial results for the second quarter of 2013. As mentioned earlier on the call, we are precluded from having a question-and-answer session at this time due to our existing quiet period restrictions. We thank you again for your participation on today's call and your continued interest in Burlington Holdings, Inc. Have a great day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.