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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/25/22 Burlington Stores, Inc. 10-Q 7/30/22 89:15M Donnelley … Solutions/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 3.63M
6: EX-10.10 Material Contract HTML 102K
7: EX-10.11 Material Contract HTML 102K
8: EX-10.12 Material Contract HTML 99K
9: EX-10.13 Material Contract HTML 104K
10: EX-10.14 Material Contract HTML 100K
11: EX-10.15 Material Contract HTML 105K
12: EX-10.16 Material Contract HTML 56K
2: EX-10.6 Material Contract HTML 104K
3: EX-10.7 Material Contract HTML 108K
4: EX-10.8 Material Contract HTML 97K
5: EX-10.9 Material Contract HTML 99K
13: EX-31.1 Certification -- §302 - SOA'02 HTML 28K
14: EX-31.2 Certification -- §302 - SOA'02 HTML 28K
15: EX-32.1 Certification -- §906 - SOA'02 HTML 26K
16: EX-32.2 Certification -- §906 - SOA'02 HTML 26K
22: R1 Document and Entity Information HTML 75K
23: R2 Condensed Consolidated Statements of Income HTML 104K
(Unaudited)
24: R3 Condensed Consolidated Statements of Comprehensive HTML 50K
Income (Unaudited)
25: R4 Condensed Consolidated Balance Sheets (Unaudited) HTML 130K
26: R5 Condensed Consolidated Balance Sheets (Unaudited) HTML 42K
(Parenthetical)
27: R6 Condensed Consolidated Statements of Cash Flows HTML 142K
(Unaudited)
28: R7 Summary of Significant Accounting Policies HTML 33K
29: R8 Stockholders? Equity HTML 595K
30: R9 Lease Commitments HTML 204K
31: R10 Long Term Debt HTML 192K
32: R11 Derivative Instruments and Hedging Activities HTML 150K
33: R12 Fair Value Measurements HTML 128K
34: R13 Income Taxes HTML 73K
35: R14 Capital Stock HTML 35K
36: R15 Net Income Per Share HTML 140K
37: R16 Stock-Based Compensation HTML 213K
38: R17 Commitments and Contingencies HTML 39K
39: R18 Summary of Significant Accounting Policies HTML 36K
(Policies)
40: R19 Stockholders? Equity (Tables) HTML 590K
41: R20 Lease Commitments (Tables) HTML 204K
42: R21 Long Term Debt (Tables) HTML 158K
43: R22 Derivative Instruments and Hedging Activities HTML 146K
(Tables)
44: R23 Fair Value Measurements (Tables) HTML 114K
45: R24 Income Taxes (Tables) HTML 55K
46: R25 Net Income Per Share (Tables) HTML 133K
47: R26 Stock-Based Compensation (Tables) HTML 212K
48: R27 Summary of Significant Accounting Policies - HTML 25K
Additional Information (Detail)
49: R28 Company's Stockholders Equity (Detail) HTML 119K
50: R29 Company's Stockholders Equity (Parenthetical) HTML 30K
(Detail)
51: R30 Lease Commitments - Additional Information HTML 31K
(Detail)
52: R31 Future Lease Payments (Detail) HTML 88K
53: R32 Schedule of Net Lease Costs (Detail) HTML 44K
54: R33 Schedule of Supplemental Cash Flow Disclosures HTML 35K
Related to Leases (Details)
55: R34 Long-Term Debt (Detail) HTML 45K
56: R35 Long-Term Debt (Parenthetical) (Detail) HTML 44K
57: R36 Long-Term Debt - Additional Information (Detail) HTML 153K
58: R37 Long-Term Debt - Schedule of Components of HTML 39K
Convertible Notes (Detail)
59: R38 Long-Term Debt - Schedule of Interest Expense HTML 36K
Related to Convertible Notes (Detail)
60: R39 Derivative Instruments And Hedging Activities - HTML 45K
Additional Information (Detail)
61: R40 Outstanding Interest Rate Derivative in Qualifying HTML 36K
Hedging Relationships (Detail)
62: R41 Derivative Instruments and Hedging Activities HTML 31K
(Detail)
63: R42 Summary of Unrealized Gains and Losses Deferred to HTML 37K
Accumulated Other Comprehensive Loss (Detail)
64: R43 Reclassification of Gains and Losses from HTML 41K
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65: R44 Fair Values of Financial Assets and Hierarchy of HTML 28K
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66: R45 Fair Value Measurements - Additional Information HTML 36K
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67: R46 Fair Values of Financial Liabilities (Detail) HTML 36K
68: R47 Income Taxes - Additional Information (Detail) HTML 60K
69: R48 Net Deferred Taxes (Detail) HTML 30K
70: R49 Capital Stock - Additional Information (Detail) HTML 45K
71: R50 Computation of Basic and Diluted Net Income per HTML 59K
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73: R52 Stock-Based Compensation - Additional Information HTML 38K
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75: R54 Non-Cash Stock Compensation Expense HTML 26K
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76: R55 Stock Option Transactions (Detail) HTML 48K
77: R56 Stock Option Transactions (Parenthetical) (Detail) HTML 26K
78: R57 Stock Options Vested and Expected to Vest (Detail) HTML 44K
79: R58 Weighted Average Assumptions Used to Estimate Fair HTML 42K
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| 10-Q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
(Mark One)
i ☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i July 30, i 2022 /
OR
i ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number i 001-36107
i BURLINGTON STORES, INC.
(Exact name of registrant as specified in its charter)
i Delaware |
|
i 80-0895227 |
(State or Other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
i 2006 Route 130 North i Burlington, i New Jersey |
|
i 08016 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
Registrant’s Telephone Number, Including Area Code: ( i 609) i 387-7800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
i Common stock |
|
i BURL |
|
i New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
i Large accelerated filer |
☒ |
Accelerated filer |
☐ |
|
|
|
|
Non-Accelerated filer |
☐ |
Smaller reporting company |
i ☐ |
|
|
Emerging growth company |
i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No i ☒
The registrant had i 65,546,467 shares of common stock outstanding as of July 30, 2022.
BURLINGTON STORES, INC.
INDEX
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BURLINGTON STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(All amounts in thousands, except per share data)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
|
|||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
i 1,983,889 |
|
|
$ |
i 2,212,812 |
|
|
$ |
i 3,909,532 |
|
|
$ |
i 4,403,479 |
|
Other revenue |
|
|
i 4,052 |
|
|
|
i 3,099 |
|
|
|
i 8,101 |
|
|
|
i 5,728 |
|
Total revenue |
|
|
i 1,987,941 |
|
|
|
i 2,215,911 |
|
|
|
i 3,917,633 |
|
|
|
i 4,409,207 |
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of sales |
|
|
i 1,211,268 |
|
|
|
i 1,279,685 |
|
|
|
i 2,348,214 |
|
|
|
i 2,521,873 |
|
Selling, general and administrative expenses |
|
|
i 685,504 |
|
|
|
i 702,291 |
|
|
|
i 1,365,831 |
|
|
|
i 1,367,119 |
|
Costs related to debt issuances and amendments |
|
|
— |
|
|
|
i 3,331 |
|
|
|
— |
|
|
|
i 3,331 |
|
Depreciation and amortization |
|
|
i 67,970 |
|
|
|
i 62,814 |
|
|
|
i 134,274 |
|
|
|
i 118,424 |
|
Impairment charges - long-lived assets |
|
|
i 4,415 |
|
|
|
i 970 |
|
|
|
i 6,958 |
|
|
|
i 1,747 |
|
Other income - net |
|
|
( i 12,608 |
) |
|
|
( i 5,841 |
) |
|
|
( i 16,005 |
) |
|
|
( i 7,214 |
) |
Loss on extinguishment of debt |
|
|
— |
|
|
|
i 31,395 |
|
|
|
i 14,657 |
|
|
|
i 31,395 |
|
Interest expense |
|
|
i 15,435 |
|
|
|
i 17,502 |
|
|
|
i 30,041 |
|
|
|
i 37,101 |
|
Total costs and expenses |
|
|
i 1,971,984 |
|
|
|
i 2,092,147 |
|
|
|
i 3,883,970 |
|
|
|
i 4,073,776 |
|
Income before income tax expense |
|
|
i 15,957 |
|
|
|
i 123,764 |
|
|
|
i 33,663 |
|
|
|
i 335,431 |
|
Income tax expense |
|
|
i 3,991 |
|
|
|
i 21,210 |
|
|
|
i 5,524 |
|
|
|
i 61,847 |
|
Net income |
|
$ |
i 11,966 |
|
|
$ |
i 102,554 |
|
|
$ |
i 28,139 |
|
|
$ |
i 273,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock - basic |
|
$ |
i 0.18 |
|
|
$ |
i 1.54 |
|
|
$ |
i 0.43 |
|
|
$ |
i 4.11 |
|
Common stock - diluted |
|
$ |
i 0.18 |
|
|
$ |
i 1.50 |
|
|
$ |
i 0.42 |
|
|
$ |
i 4.01 |
|
Weighted average number of common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock - basic |
|
|
i 65,803 |
|
|
|
i 66,636 |
|
|
|
i 66,042 |
|
|
|
i 66,516 |
|
Common stock - diluted |
|
|
i 65,962 |
|
|
|
i 68,448 |
|
|
|
i 66,304 |
|
|
|
i 68,240 |
|
See Notes to Condensed Consolidated Financial Statements.
3
BURLINGTON STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(All amounts in thousands)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
|
|||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
i 11,966 |
|
|
$ |
i 102,554 |
|
|
$ |
i 28,139 |
|
|
$ |
i 273,584 |
|
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate derivative contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net unrealized (loss) gain arising during the period |
|
|
( i 6,769 |
) |
|
|
( i 5,083 |
) |
|
|
i 13,291 |
|
|
|
( i 4,258 |
) |
Net reclassification into earnings during the period |
|
|
i 2,079 |
|
|
|
i 2,519 |
|
|
|
i 4,921 |
|
|
|
i 4,678 |
|
Other comprehensive (loss) income, net of tax |
|
|
( i 4,690 |
) |
|
|
( i 2,564 |
) |
|
|
i 18,212 |
|
|
|
i 420 |
|
Total comprehensive income |
|
$ |
i 7,276 |
|
|
$ |
i 99,990 |
|
|
$ |
i 46,351 |
|
|
$ |
i 274,004 |
|
See Notes to Condensed Consolidated Financial Statements.
