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Burlington Is A Hold Into Earnings

Mar. 04, 2020 12:18 PM ETBurlington Stores, Inc. (BURL)
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  • BURL reports earnings Wednesday.
  • The retailer is growing revenue at a strong pace, while maintaining profit margins.
  • BURL could buy up leftover merchandise at a discount if competitors continue to falter.
  • At 19x EBITDA the stock is fairly valued. I rate BURL a hold into earnings.
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Source: BarronSource: Barron's

Burlington Stores (NYSE:BURL) reports earnings Wednesday. Analysts expect revenue of $2.2 billion and EPS of $3.2. The revenue estimate implies double digit growth Y/Y. Investors should focus on the following key items.

Strong Top Line Growth

Traditional retailers have reported stagnant to declining revenue growth this earnings season. For the month of January, retail sales through department stores fell 4% Y/Y, yet rose double digits through non-store retailers. Several traditional retailers have had to offer discounts to drive traffic into stores. Retailers like Target (TGT) and off-price retailers like Burlington have been winning in a tough retail environment.

In its most recent quarter Burlington reported revenue of $1.77 billion, up 9% Y/Y. Comparable sales grew 2.7%. If revenue grows by double digits for the upcoming quarter, then it likely portends Burlington had a strong holiday season. When traditional retailers struggle, it could potentially benefit Burlington; the company could be better positioned to purchase leftover merchandise at steeper discounts. Retailers with stale inventory after the holiday season could find it beneficial to partner with Burlington to help sell down that inventory.

Retailers like Macy's (M), Bed Bath & Beyond (BBBY) and L Brands (LB) are culling under-performing stores and closing flagship locations. Meanwhile, Burlington is broadening its reach. For the last nine months, the company increased its store count by over 60 to around 726. Burlington's expansion could be a bullish signal for the off-price retailer.

Solid Margins

Burlington serves its core female customer that is both brand-conscious and price-conscious. This allows the company to manage inventory and contain costs. Last quarter Burlington achieved a gross margin of 42.6%, consistent with results from the prior year period. On a dollar basis gross profit was $759 million, up 9% Y/Y. SG&A expense of $584 million rose 8% Y/Y. SG&A was 32.8% of revenue, the same as the year earlier period.

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This article was written by

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The Shock Exchange has a B.A. in economics and MBA from a top 10 business school. He has over 10 years of M&A / corporate finance experience. Currently head the New York Shock Exchange, financial literacy program based in Brooklyn, NY.His book, "Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead", predicted pain ahead for the U.S. economy and financial markets.In 2014 the law firm of Kirby, McInerney, LLP brought a class action lawsuit against Molycorp, Inc. for "materially misleading statements" in its financial statements. Kirby, McInerney used investigative journalism from the Shock Exchange to buttress its case. That's the discipline the Shock Exchange brings to every situation he covers for SA.

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