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Burlington Falls On Weak Guidance

Mar. 09, 2020 5:21 PM ETBurlington Stores, Inc. (BURL)
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  • BURL reported solid earnings, yet the stock fell on weak guidance.
  • The company continues to report strong revenue growth and stable margins.
  • Broader markets are down due to falling oil prices and coronavirus fears.
  • Price discovery in broader markets could cause BURL's 13x EBITDA multiple to contract. Sell BURL.
  • This idea was discussed in more depth with members of my private investing community, Shocking The Street. Get started today »

Source: Barron

Source: Barron's

Burlington Stores (NYSE:BURL) reported quarterly revenue of $2.21 billion, Non-GAAP EPS of $3.25, and GAAP EPS of $3.08. The company beat on revenue and Non-GAAP EPS but missed on GAAP EPS. The stock is down in the low-single-digit percentage range post-earnings. I had the following takeaways on the quarter.

Strong Top-Line Growth

It has been tough sledding for traditional retailers this earnings season. Retail sales have been declining through physical locations, yet growing through online channels. Off-price retailers have been winning in this environment. Burlington's core customer is female, cost-conscious, and brand-conscious. The company has served its core customer base for years and has gotten quite good at it. The economy likely is not as strong as lawmakers would have you think. More consumers could like for bargains, playing into Burlington's hands.

The company's revenue of $2.2 billion was up 11% Y/Y. This was a phenomenal performance. Holiday sales were also solid, which helped the company generate comparable sales growth of 3.9% during the quarter. An increase in units per transaction drove comparable sales. AUR conversion rose slightly, while traffic fell off slightly. The fact that average units per transaction and AUR were able to offset the decline in traffic was key. Several retailers have engaged in heavy promotions in order to drive traffic into stores. Declining traffic could become a metric to watch for Burlington by the second half of the year.

J.C. Penney (JCP), Macy's (M), L Brands (LB), Bed Bath & Beyond (BBBY) and others have been culling underperforming stores in order to become more efficient. Meanwhile, Burlington is expanding. The company expects to add 54 net new stores in 2020 and this includes the closure of its e-commerce business. This implies that among bricks and mortar stores, Burlington could become even more

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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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