4
BURLINGTON STORES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(All amounts in thousands, except share and per share data)
|
|
July 30, |
|
|
January 29, |
|
|
|
||||
|
|
|
|
2022 |
|
|
2021 |
|
||||
ASSETS |
|
|
|
|
|
|
|
|
|
|||
Current assets: |
|
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
i 454,985 |
|
|
$ |
i 1,091,091 |
|
|
$ |
i 1,344,318 |
|
Restricted cash and cash equivalents |
|
|
i 6,582 |
|
|
|
i 6,582 |
|
|
|
i 6,582 |
|
Accounts receivable—net |
|
|
i 70,858 |
|
|
|
i 54,089 |
|
|
|
i 78,761 |
|
Merchandise inventories |
|
|
i 1,266,696 |
|
|
|
i 1,021,009 |
|
|
|
i 828,152 |
|
Assets held for disposal |
|
|
i 1,933 |
|
|
|
i 4,358 |
|
|
|
i 2,500 |
|
Prepaid and other current assets |
|
|
i 135,049 |
|
|
|
i 370,515 |
|
|
|
i 403,602 |
|
Total current assets |
|
|
i 1,936,103 |
|
|
|
i 2,547,644 |
|
|
|
i 2,663,915 |
|
Property and equipment—net |
|
|
i 1,609,302 |
|
|
|
i 1,552,237 |
|
|
|
i 1,467,399 |
|
Operating lease assets |
|
|
i 2,831,932 |
|
|
|
i 2,638,473 |
|
|
|
i 2,506,985 |
|
Tradenames |
|
|
i 238,000 |
|
|
|
i 238,000 |
|
|
|
i 238,000 |
|
Goodwill |
|
|
i 47,064 |
|
|
|
i 47,064 |
|
|
|
i 47,064 |
|
Deferred tax assets |
|
|
i 3,689 |
|
|
|
i 3,959 |
|
|
|
i 4,197 |
|
Other assets |
|
|
i 67,271 |
|
|
|
i 62,136 |
|
|
|
i 64,941 |
|
Total assets |
|
$ |
i 6,733,361 |
|
|
$ |
i 7,089,513 |
|
|
$ |
i 6,992,501 |
|
|
|
|
|
|
|
|
|
|
|
|||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|||
Accounts payable |
|
$ |
i 800,742 |
|
|
$ |
i 1,080,802 |
|
|
$ |
i 979,973 |
|
Current operating lease liabilities |
|
|
i 375,294 |
|
|
|
i 358,793 |
|
|
|
i 326,282 |
|
Other current liabilities |
|
|
i 418,427 |
|
|
|
i 493,695 |
|
|
|
i 483,134 |
|
Current maturities of long term debt |
|
|
i 14,587 |
|
|
|
i 14,357 |
|
|
|
i 14,095 |
|
Total current liabilities |
|
|
i 1,609,050 |
|
|
|
i 1,947,647 |
|
|
|
i 1,803,484 |
|
Long term debt |
|
|
i 1,472,197 |
|
|
|
i 1,541,102 |
|
|
|
i 1,774,312 |
|
Long term operating lease liabilities |
|
|
i 2,724,053 |
|
|
|
i 2,539,420 |
|
|
|
i 2,429,315 |
|
Other liabilities |
|
|
i 69,563 |
|
|
|
i 80,904 |
|
|
|
i 105,737 |
|
Deferred tax liabilities |
|
|
i 224,621 |
|
|
|
i 220,023 |
|
|
|
i 203,958 |
|
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
|
|
|
|||
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|||
Preferred stock, $ i i i 0.0001 / / par
value: authorized: i i i 50,000,000 / / |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Common stock, $ i i i 0.0001 / / par value: |
|
|
|
|
|
|
|
|
|
|||
Authorized: i i i 500,000,000 / / shares; |
|
|
|
|
|
|
|
|
|
|||
Issued: i 81,907,528 shares, i 81,677,315 shares and i 81,041,969 shares, respectively; |
|
|
|
|
|
|
|
|
|
|||
Outstanding: i 65,546,467 shares, i 66,491,555 shares and i 66,724,476 shares, respectively |
|
|
i 7 |
|
|
|
i 7 |
|
|
|
i 7 |
|
Additional paid-in-capital |
|
|
i 1,967,383 |
|
|
|
i 1,927,554 |
|
|
|
i 1,742,874 |
|
Accumulated earnings |
|
|
i 442,432 |
|
|
|
i 414,292 |
|
|
|
i 279,037 |
|
Accumulated other comprehensive income (loss) |
|
|
i 13,771 |
|
|
|
( i 4,441 |
) |
|
|
( i 22,595 |
) |
Treasury stock, at cost |
|
|
( i 1,789,716 |
) |
|
|
( i 1,576,995 |
) |
|
|
( i 1,323,628 |
) |
Total stockholders' equity |
|
|
i 633,877 |
|
|
|
i 760,417 |
|
|
|
i 675,695 |
|
Total liabilities and stockholders' equity |
|
$ |
i 6,733,361 |
|
|
$ |
i 7,089,513 |
|
|
$ |
i 6,992,501 |
|
See Notes to Condensed Consolidated Financial Statements.
5
BURLINGTON STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(All amounts in thousands)
|
|
Six Months Ended |
|
|||||
|
|
July 30, |
|
|
|
|||
|
|
|
|
2021 |
|
|||
OPERATING ACTIVITIES |
|
|
|
|
|
|
||
Net income |
|
$ |
i 28,139 |
|
|
$ |
i 273,584 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
i 134,274 |
|
|
|
i 118,424 |
|
Impairment charges—long-lived assets |
|
|
i 6,958 |
|
|
|
i 1,747 |
|
Amortization of deferred financing costs |
|
|
i 1,835 |
|
|
|
i 3,100 |
|
Accretion of long term debt instruments |
|
|
i 476 |
|
|
|
i 411 |
|
Deferred income taxes |
|
|
( i 1,804 |
) |
|
|
i 42,434 |
|
Loss on extinguishment of debt |
|
|
i 14,657 |
|
|
|
i 31,395 |
|
Non-cash stock compensation expense |
|
|
i 33,878 |
|
|
|
i 36,059 |
|
Non-cash lease expense |
|
|
( i 343 |
) |
|
|
( i 6,968 |
) |
Cash received from landlord allowances |
|
|
i 9,116 |
|
|
|
i 19,995 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( i 16,908 |
) |
|
|
( i 15,631 |
) |
Merchandise inventories |
|
|
( i 245,687 |
) |
|
|
( i 87,364 |
) |
Prepaid and other current assets |
|
|
i 235,468 |
|
|
|
( i 89,449 |
) |
Accounts payable |
|
|
( i 283,861 |
) |
|
|
i 116,346 |
|
Other current liabilities |
|
|
( i 71,405 |
) |
|
|
( i 25,875 |
) |
Other long term assets and long term liabilities |
|
|
( i 287 |
) |
|
|
i 1,087 |
|
Other operating activities |
|
|
i 2,632 |
|
|
|
i 7,575 |
|
Net cash (used in) provided by operating activities |
|
|
( i 152,862 |
) |
|
|
i 426,870 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Cash paid for property and equipment |
|
|
( i 208,776 |
) |
|
|
( i 147,187 |
) |
Lease acquisition costs |
|
|
( i 943 |
) |
|
|
( i 436 |
) |
Proceeds from sale of property and equipment and assets held for sale |
|
|
i 23,324 |
|
|
|
i 5,988 |
|
Net cash (used in) investing activities |
|
|
( i 186,395 |
) |
|
|
( i 141,635 |
) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Proceeds from long term debt—Term B-6 Loans |
|
|
— |
|
|
|
i 956,608 |
|
Principal payments on long term debt—Term B-6 Loans |
|
|
( i 4,807 |
) |
|
|
— |
|
Principal payments on long term debt—Term B-5 Loans |
|
|
— |
|
|
|
( i 961,415 |
) |
Principal payment on long term debt—Convertible Notes |
|
|
( i 78,236 |
) |
|
|
— |
|
Principal payments on long term debt—Secured Notes |
|
|
— |
|
|
|
( i 323,866 |
) |
Purchase of treasury shares |
|
|
( i 212,721 |
) |
|
|
( i 13,261 |
) |
Proceeds from stock option exercises |
|
|
i 5,952 |
|
|
|
i 28,900 |
|
Other financing activities |
|
|
( i 7,037 |
) |
|
|
( i 8,159 |
) |
Net cash (used in) financing activities |
|
|
( i 296,849 |
) |
|
|
( i 321,193 |
) |
(Decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents |
|
|
( i 636,106 |
) |
|
|
( i 35,958 |
) |
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period |
|
|
i 1,097,673 |
|
|
|
i 1,386,858 |
|
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period |
|
$ |
i 461,567 |
|
|
$ |
i 1,350,900 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
i 23,082 |
|
|
$ |
i 32,719 |
|
Income tax (refund) payments - net |
|
$ |
( i 236,496 |
) |
|
$ |
i 100,269 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Accrued purchases of property and equipment |
|
$ |
i 63,132 |
|
|
$ |
i 43,207 |
|
See Notes to Condensed Consolidated Financial Statements.
BURLINGTON STORES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
As of July 30, 2022, Burlington Stores, Inc., a Delaware corporation (collectively with its subsidiaries, the Company), through its indirect subsidiary Burlington Coat Factory Warehouse Corporation (BCFWC), operated i 877 retail stores.
