As a retailer Burlington Stories Inc (NYSE:BURL) has certainly had a chequered recent history. Acquired by Bain Capital in 2006 and subsequently taken private in 2008, the retailer went public again 2013 with high hopes.
The marquee US retailer, founded in 1972, has a vast and national store network of 684 locations spread across 45 states. Its locations are considered to be a major asset considering the vast majority are high quality off mall locations like power or strip centres. However, given the ongoing shift in the global retail sector from bricks and mortar stores to e-commerce, the company faces some key challenges, according to US-based based research and analysis firm Vision Research (VR).

Examining the fundamental investment case for Burlington in its latest assessment, VR deems the company to be an expensive off mall retailer with “high expectations and fundamental weaknesses.” The company’s gross income grew sluggishly from $2.35bn in FY 2018 to $2.58bn in FY 2019, while its operating and free cashflow has deteriorated for multiple quarters.
Burlington's total sales growth has also decelerated despite steady, although smaller box, store location growth; an expansion policy the company continues to pursue in line with its peers. Yet, gross margins and EBIT margins have started to weaken, despite an annualised uptick of 8.4% in revenue to $6.67bn in FY 2019.
While, company’s management guidance is implying a big improvement in the second half of the year, VR finds “little evidence” of this in its examination of Burlington’s prospects. “With wage pressure increasing, Burlington has little room for cost cuts. This is especially true as they have approximately 11% of their stores in California and minimum wage in the state is expected to continue to rise from $11 to closer to $15 gradually until 2022.”
The company is trying to increase the number of store openings from 46 in the previous fiscal year to 50 in the current fiscal year. Despite the increased number of store openings, closures have also increased. Stores closed in FY18 were 10, up from 6 in FY17.
And while Burlington has ambitious growth plans, so do all of its peers such as Macy's, TJX, Ross Stores and bigger discounters such as Costco, in a highly competitive retail landscape. Costco, in particular has aggressively grown both its private label clothing and discount branded clothing.
VR’s assessment is that Burlington’s valuation appears to be a bit “stretched” compared to its peers. “The company has traded at a premium in the past but free cash flow and comparable sales have deteriorated to the point where we believe such a premium is no longer warranted.”
For more, download and read Vision Research's full report on the fundamental investment case for Burlington Stores Inc, via ReachX’s research marketplace.