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Burlington Stores (BURL.N) - Fundamental Investment Case

Research

Publication Date: 12 Jul 2019 - By Robert Prather By Robert Prather
Actionable
Differentiated

Equity Fundamental Equity USA Consumer

Burlington Stores operates discount clothing retail locations in the US. The company is one of the leading off price retailers of high quality branded apparel.  Burlington has a vast and national store network of 684 locations spread across 45 states.  Locations are considered to be a major asset considering the vast majority are high quality off mall locations like power or strip centers. Stores are between 40,000 and 80,000 square feet but have recently moved more toward the lower end.  Burlington sells a wide variety of quality on trend but off price products. The company carries over 5,100 brands with plans to increase the number over time.
The pricing at the locations follows an every day low price model with estimated savings of up to 60% from other large retailers.

Please download the full report for details on the Bear Case outlined below (includes a call with the analyst)

Fundamental Concerns:

  • Total sales growth decelerated despite steady, although smaller box, store location growth.
  • SSS decelerated for multiple quarters ending flat.
  • SSS quality deteriorated with two consecutive quarters of negative traffic.
  • Gross margins and EBIT margins started to weaken.
  • SG&A as a percent of revenue increased for the first time in a long time indicating little room for cuts as wage pressure increases.
  • Operating and free cash flow deteriorated for multiple quarters. 

Qualitative Concerns:

  • Management guidance is implying a big improvement in the back half of the year with little evidence.
  • Analyst estimates are generally above the mid point of the aggressive guidance.
  • The valuation on top of estimates appears to be expensive compared to peers and almost all historical averages. 
  • Costco has aggressively grown both their private label clothing and discount branded clothing.
  • All discount retailers (TJX, ROST, and BURL) continue to aggressively add stores.
  • Despite mall based closures, Macy's and Nordstrom continue to grow discount concepts.

Bottom Line: An expensive off mall retailer with high expectations and fundamental weakness.

Burlington Stores

Source: VR Fundamental

Pages: 36

Released: 12 Jul 2019

Unlock for 35 credits

The Author

Robert Prather

Equity Analyst

Technology, Consumer, Industrials, Telecom & Media

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London, United Kingdom

info@reachx.co
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