6
These unaudited Condensed Consolidated Financial Statements include the accounts of Burlington Stores, Inc. and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. The Condensed Consolidated Financial Statements are unaudited, but in the opinion of management reflect all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of operations for the interim periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022 (Fiscal 2021 10-K). The balance sheet at January 29, 2022 presented herein has been derived from the audited Consolidated Financial Statements contained in the Fiscal 2021 10-K. Because the Company’s business is seasonal in nature, the operating results for the three and six month periods ended July 30, 2022 are not necessarily indicative of results for the fiscal year.
Accounting policies followed by the Company are described in Note 1, “Summary of Significant Accounting Policies,” included in Part II, Item 8 of the Fiscal 2021 10-K.
/Fiscal Year
The Company defines its fiscal year as the 52- or 53-week period ending on the Saturday closest to January 31. The current fiscal year ending January 28, 2023 (Fiscal 2022) and the prior fiscal year ended January 29, 2022 (Fiscal 2021) both consist of 52 weeks.
Recently Adopted Accounting Standards
There were no new accounting standards that had a material impact on the Company’s Condensed Consolidated Financial Statements and notes thereto during the three and six month periods ended July 30, 2022, and there were no new accounting standards
7
or pronouncements that were issued but not yet effective as of July 30, 2022 that the Company expects to have a material impact on its financial position or results of operations upon becoming effective.
2. Stockholders’ Equity
Activity for the three and six month periods ended July 30, 2022 and July 31, 2021 in the Company’s stockholders’ equity is summarized below:
|
|
(in thousands, except share data) |
|
|||||||||||||||||||||||||||||
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
Treasury Stock |
|
|
|
|
||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
(Loss) Income |
|
|
Shares |
|
|
Amount |
|
|
Total |
|
||||||||
Balance at January 29, 2022 |
|
|
i 81,677,315 |
|
|
$ |
i 7 |
|
|
$ |
i 1,927,554 |
|
|
$ |
i 414,292 |
|
|
$ |
( i 4,441 |
) |
|
|
( i 15,185,760 |
) |
|
$ |
( i 1,576,995 |
) |
|
$ |
i 760,417 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 16,174 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 16,174 |
|
Stock options exercised |
|
|
i 41,673 |
|
|
|
— |
|
|
|
i 4,721 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 4,721 |
|
Shares used for tax withholding |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 30,090 |
) |
|
|
( i 5,673 |
) |
|
|
( i 5,673 |
) |
Shares purchased as part of publicly announced program |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 512,905 |
) |
|
|
( i 99,090 |
) |
|
|
( i 99,090 |
) |
Vesting of restricted shares, net of forfeitures of i 199 restricted shares |
|
|
i 81,832 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 16,705 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 16,705 |
|
Unrealized gains on interest rate derivative contracts, net of related taxes of $ i 7.4 million |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 20,060 |
|
|
|
— |
|
|
|
— |
|
|
|
i 20,060 |
|
Amount reclassified from accumulated other comprehensive income into earnings, net of related taxes of $ i 1.1 million |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,842 |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,842 |
|
Balance at April 30, 2022 |
|
|
i 81,800,820 |
|
|
|
i 7 |
|
|
|
i 1,948,980 |
|
|
|
i 430,466 |
|
|
|
i 18,461 |
|
|
|
( i 15,728,755 |
) |
|
|
( i 1,681,758 |
) |
|
|
i 716,156 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 11,966 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 11,966 |
|
Stock options exercised |
|
|
i 23,088 |
|
|
|
— |
|
|
|
i 1,230 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,230 |
|
Shares used for tax withholding |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 34,028 |
) |
|
|
( i 6,923 |
) |
|
|
( i 6,923 |
) |
Shares purchased as part of publicly announced program |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 598,278 |
) |
|
|
( i 101,035 |
) |
|
|
( i 101,035 |
) |
Vesting of restricted shares |
|
|
i 83,620 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 17,173 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 17,173 |
|
Unrealized losses on interest rate derivative contracts, net of related taxes of $ i 2.6 million |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 6,769 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 6,769 |
) |
Amount reclassified from accumulated other comprehensive loss into earnings, net of related taxes of $ i 0.8 million |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,079 |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,079 |
|
Balance at July 30, 2022 |
|
|
i 81,907,528 |
|
|
$ |
i 7 |
|
|
$ |
i 1,967,383 |
|
|
$ |
i 442,432 |
|
|
$ |
i 13,771 |
|
|
|
( i 16,361,061 |
) |
|
$ |
( i 1,789,716 |
) |
|
$ |
i 633,877 |
|
8
|
|
(in thousands, except share data) |
|
|||||||||||||||||||||||||||||
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated (Deficit) |
|
|
Accumulated |
|
|
Treasury Stock |
|
|
|
|
||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Loss |
|
|
Shares |
|
|
Amount |
|
|
Total |
|
||||||||
Balance at January 30, 2021 |
|
|
i 80,661,453 |
|
|
$ |
i 7 |
|
|
$ |
i 1,809,831 |
|
|
$ |
( i 11,702 |
) |
|
$ |
( i 23,015 |
) |
|
|
( i 14,275,122 |
) |
|
$ |
( i 1,310,367 |
) |
|
$ |
i 464,754 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 171,030 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 171,030 |
|
Stock options exercised |
|
|
i 181,683 |
|
|
|
— |
|
|
|
i 16,089 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 16,089 |
|
Shares used for tax withholding |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 41,768 |
) |
|
|
( i 13,083 |
) |
|
|
( i 13,083 |
) |
Vesting of restricted shares, net of forfeitures of i 883 restricted shares |
|
|
i 53,914 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 12,879 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 12,879 |
|
Unrealized gains on interest rate derivative contracts, net of related taxes of $ i 0.3 million |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 825 |
|
|
|
— |
|
|
|
— |
|
|
|
i 825 |
|
Amount reclassified from accumulated other comprehensive income into earnings, net of related taxes of $ i 0.8 million |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,159 |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,159 |
|
Adoption of ASU 2020-06 |
|
|
— |
|
|
|
— |
|
|
|
( i 131,916 |
) |
|
|
i 17,155 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 114,761 |
) |
Balance at May 1, 2021 |
|
|
i 80,897,050 |
|
|
|
i 7 |
|
|
|
i 1,706,883 |
|
|
|
i 176,483 |
|
|
|
( i 20,031 |
) |
|
|
( i 14,316,890 |
) |
|
|
( i 1,323,450 |
) |
|
|
i 539,892 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 102,554 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 102,554 |
|
Stock options exercised |
|
|
i 139,274 |
|
|
|
— |
|
|
|
i 12,811 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 12,811 |
|
Shares used for tax withholding |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 603 |
) |
|
|
( i 178 |
) |
|
|
( i 178 |
) |
Vesting of restricted shares, net of forfeitures of i 1,101 restricted shares |
|
|
i 5,645 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 23,180 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 23,180 |
|
Unrealized losses on interest rate derivative contracts, net of related taxes of $ i 1.9 million |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 5,083 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 5,083 |
) |
Amount reclassified from accumulated other comprehensive loss into earnings, net of related taxes of $ i 0.9 million |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,519 |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,519 |
|
Balance at July 31, 2021 |
|
|
i 81,041,969 |
|
|
$ |
i 7 |
|
|
$ |
i 1,742,874 |
|
|
$ |
i 279,037 |
|
|
$ |
( i 22,595 |
) |
|
|
( i 14,317,493 |
) |
|
$ |
( i 1,323,628 |
) |
|
$ |
i 675,695 |
|
3. Lease Commitments
The Company’s leases primarily consist of stores, distribution facilities and office space under operating and finance leases that will expire principally during the next i 30 years. The leases typically include renewal options at i five year intervals and escalation clauses. Lease renewals are only included in the lease liability to the extent that they are reasonably assured of being exercised. The Company’s leases typically provide for contingent rentals based on a percentage of gross sales. Contingent rentals are not included in the lease liability, and they are recognized as variable lease cost when incurred.
The following is a schedule of the Company’s future lease payments:
|
|
(in thousands) |
|
|||||
Fiscal Year |
|
Operating |
|
|
Finance |
|
||
2022 (remainder) |
|
$ |
i 249,797 |
|
|
$ |
i 3,762 |
|
2023 |
|
|
i 525,787 |
|
|
|
i 7,589 |
|
2024 |
|
|
i 493,263 |
|
|
|
i 7,417 |
|
2025 |
|
|
i 459,812 |
|
|
|
i 5,287 |
|
2026 |
|
|
i 422,883 |
|
|
|
i 5,324 |
|
2027 |
|
|
i 384,701 |
|
|
|
i 3,780 |
|
Thereafter |
|
|
i 1,202,589 |
|
|
|
i 24,234 |
|
Total future minimum lease payments |
|
|
i 3,738,832 |
|
|
|
i 57,393 |
|
Amount representing interest |
|
|
( i 639,485 |
) |
|
|
( i 15,764 |
) |
Total lease liabilities |
|
|
i 3,099,347 |
|
|
|
i 41,629 |
|
Less: current portion of lease liabilities |
|
|
( i 375,294 |
) |
|
|
( i 4,973 |
) |
Total long term lease liabilities |
|
$ |
i 2,724,053 |
|
|
$ |
i 36,656 |
|
|
|
|
|
|
|
|
||
Weighted average discount rate |
|
|
i 4.8 |
% |
|
|
i 6.6 |
% |
Weighted average remaining lease term (years) |
|
|
i 8.2 |
|
|
|
i 10.9 |
|
9
/
The above schedule excludes approximately $ i 569.3 million for i 102 stores that the Company has committed to open or relocate but has not yet taken possession of the space. The discount rates used in valuing the Company’s leases are not readily determinable, and are based on the Company’s incremental borrowing rate on a fully collateralized basis.
The following is a schedule of net lease costs for the periods indicated:
|
|
(in thousands) |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of finance lease asset (a) |
|
$ |
i 1,140 |
|
|
$ |
i 1,132 |
|
|
$ |
i 2,281 |
|
|
$ |
i 2,274 |
|
Interest on lease liabilities (b) |
|
|
i 697 |
|
|
|
i 790 |
|
|
|
i 1,419 |
|
|
|
i 1,598 |
|
Operating lease cost (c) |
|
|
i 128,646 |
|
|
|
i 115,771 |
|
|
|
i 254,334 |
|
|
|
i 226,930 |
|
Variable lease cost (c) |
|
|
i 51,578 |
|
|
|
i 46,165 |
|
|
|
i 100,549 |
|
|
|
i 92,912 |
|
Total lease cost |
|
|
i 182,061 |
|
|
|
i 163,858 |
|
|
|
i 358,583 |
|
|
|
i 323,714 |
|
Less all rental income (d) |
|
|
( i 1,140 |
) |
|
|
( i 1,354 |
) |
|
|
( i 2,688 |
) |
|
|
( i 2,629 |
) |
Total net rent expense (e) |
|
$ |
i 180,921 |
|
|
$ |
i 162,504 |
|
|
$ |
i 355,895 |
|
|
$ |
i 321,085 |
|
(a) |
Included in the line item “Depreciation and amortization” in the Company’s Condensed Consolidated Statements of Income. |
(b) |
Included in the line item “Interest expense” in the Company’s Condensed Consolidated Statements of Income. |
(c) |
Includes real estate taxes, common area maintenance, insurance and percentage rent. Included in the line item “Selling, general and administrative expenses” in the Company’s Condensed Consolidated Statements of Income. |
(d) |
Included in the line item “Other revenue” in the Company’s Condensed Consolidated Statements of Income. |
(e) |
Excludes an immaterial amount of short-term lease cost. |
Supplemental cash flow disclosures related to leases are as follows:
|
|
(in thousands) |
|
|||||
|
|
Six Months Ended |
|
|||||
|
|
|
|
|
||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Cash payments arising from operating lease liabilities (a) |
|
$ |
i 255,235 |
|
|
$ |
i 242,905 |
|
Cash payments for the principal portion of finance lease liabilities (b) |
|
$ |
i 2,316 |
|
|
$ |
i 1,908 |
|
Cash payments for the interest portion of finance lease liabilities (a) |
|
$ |
i 1,419 |
|
|
$ |
i 1,598 |
|
Supplemental non-cash information: |
|
|
|
|
|
|
||
Operating lease liabilities arising from obtaining right-of-use assets |
|
$ |
i 392,612 |
|
|
$ |
i 203,396 |
|
(a) |
Included within operating activities in the Company’s Condensed Consolidated Statements of Cash Flows. |
(b) |
Included within financing activities in the Company’s Condensed Consolidated Statements of Cash Flows. |
4. Long Term Debt
Long term debt consists of:
|
|
(in thousands) |
|
|||||||||
|
|
July 30, |
|
|
January 29, |
|
|
|
||||
|
|
|
|
2022 |
|
|
2021 |
|
||||
Senior secured term loan facility (Term B-6 Loans), LIBOR (with a floor of i i i 0.00 / / %) plus i i i 2.00 / / %, matures on i i i June 24, 2028 / / |
|
$ |
i 946,345 |
|
|
$ |
i 950,676 |
|
|
$ |
i 955,005 |
|
Convertible senior notes, i i i 2.25 / / %, matures on i i i April 15, 2025 / / |
|
|
i 507,687 |
|
|
|
i 572,322 |
|
|
|
i 805,000 |
|
ABL senior secured revolving facility, LIBOR plus spread based on average outstanding balance, matures on i i i December 22, 2026 / / |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Finance lease obligations |
|
|
i 41,629 |
|
|
|
i 43,945 |
|
|
|
i 46,110 |
|
Unamortized deferred financing costs |
|
|
( i 8,877 |
) |
|
|
( i 11,484 |
) |
|
|
( i 17,708 |
) |
Total debt |
|
|
i 1,486,784 |
|
|
|
i 1,555,459 |
|
|
|
i 1,788,407 |
|
Less: current maturities |
|
|
( i 14,587 |
) |
|
|
( i 14,357 |
) |
|
|
( i 14,095 |
) |
Long term debt, net of current maturities |
|
$ |
i 1,472,197 |
|
|
$ |
i 1,541,102 |
|
|
$ |
i 1,774,312 |
|
10
Term Loan Facility
On June 24, 2021, BCFWC entered into Amendment No. 9 (the Ninth Amendment) to the credit agreement, dated February 24, 2011, among BCFWC the guarantors signatory thereto, and JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent, the lenders party thereto, J.P. Morgan Securities LLC and Goldman Sachs Lending Partners LLC, as joint bookrunners, and J.P. Morgan Securities LLC, Goldman Sachs Lending Partners LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as joint arrangers (as amended from time to time, the Term Loan Credit Agreement) governing the senior secured term loan facility (the Term Loan Facility). The Ninth Amendment, among other things, extended the maturity date from i November 17, 2024 to i June 24, 2028, and changed the interest rate margins applicable to the Term Loan Facility from i 0.75% to i 1.00%, in the case of prime rate loans, and from i 1.75% to i 2.00%, in the case of LIBOR loans, with a i 0.00% LIBOR floor. This amendment also requires quarterly principal payments of $ i 2.4 million. In connection with the execution of the Ninth Amendment, the Company incurred fees of $ i 3.3 million, primarily related to legal and placement fees, which were recorded in the line item “Costs related to debt issuances and amendments” in the Company’s Condensed Consolidated Statement of Income. Additionally, the Company recognized a loss on the extinguishment of debt of $ i 1.2 million, representing the write-off of unamortized deferred financing costs and original issue discount, which was recorded in the line item “Loss on extinguishment of debt” in the Company’s Condensed Consolidated Statement of Income.
The Term Loan Facility is collateralized by a first lien on the Company's favorable leases, real estate and property & equipment and a second lien on the Company's inventory and receivables. Interest rates for the Term Loan Facility are based on: (i) for LIBOR rate loans for any interest period, at a rate per annum equal to the greater of (x) the LIBOR rate, as determined by the Term Loan Facility Administrative Agent, for such interest period multiplied by the Statutory Reserve Rate (as defined in the Term Loan Credit Agreement), and (y) i 0.00% (the Term Loan Adjusted LIBOR Rate), plus an applicable margin; and (ii) for prime rate loans, a rate per annum equal to the highest of (a) the variable annual rate of interest then announced by JPMorgan Chase Bank, N.A. at its head office as its “prime rate,” (b) the federal reserve bank of New York rate in effect on such date plus i 0.50% per annum, and (c) the Term Loan Adjusted LIBOR Rate for the applicable class of term loans for one-month plus i 1.00%, plus, in each case, an applicable margin.
At July 30, 2022 and July 31, 2021, the interest rate related to the Term Loan Facility was i 4.4% and i 2.1%, respectively.
Convertible Notes
On April 16, 2020, the Company issued $ i 805.0 million of its i 2.25% Convertible Senior Notes due 2025 (Convertible Notes). The Convertible Notes are general unsecured obligations of the Company. The Convertible Notes bear interest at a rate of i 2.25% per year, payable i semi-annually in cash, in arrears, on April 15 and October 15 of each year, beginning on i October 15, 2020. The Convertible Notes will mature on i April 15, 2025, unless earlier converted, redeemed or repurchased.
During the second half of Fiscal 2021, the Company entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged $ i 232.7 million in aggregate principal amount of Convertible Notes held by them for a combination of an aggregate of $ i 199.8 million in cash and i 513,991 shares of the Company's common stock. These exchanges resulted in aggregate pre-tax debt extinguishment charges of $ i 124.6 million in Fiscal 2021.
During the first quarter of Fiscal 2022, the Company entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged $ i 64.6 million in aggregate principal amount of Convertible Notes held by them for $ i 78.2 million in cash. These exchanges resulted in aggregate pre-tax debt extinguishment charges of $ i 14.7 million.
Prior to the close of business on the business day immediately preceding January 15, 2025, the Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The Convertible Notes have an initial conversion rate of i 4.5418 shares per $ i 1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $ i 220.18 per share of the Company’s common stock), subject to adjustment if certain events occur. The initial conversion price represents a conversion premium of approximately i 32.50% over $ i 166.17 per share, the last reported sale price of the Company’s common stock on April 13, 2020 (the pricing date of the offering) on the New York Stock Exchange. During the first quarter of Fiscal 2021, the Company made an irrevocable settlement election for any conversions of the Convertible Notes. Upon conversion, the Company will pay cash for the principal amount. For any excess above principal, the Company will deliver shares of its common stock. The Company may not redeem the Convertible Notes prior to April 15, 2023. On or after April 15, 2023, the Company will be able to redeem for cash all or any portion of the Convertible Notes, at its option, if the last reported sale price of the Company’s common stock is equal to or greater
11
than i 130% of the conversion price for a specified period of time, at a redemption price equal to i 100% of the principal aggregate amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
Holders of the Convertible Notes may require the Company to repurchase their Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the Convertible Notes at a purchase price equal to i 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase. In connection with certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their Convertible Notes in connection with such corporate event or during the relevant redemption period for such Convertible Notes. The effective interest rate is i 2.8%.
The Convertible Notes consist of the following components as of the dates indicated:
|
|
(in thousands) |
|
|||||||||
|
|
July 30, |
|
|
January 29, |
|
|
|
||||
|
|
|
|
2022 |
|
|
2021 |
|
||||
Principal |
|
$ |
i 507,687 |
|
|
$ |
i 572,322 |
|
|
$ |
i 805,000 |
|
Unamortized deferred debt costs |
|
|
( i 7,291 |
) |
|
|
( i 9,761 |
) |
|
|
( i 15,846 |
) |
Net carrying amount |
|
$ |
i 500,396 |
|
|
$ |
i 562,561 |
|
|
$ |
i 789,154 |
|
Interest expense related to the Convertible Notes consists of the following as of the periods indicated:
|
|
(in thousands) |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Coupon interest |
|
$ |
i 2,854 |
|
|
$ |
i 4,510 |
|
|
$ |
i 5,857 |
|
|
$ |
i 9,021 |
|
Amortization of deferred debt costs |
|
|
i 643 |
|
|
|
i 1,007 |
|
|
|
i 1,418 |
|
|
|
i 2,007 |
|
Convertible Notes interest expense |
|
$ |
i 3,497 |
|
|
$ |
i 5,517 |
|
|
$ |
i 7,275 |
|
|
$ |
i 11,028 |
|
Secured Notes
On April 16, 2020, BCFWC issued $ i 300.0 million of i 6.25% Senior Secured Notes due 2025 (Secured Notes). The Secured Notes were senior, secured obligations of BCFWC, and interest was payable i semiannually in cash, in arrears, at a rate of i 6.25% per annum on April 15 and October 15 of each year, beginning on i October 15, 2020. The Secured Notes were guaranteed on a senior secured basis by Burlington Coat Factory Holdings, LLC, Burlington Coat Factory Investments Holdings, Inc. and BCFWC’s subsidiaries that guarantee the loans under the Term Loan Facility.
On June 11, 2021, BCFWC redeemed the full $ i 300.0 million aggregate principal amount of the Secured Notes. The redemption price of the Secured Notes was $ i 323.7 million, plus accrued and unpaid interest to, but not including, the date of redemption. This redemption resulted in a pre-tax debt extinguishment charge of $ i 30.2 million in the third quarter of Fiscal 2021.
ABL Line of Credit
On July 20, 2022, BCFWC entered into a Fourth Amendment to Second Amended and Restated Credit Agreement (the “Amendment”). i The Amendment increased the aggregate principal amount of the commitments of its current asset-based lending facility (the ABL Line of Credit) from $ i 650.0 million to $ i 900.0 million and replaced the LIBOR-based interest rate benchmark provisions with interest rate benchmark provisions based on a term secured overnight financing rate (SOFR) or a daily SOFR rate (in the case of daily SOFR, available for borrowings up to $ i 100 million, or up to the full amount of the commitments if the term SOFR rate is not available) / .
At July 30, 2022, the Company had $ i 842.5 million available under the ABL Line of Credit. There were i i no / borrowings under the ABL Line of Credit during the three and six month periods ended July 30, 2022.
At July 31, 2021, the Company had $ i 533.6 million available under the ABL Line of Credit. There were i i no / borrowings under the ABL Line of Credit during the three and six month periods ended July 31, 2021.
/
12
5. Derivative Instruments and Hedging Activities
The Company accounts for derivatives and hedging activities in accordance with ASC 815, “Derivatives and Hedging” (ASC 815). As required by ASC 815, the Company records all derivatives on the balance sheet at fair value and adjusts to market on a quarterly basis. In addition, to comply with the provisions of ASC 820, “Fair Value Measurements” (ASC 820), credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees. In accordance with ASC 820, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. There is no impact of netting, because the Company has only i one derivative. The Company classifies its derivative valuations in Level 2 of the fair value hierarchy.
On December 17, 2018, the Company entered into an interest rate swap, which hedged $ i 450 million of the variable rate exposure under the Term Loan Facility at a rate of i 2.72%. On June 24, 2021, the Company terminated this previous interest rate swap, and entered into a new interest rate swap, which hedges $ i 450 million of the variable rate exposure on the Term Loan Facility at a blended rate of i 2.19%, and is designated as a cash flow hedge.
The amount of loss deferred for the previous interest rate swap was $ i 26.9 million. The Company is amortizing this amount from accumulated other comprehensive loss into interest expense over the original life of the previous interest rate swap, which had an original maturity date of i December 29, 2023. The new interest rate swap had a liability fair value at inception of $ i 26.9 million. The Company will accrete this amount into accumulated other comprehensive loss as a benefit to interest expense over the life of the new interest rate swap, which has a maturity date of i June 24, 2028.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
As of July 30, 2022, the Company had the following outstanding interest rate derivative that was designated as a cash flow hedge of interest rate risk:
Interest Rate Derivative |
|
Number of |
|
Notional Aggregate |
|
Interest Swap Rate |
|
Maturity Date |
Interest rate swap contract |
|
i One |
|
$ i 450.0 million |
|
i 2.19% |
|
Tabular Disclosure
The table below presents the fair value of the Company’s derivative financial instruments on a gross basis as well as their classification on the Company’s Condensed Consolidated Balance Sheets:
|
|
(in thousands) |
|
|||||||||||||||
|
|
Fair Values of Derivative Instruments |
|
|||||||||||||||
|
|
|
|
|
|
|
||||||||||||
Derivatives Designated as Hedging Instruments |
|
Balance |
|
Fair |
|
|
Balance |
|
Fair |
|
|
Balance |
|
Fair |
|
|||
Interest rate swap contracts |
|
Other assets |
|
$ |
i 11,290 |
|
|
Other liabilities |
|
$ |
i 10,968 |
|
|
Other liabilities |
|
$ |
i 31,764 |
|
The following table presents the unrealized gains and losses deferred to accumulated other comprehensive loss resulting from the Company’s derivative financial instruments for each of the reporting periods.
|
|
(in thousands) |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
Interest Rate Derivatives: |
|
|
|
|
|
|
|
|
||||||||
Unrealized (losses) gains, before taxes |
|
$ |
( i 9,345 |
) |
|
$ |
( i 6,972 |
) |
|
$ |
i 18,146 |
|
|
$ |
( i 5,840 |
) |
Income tax benefit (expense) |
|
|
i 2,576 |
|
|
|
i 1,889 |
|
|
|
( i 4,855 |
) |
|
|
i 1,582 |
|
Unrealized (losses) gains, net of taxes |
|
$ |
( i 6,769 |
) |
|
$ |
( i 5,083 |
) |
|
$ |
i 13,291 |
|
|
$ |
( i 4,258 |
) |
13
/
The following table presents information about the reclassification of gains and losses from accumulated other comprehensive loss into earnings related to the Company’s derivative instruments for each of the reporting periods.
|
|
(in thousands) |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
Component of Earnings: |
|
|
|
|
|
|
|
|
||||||||
Interest expense |
|
$ |
i 2,847 |
|
|
$ |
i 3,459 |
|
|
$ |
i 6,739 |
|
|
$ |
i 6,423 |
|
Income tax benefit |
|
|
( i 768 |
) |
|
|
( i 940 |
) |
|
|
( i 1,818 |
) |
|
|
( i 1,745 |
) |
Net reclassification into earnings |
|
$ |
i 2,079 |
|
|
$ |
i 2,519 |
|
|
$ |
i 4,921 |
|
|
$ |
i 4,678 |
|
The Company estimates that approximately $ i 2.4 million will be reclassified from accumulated other comprehensive income into interest expense during the next twelve months.
/6. Fair Value Measurements
The Company accounts for fair value measurements in accordance with ASC 820, which defines fair value, establishes a framework for measurement and expands disclosure about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price), and classifies the inputs used to measure fair value into the following hierarchy:
Level 1: Quoted prices for identical assets or liabilities in active markets.
Level 2: Quoted market prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3: Pricing inputs that are unobservable for the assets and liabilities and include situations where there is little, if any, market activity for the assets and liabilities.
The inputs into the determination of fair value require significant management judgment or estimation.
The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments.
Refer to Note 5, “Derivative Instruments and Hedging Activities,” for further discussion regarding the fair value of the Company’s interest rate swap contract.
Financial Assets
The fair values of the Company’s financial assets and the hierarchy of the level of inputs as of July 30, 2022, January 29, 2022 and July 31, 2021 are summarized below:
|
|
(in thousands) |
|
|||||||||
|
|
Fair Value Measurements at |
|
|||||||||
|
|
July 30, |
|
|
January 29, |
|
|
|
||||
|
|
|
|
2022 |
|
|
2021 |
|
||||
Level 1 |
|
|
|
|
|
|
|
|
|
|||
Cash equivalents (including restricted cash) |
|
$ |
i 92,015 |
|
|
$ |
i 701,638 |
|
|
$ |
i 701,577 |
|
Long-lived assets are measured at fair value on a non-recurring basis for purposes of calculating impairment using the fair value hierarchy of ASC 820. The fair value of the Company’s long-lived assets is calculated using a discounted cash-flow model that used level 3 inputs. In calculating future cash flows, the Company makes estimates regarding future operating results and market rent rates, based on its experience and knowledge of market factors in which the retail location is located.
Impairment charges on long-lived assets were $ i 4.4 million during the second quarter of Fiscal 2022, related to declines in revenue and operating results for i two stores. Impairment charges on long-lived assets were $ i 1.0 million during the second quarter of Fiscal 2021, related to the expected sale of i one owned store.
Impairment charges on long-lived assets were $ i 7.0 million during the first half of Fiscal 2022, related to declines in revenue and operating results for i two stores, i one owned store expected to be sold below net carrying value, and unrecoverable fixed assets at i two
14
relocating stores. Impairment charges on long-lived assets were $ i 1.7 million during the first half of Fiscal 2021, related to the expected sale of i one owned store, as well as declines in revenues and operating results for i one store. During the first half of Fiscal 2022 and the first half of Fiscal 2021, the assets impaired had a remaining carrying value after impairments of $ i 32.5 million and $ i 6.1 million, respectively.
Financial Liabilities
The fair values of the Company’s financial liabilities are summarized below:
|
|
(in thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||
|
|
Principal |
|
|
Fair |
|
|
Principal |
|
|
Fair |
|
|
Principal |
|
|
Fair |
|
||||||
Term B-6 Loans |
|
$ |
i 951,801 |
|
|
$ |
i 925,626 |
|
|
$ |
i 956,608 |
|
|
$ |
i 955,412 |
|
|
$ |
i 961,415 |
|
|
$ |
i 954,204 |
|
Convertible Notes |
|
|
i 507,687 |
|
|
|
i 523,136 |
|
|
|
i 572,322 |
|
|
|
i 724,703 |
|
|
|
i 805,000 |
|
|
|
i 1,319,733 |
|
ABL Line of Credit (a) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total debt (b) |
|
$ |
i 1,459,488 |
|
|
$ |
i 1,448,762 |
|
|
$ |
i 1,528,930 |
|
|
$ |
i 1,680,115 |
|
|
$ |
i 1,766,415 |
|
|
$ |
i 2,273,937 |
|
The fair values presented herein are based on pertinent information available to management as of the respective period end dates. The estimated fair values of the Company’s debt are classified as Level 2 in the fair value hierarchy, and are based on current market quotes received from inactive markets.
/7. Income Taxes
Income tax expense was $ i 4.0 million during the second quarter of Fiscal 2022 compared with $ i 21.2 million during the second quarter of Fiscal 2021. The effective tax rate for the second quarter of Fiscal 2022 was i 25.0% compared with i 17.1% during the second quarter of Fiscal 2021. The decrease in income tax expense in the current year was primarily the result of lower pre-tax income. The lower tax rate in the prior year is primarily related to higher tax benefit from stock compensation.
Net deferred taxes are as follows:
|
|
(in thousands) |
|
|||||||||
|
|
July 30, |
|
|
January 29, |
|
|
|
||||
|
|
|
|
2022 |
|
|
2021 |
|
||||
Deferred tax asset |
|
$ |
i 3,689 |
|
|
$ |
i 3,959 |
|
|
$ |
i 4,197 |
|
Deferred tax liability |
|
|
i 224,621 |
|
|
|
i 220,023 |
|
|
|
i 203,958 |
|
Net deferred tax liability |
|
$ |
i 220,932 |
|
|
$ |
i 216,064 |
|
|
$ |
i 199,761 |
|
Net deferred tax assets relate to Puerto Rico deferred balances that have a future net benefit for tax purposes. Net deferred tax liabilities primarily relate to intangible assets and depreciation expense where the Company has a future obligation for tax purposes.
As of July 30, 2022, the Company had a deferred tax asset related to net operating losses of $ i 16.8 million, inclusive of $ i 16.5 million related to state net operating losses that expire at various dates between i 2023 and i 2041, as well as $ i 0.3 million related to Puerto Rico net operating losses that will expire in i 2025.
As of July 30, 2022, the Company had a deferred tax asset related to tax credit carry-forwards of $ i 7.6 million, inclusive of $ i 6.9 million of state tax credit carry-forwards, which will begin to expire in i 2023, and $ i 0.7 million of deferred tax assets recorded for Puerto Rico alternative minimum tax credits that have an i indefinite life.
As of July 30, 2022, January 29, 2022 and July 31, 2021, valuation allowances amounted to $ i 10.2 million, $ i 12.9 million and $ i 11.3 million, respectively, related to state and Puerto Rico net operating losses and state tax credit carry-forwards. The Company believes that it is more likely than not that this portion of state and Puerto Rico net operating losses and state tax credit carry-forwards will not be realized.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law, which provided emergency economic assistance for American workers, families and businesses affected by the COVID-19 pandemic. As of
15
July 30, 2022, the Company received its total tax refund from the carryback of federal net operating losses (NOLs) as a result of the CARES Act in the amount of $ i 245.5 million.
/8. Capital Stock
Treasury Stock
The Company accounts for treasury stock under the cost method.
Shares Used to Satisfy Tax Withholding
During the six month period ended July 30, 2022, the Company acquired i 64,118 shares of common stock from employees for approximately $ i 12.6 million to satisfy their minimum statutory tax withholdings related to the vesting of restricted stock and restricted stock unit awards, which was recorded in the line item “Treasury stock” on the Company’s Condensed Consolidated Balance Sheets, and the line item “Purchase of treasury shares” on the Company’s Condensed Consolidated Statements of Cash Flows.
Share Repurchase Program
On August 18, 2021, the Company’s board of directors authorized the repurchase of up to $ i 400.0 million of common stock, which was authorized to be executed through i August 2023. This authorization was completed during the second quarter of Fiscal 2022.
On February 16, 2022, the Company's Board of Directors authorized the repurchase of up to $ i 500.0 million of common stock, which is authorized to be executed through i February 2024.
These repurchase programs are funded using the Company’s available cash and borrowings under the ABL Line of Credit.
During the six month period ended July 30, 2022, the Company repurchased i 1,111,183 shares of common stock for $ i 200.1 million under these repurchase programs, which was recorded in the line item “Treasury stock” on the Company’s Condensed Consolidated Balance Sheets, and the line item “Purchase of treasury shares” on the Company’s Condensed Consolidated Statements of Cash Flows. As of July 30, 2022, the Company had $ i 449.9 million remaining under its share repurchase authorization.
/9. Net Income Per Share
Basic net income per share is calculated by dividing net income by the weighted-average number of common shares outstanding. Diluted net income per share is calculated by dividing net income by the weighted-average number of common shares and potentially dilutive securities outstanding during the period using the treasury stock method for the Company’s stock option, restricted stock and restricted stock unit awards, and the if-converted method for the Convertible Notes. i The following table presents the computation of basic and diluted net income per share:
|
|
(in thousands, except per share data) |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
|
|||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Basic net income per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
i 11,966 |
|
|
$ |
i 102,554 |
|
|
$ |
i 28,139 |
|
|
$ |
i 273,584 |
|
Weighted average number of common shares – basic |
|
|
i 65,803 |
|
|
|
i 66,636 |
|
|
|
i 66,042 |
|
|
|
i 66,516 |
|
Net income per common share – basic |
|
$ |
i 0.18 |
|
|
$ |
i 1.54 |
|
|
$ |
i 0.43 |
|
|
$ |
i 4.11 |
|
Diluted net income per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
i 11,966 |
|
|
$ |
i 102,554 |
|
|
$ |
i 28,139 |
|
|
$ |
i 273,584 |
|
Shares for basic and diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of common shares – basic |
|
|
i 65,803 |
|
|
|
i 66,636 |
|
|
|
i 66,042 |
|
|
|
i 66,516 |
|
Assumed exercise of stock options and vesting of restricted stock |
|
|
i 159 |
|
|
|
i 660 |
|
|
|
i 262 |
|
|
|
i 711 |
|
Assumed conversion of convertible debt |
|
|
— |
|
|
|
i 1,152 |
|
|
|
— |
|
|
|
i 1,013 |
|
Weighted average number of common shares – diluted |
|
|
i 65,962 |
|
|
|
i 68,448 |
|
|
|
i 66,304 |
|
|
|
i 68,240 |
|
Net income per common share – diluted |
|
$ |
i 0.18 |
|
|
$ |
i 1.50 |
|
|
$ |
i 0.42 |
|
|
$ |
i 4.01 |
|
16
Approximately i 1,340,000 and i 950,000 shares of the Company’s stock-based compensation grants were excluded from diluted net income per share for the three and six month periods ended July 30, 2022, respectively, since their effect was anti-dilutive.
Approximately i 185,000 and i 95,000 shares related to the Company’s stock-based compensation grants were excluded from diluted net income per share for the three and six month periods ended July 31, 2021, respectively, since their effect was anti-dilutive.
During the three and six months ended July 30, 2022, respectively, shares of common stock issuable upon conversion of the Convertible Notes have been excluded from the computation of diluted earnings per share as the effect would be anti-dilutive, since the conversion price of $ i i 220.18 / exceeded the average market price of the Company’s common stock during the periods.
/10. Stock-Based Compensation
As of July 30, 2022, there were i 6,363,512 shares of common stock available for issuance under the Company’s 2022 Omnibus Incentive Plan.
Non-cash stock compensation expense is as follows:
|
|
(in thousands) |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
July 31, |
|
||||
Type of Non-Cash Stock Compensation |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Restricted stock and restricted stock unit grants (a) |
|
$ |
i 10,292 |
|
|
$ |
i 7,684 |
|
|
$ |
i 18,784 |
|
|
$ |
i 13,940 |
|
Stock option grants (a) |
|
|
i 5,293 |
|
|
|
i 4,682 |
|
|
|
i 10,292 |
|
|
|
i 9,076 |
|
Performance stock unit grants (a) |
|
|
i 1,588 |
|
|
|
i 10,814 |
|
|
|
i 4,802 |
|
|
|
i 13,043 |
|
Total (b) |
|
$ |
i 17,173 |
|
|
$ |
i 23,180 |
|
|
$ |
i 33,878 |
|
|
$ |
i 36,059 |
|
Stock Options
Stock option transactions during the six month period ended July 30, 2022 are summarized as follows:
|
|
Number of |
|
|
Weighted |
|
||
Options outstanding, January 29, 2022 |
|
|
i 1,097,558 |
|
|
$ |
i 181.17 |
|
Options granted |
|
|
i 283,601 |
|
|
|
i 210.33 |
|
Options exercised (a) |
|
|
( i 64,761 |
) |
|
|
i 91.90 |
|
Options forfeited |
|
|
( i 21,785 |
) |
|
|
i 221.63 |
|
Options outstanding, July 30, 2022 |
|
|
i 1,294,613 |
|
|
$ |
i 191.34 |
|
17
The following table summarizes information about the stock options vested and expected to vest during the contractual term of such options as of July 30, 2022:
|
|
Options |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Options vested and expected to vest |
|
|
i 1,294,613 |
|
|
|
i 7.2 |
|
|
$ |
i 191.34 |
|
|
$ |
i 9.9 |
|
Options exercisable |
|
|
i 660,396 |
|
|
|
i 5.7 |
|
|
$ |
i 158.35 |
|
|
$ |
i 9.9 |
|
The fair value of each stock option granted during the six month period ended July 30, 2022 was estimated using the Black Scholes option pricing model using the following assumptions:
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
i 1.13% - i 2.78% |
Expected volatility |
|
|
i 32% - i 34% |
Expected life (years) |
|
|
i 6.25 |
Contractual life (years) |
|
|
i 10.0 |
Expected dividend yield |
|
|
i 0% |
Weighted average grant date fair value of options issued |
|
$ |
i 78.77 |
The expected dividend yield was based on the Company’s expectation of not paying dividends in the near term. To evaluate its volatility factor, the Company uses the historical volatility of its stock price, as well as the historical volatility of the stock price of peer companies that are publicly traded over the expected life of the options. The risk free interest rate was based on the U.S. Treasury rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the awards being valued. For grants issued during the six month period ended July 30, 2022, the expected life of the options was calculated using the simplified method. The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches. This methodology was utilized due to the relatively short length of time the Company’s common stock has been publicly traded.
Restricted Stock
Prior to May 1, 2019, the Company granted shares of restricted stock. Grants made on and after May 1, 2019 are in the form of restricted stock units. i Restricted stock transactions during the six month period ended July 30, 2022 are summarized as follows:
|
|
Number of |
|
|
Weighted |
|
||
Non-vested awards outstanding, January 29, 2022 |
|
|
i 368,158 |
|
|
$ |
i 233.00 |
|
Awards granted |
|
|
i 225,616 |
|
|
|
i 207.82 |
|
Awards vested (a) |
|
|
( i 105,747 |
) |
|
|
i 206.68 |
|
Awards forfeited |
|
|
( i 14,388 |
) |
|
|
i 227.01 |
|
Non-vested awards outstanding, July 30, 2022 |
|
|
i 473,639 |
|
|
|
i 227.06 |
|
The fair value of each share of restricted stock granted during the six month period ended July 30, 2022 was based upon the closing price of the Company’s common stock on the grant date.
Performance Stock Units
The Company grants performance-based restricted stock units to its senior executives. Vesting of the performance stock units granted in Fiscal 2020 and Fiscal 2021 is based on continued service and the achievement of pre-established EBIT margin expansion and sales compounded annual growth rate (CAGR) goals (each weighted equally) over a i three-year performance period. Vesting of the performance stock units granted in Fiscal 2022 will be based on continued service and the achievement of pre-established adjusted
18
net income per share growth over a three-year performance period. Based on the Company’s achievement of these goals, each award may range from i 50% (at threshold performance) to no more than i 200% of the target award. In the event that actual performance is below threshold, no award will be made. Compensation costs recognized on the performance stock units are adjusted, as applicable, for performance above or below the target specified in the award.
Performance stock unit transactions during the six month period ended July 30, 2022 are summarized as follows:
|
|
Number of |
|
|
Weighted |
|
||
Non-vested awards outstanding, January 29, 2022 |
|
|
i 186,436 |
|
|
$ |
i 215.90 |
|
Awards granted (a) |
|
|
i 102,047 |
|
|
|
i 206.36 |
|
Awards vested (a) (b) |
|
|
( i 81,440 |
) |
|
|
i 173.84 |
|
Awards forfeited |
|
|
( i 8,820 |
) |
|
|
i 224.73 |
|
Non-vested awards outstanding, July 30, 2022 |
|
|
i 198,223 |
|
|
|
i 227.87 |
|
11. Commitments and Contingencies
Legal
In the course of business, the Company is party to class or collective actions alleging violations of federal and state wage and hour and other labor statutes, representative claims under the California Private Attorneys’ General Act and various other lawsuits and regulatory proceedings from time to time including, among others, commercial, product, employee, customer, intellectual property, privacy and other claims. Actions against us are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties. While no assurance can be given as to the ultimate outcome of these matters, the Company believes that the final resolution of these actions will not have a material adverse effect on the Company’s results of operations, financial position, liquidity or capital resources.
Letters of Credit
The Company had letters of credit arrangements with various banks in the aggregate amount of $ i 57.5 million, $ i 55.4 million and $ i 65.3 million as of July 30, 2022, January 29, 2022 and July 31, 2021, respectively. Among these arrangements, as of July 30, 2022, January 29, 2022 and July 31, 2021, the Company had letters of credit outstanding in the amount of $ i 47.8 million, $ i 48.4 million and $ i 46.7 million, respectively, guaranteeing performance under various insurance contracts and utility agreements. In addition, the Company had outstanding letters of credit arrangements in the amounts of $ i 9.7 million, $ i 7.1 million and $ i 18.6 million at July 30, 2022, January 29, 2022 and July 31, 2021, respectively, related to certain merchandising agreements. Based on the terms of the agreement governing the ABL Line of Credit, the Company had the ability to enter into letters of credit up to $ i 842.5 million, $ i 594.6 million and $ i 533.6 million as of July 30, 2022, January 29, 2022 and July 31, 2021, respectively.
Purchase Commitments
The Company had $ i 1,059.3 million of purchase commitments related to goods that were not received as of July 30, 2022.
Death Benefits
In November 2005, the Company entered into agreements with three of the Company’s former executives whereby upon each of their deaths the Company will pay $ i 1.0 million to each respective designated beneficiary.
/
19
BURLINGTON STORES, INC.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this report and the Consolidated Financial Statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 (Fiscal 2021 10-K).
In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations and intentions. Our actual results or other events may differ materially from those anticipated in these forward-looking statements due to various factors, including those discussed under the section of this Item 2 entitled “Safe Harbor Statement.”
Executive Summary
Introduction
We are a nationally recognized off-price retailer of high-quality, branded merchandise at everyday low prices. We opened our first store in Burlington, New Jersey in 1972, selling primarily coats and outerwear. Since then, we have expanded our store base to 877 stores as of July 30, 2022 in 46 states and Puerto Rico. We have diversified our product categories by offering an extensive selection of in-season, fashion-focused merchandise at up to 60% off other retailers’ prices, including: women’s ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear, accessories, home, toys, gifts and coats. We sell a broad selection of desirable, first-quality, current-brand, labeled merchandise acquired directly from nationally-recognized manufacturers and other suppliers.
Fiscal Year
Fiscal 2022 is defined as the 52-week year ending January 28, 2023. Fiscal 2021 is defined as the 52-week year ended January 29, 2022.
Store Openings, Closings, and Relocations
During the six month period ended July 30, 2022, we opened 46 new stores, inclusive of seven relocations, and permanently closed two stores, exclusive of the aforementioned relocations, bringing our store count as of July 30, 2022 to 877 stores.
Ongoing Initiatives for Fiscal 2022
We continue to focus on a number of ongoing initiatives aimed at increasing our overall profitability. These initiatives include, but are not limited to:
We strive to increase comparable store sales through the following initiatives:
20
We intend to expand and enhance our retail store base through the following initiatives:
We intend to increase our operating margins through the following initiatives:
Uncertainties and Challenges
As we strive to increase profitability, there are uncertainties and challenges that we face that could have a material impact on our revenues or income. Some of these uncertainties and challenges are summarized below. For a further discussion, please refer to the description under the heading “Risk Factors” in the Fiscal 2021 10-K.
COVID-19. The extent of the continuing impact of the COVID-19 pandemic on our business will depend largely on future developments, including the production and administration of effective medical treatments and vaccines, additional costs and delays related to our supply chain, reduced workforces or labor shortages and scarcity of raw materials, and any future required store closures
21
because of COVID-19 resurgences. COVID-19 presents material uncertainty and risk with respect to our business, financial performance and condition, operating results, liquidity and cash flows.
General Economic Conditions. Consumer spending habits, including spending for the merchandise that we sell, are affected by, among other things, prevailing global economic conditions, inflation, including the costs of basic necessities and other goods, levels of employment, salaries and wage rates, prevailing interest rates, housing costs, energy costs, commodities pricing, income tax rates and policies, consumer confidence and consumer perception of economic conditions. In addition, consumer purchasing patterns may be influenced by consumers’ disposable income, credit availability and debt levels.
A broad, protracted slowdown in the U.S. economy, an extended period of high unemployment rates, inflation rates, an uncertain global economic outlook or a credit crisis could adversely affect consumer spending habits resulting in lower net sales and profits than expected on a quarterly or annual basis. Consumer confidence is also affected by the domestic and international political situation. Our financial condition and operations could be impacted by changes in government regulations in areas including, but not limited to, taxes and healthcare. Ongoing international trade and tariff negotiations could have a direct impact on our income and an indirect impact on consumer prices. The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting the U.S., or public health issues such as pandemics or epidemics, including the continuing COVID-19 pandemic, could lead to a decrease in spending by consumers. In addition, natural disasters, public health issues, industrial accidents and acts of war in various parts of the world, such as the current war in Ukraine, could have the effect of disrupting supplies and raising prices globally which, in turn, may have adverse effects on the world and U.S. economies and lead to a downturn in consumer confidence and spending.
We closely monitor our net sales, gross margin and expenses. We have performed scenario planning such that if our net sales decline for an extended period of time, we have identified variable costs that could be reduced to partially mitigate the impact of these declines. If we were to experience adverse economic trends and/or if our efforts to counteract the impacts of these trends are not sufficiently effective, there could be a negative impact on our financial performance and position in future fiscal periods.
Seasonality of Sales and Weather Conditions. Our business, like that of most retailers, is subject to seasonal influences. In the second half of the year, which includes the back-to-school and holiday seasons, we generally realize a higher level of sales and net income.
Weather continues to be a contributing factor to the sale of our merchandise. Generally, our sales are higher if the weather is cold during the Fall and warm during the early Spring. Sales of cold weather clothing are increased by early cold weather during the Fall, while sales of warm weather clothing are improved by early warm weather conditions in the Spring. Although we have diversified our product offerings, we believe traffic to our stores is still driven, in part, by weather patterns.
Competition and Margin Pressure. We believe that in order to remain competitive with retailers, including off-price retailers and discount stores, we must continue to offer brand-name merchandise at a discount to prices offered by other retailers as well as an assortment of merchandise that is appealing to our customers.
The U.S. retail apparel and home furnishings markets are highly fragmented and competitive. We compete for business with department stores, off-price retailers, internet retailers, specialty stores, discount stores, wholesale clubs, and outlet stores as well as with certain traditional, full-price retail chains that have developed off-price concepts. At various times throughout the year, traditional full-price department store chains and specialty shops offer brand-name merchandise at substantial markdowns, which can result in prices approximating those offered by us at our Burlington Stores. We anticipate that competition will increase in the future. Therefore, we will continue to look for ways to differentiate our stores from those of our competitors.
The U.S. retail industry continues to face increased pressure on margins as overall challenging retail conditions have led consumers to be more value conscious. Our strategy to chase the sales trend allows us the flexibility to purchase less pre-season merchandise with the balance purchased in-season and opportunistically. It also provides us with the flexibility to shift purchases between suppliers and categories. This enables us to obtain better terms with our suppliers, which we expect to help offset any rising costs of goods.
Industry-wide supply chain issues led to increased freight and labor costs during Fiscal 2021 and continue to add pressure on margins in Fiscal 2022. These costs significantly impacted results in Fiscal 2021 and the first half of Fiscal 2022, and there remains significant uncertainty around when and if freight costs will return to pre-pandemic levels. Additionally, the higher our sales volume is, and the more sales we chase above our initial plans, the more these increased supply chain costs will impact our margins.
22
We have also experienced inflationary pressure in our supply chain and with respect to raw materials and finished goods, as well as in occupancy and other operating costs. There can be no assurance that we will be able to offset inflationary pressure in the future by increasing prices or through other means, or that our business will not be negatively affected by continued inflation in the future.
Key Performance and Non-GAAP Measures
We consider numerous factors in assessing our performance. Key performance and non-GAAP measures used by management include net income, Adjusted Net Income, Adjusted EBITDA, Adjusted EBIT, comparable store sales, gross margin, inventory, store payroll and liquidity.
Net income. We earned net income of $12.0 million during the three month period ended July 30, 2022 compared with net income of $102.6 million during the three month period ended July 31, 2021. We earned net income of $28.1 million during the six month period ended July 30, 2022 compared with a net income of $273.6 million during the six month period ended July 31, 2021.This decrease was primarily driven by lower sales, as well as decreased gross margin rate. Refer to the section below entitled “Results of Operations” for further explanation.
Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT: Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT are non-GAAP financial measures of our performance.
We define Adjusted Net Income as net income, exclusive of the following items, if applicable: (i) net favorable lease costs; (ii) loss on extinguishment of debt; (iii) impairment charges; (iv) costs related to debt issuances and amendments; (v) amounts related to certain litigation matters; and (vi) other unusual, non-recurring or extraordinary expenses, losses, charges or gains, all of which are tax effected to arrive at Adjusted Net Income.
We define Adjusted EBITDA as net income, exclusive of the following items, if applicable: (i) interest expense; (ii) interest income; (iii) loss on extinguishment of debt; (iv) costs related to debt issuances and amendments; (v) income tax expense; (vi) depreciation and amortization; (vii) impairment charges; (viii) amounts related to certain litigation matters; and (ix) other unusual, non-recurring or extraordinary expenses, losses, charges or gains.
We define Adjusted EBIT as net income, exclusive of the following items, if applicable: (i) interest expense; (ii) interest income; (iii) loss on extinguishment of debt; (iv) costs related to debt issuances and amendments; (v) income tax expense; (vi) impairment charges; (vii) net favorable lease costs; (viii) amounts related to certain litigation matters; and (ix) other unusual, non-recurring or extraordinary expenses, losses, charges or gains.
We present Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT, because we believe they are useful supplemental measures in evaluating the performance of our business and provide greater transparency into our results of operations. In particular, we believe that excluding certain items that may vary substantially in frequency and magnitude from what we consider to be our core operating results are useful supplemental measures that assist investors and management in evaluating our ability to generate earnings and leverage sales, and to more readily compare core operating results between past and future periods.
We believe that these non-GAAP measures provide investors helpful information with respect to our operations and financial condition. Other companies in the retail industry may calculate these non-GAAP measures differently such that our calculation may not be directly comparable.
Adjusted Net Income has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income or other data prepared in accordance with GAAP. Among other limitations, Adjusted Net Income does not reflect the following items, net of their tax effect:
During the three and six months ended July 30, 2022, Adjusted Net Income decreased $110.1 million to $22.9 million and decreased $250.0 million to $59.0 million, respectively, compared to the same periods in the prior year. These decreases were
23
primarily driven by lower sales, as well as decreased gross margin rate. Refer to the section below entitled “Results of Operations” for further explanation.
The following table shows our reconciliation of net income to Adjusted Net Income for the three and six months ended July 30, 2022 compared with the three and six months ended July 31, 2021:
|
|
(unaudited) |
|
|||||||||||||
|
|
(in thousands) |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
|
|||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Reconciliation of net income to Adjusted Net Income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
11,966 |
|
|
$ |
102,554 |
|
|
$ |
28,139 |
|
|
$ |
273,584 |
|
Net favorable lease costs (a) |
|
|
4,769 |
|
|
|
6,002 |
|
|
|
9,471 |
|
|
|
11,913 |
|
Costs related to debt issuances and amendments (b) |
|
|
— |
|
|
|
3,331 |
|
|
|
— |
|
|
|
3,331 |
|
Loss on extinguishment of debt (c) |
|
|
— |
|
|
|
31,395 |
|
|
|
14,657 |
|
|
|
31,395 |
|
Impairment charges |
|
|
4,415 |
|
|
|
970 |
|
|
|
6,958 |
|
|
|
1,747 |
|
Litigation matters (d) |
|
|
5,500 |
|
|
|
— |
|
|
|
10,500 |
|
|
|
— |
|
Tax effect (e) |
|
|
(3,702 |
) |
|
|
(11,175 |
) |
|
|
(10,719 |
) |
|
|
(12,946 |
) |
Adjusted Net Income |
|
$ |
22,948 |
|
|
$ |
133,077 |
|
|
$ |
59,006 |
|
|
$ |
309,024 |
|
Adjusted EBITDA has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income or other data prepared in accordance with GAAP. Among other limitations, Adjusted EBITDA does not reflect:
During the three and six months ended July 30, 2022, Adjusted EBITDA decreased $135.1 million to $110.6 million and decreased $303.2 million to $236.0 million, respectively, compared to the same periods in the prior year. These decreases were primarily driven by lower sales, as well as decreased gross margin rate. Refer to the section below entitled “Results of Operations” for further explanation.
24
The following table shows our reconciliation of net income to Adjusted EBITDA for the three and six months ended July 30, 2022 compared with the three and six months ended July 31, 2021:
|
|
(unaudited) |
|
|||||||||||||
|
|
(in thousands) |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
|
|||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Reconciliation of net income to Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
11,966 |
|
|
$ |
102,554 |
|
|
$ |
28,139 |
|
|
$ |
273,584 |
|
Interest expense |
|
|
15,435 |
|
|
|
17,502 |
|
|
|
30,041 |
|
|
|
37,101 |
|
Interest income |
|
|
(3,463 |
) |
|
|
(46 |
) |
|
|
(3,582 |
) |
|
|
(120 |
) |
Loss on extinguishment of debt (a) |
|
|
— |
|
|
|
31,395 |
|
|
|
14,657 |
|
|
|
31,395 |
|
Costs related to debt issuances and amendments (b) |
|
|
— |
|
|
|
3,331 |
|
|
|
— |
|
|
|
3,331 |
|
Litigation matters (c) |
|
|
5,500 |
|
|
|
— |
|
|
|
10,500 |
|
|
|
— |
|
Depreciation and amortization (d) |
|
|
72,739 |
|
|
|
68,816 |
|
|
|
143,745 |
|
|
|
130,337 |
|
Impairment charges |
|
|
4,415 |
|
|
|
970 |
|
|
|
6,958 |
|
|
|
1,747 |
|
Income tax expense |
|
|
3,991 |
|
|
|
21,210 |
|
|
|
5,524 |
|
|
|
61,847 |
|
Adjusted EBITDA |
|
$ |
110,583 |
|
|
$ |
245,732 |
|
|
$ |
235,982 |
|
|
$ |
539,222 |
|
Adjusted EBIT has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income or other data prepared in accordance with GAAP. Among other limitations, Adjusted EBIT does not reflect:
During the three and six months ended July 30, 2022, Adjusted EBIT decreased $140.3 million to $42.6 million and decreased $319.1 million to $101.7 million, respectively, compared to the same periods in the prior year. These decreases were primarily driven by lower sales, as well as decreased gross margin rate. Refer to the section below entitled “Results of Operations” for further explanation.
The following table shows our reconciliation of net income to Adjusted EBIT for the three and six months ended July 30, 2022 compared with the three and six months ended July 31, 2021:
25
|
|
(unaudited) |
|
|||||||||||||
|
|
(in thousands) |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
|
|||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Reconciliation of net income to Adjusted EBIT: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
11,966 |
|
|
$ |
102,554 |
|
|
$ |
28,139 |
|
|
$ |
273,584 |
|
Interest expense |
|
|
15,435 |
|
|
|
17,502 |
|
|
|
30,041 |
|
|
|
37,101 |
|
Interest income |
|
|
(3,463 |
) |
|
|
(46 |
) |
|
|
(3,582 |
) |
|
|
(120 |
) |
Loss on extinguishment of debt (a) |
|
|
— |
|
|
|
31,395 |
|
|
|
14,657 |
|
|
|
31,395 |
|
Costs related to debt issuances and amendments (b) |
|
|
— |
|
|
|
3,331 |
|
|
|
— |
|
|
|
3,331 |
|
Net favorable lease costs (c) |
|
|
4,769 |
|
|
|
6,002 |
|
|
|
9,471 |
|
|
|
11,913 |
|
Impairment charges |
|
|
4,415 |
|
|
|
970 |
|
|
|
6,958 |
|
|
|
1,747 |
|
Litigation matters (d) |
|
|
5,500 |
|
|
|
— |
|
|
|
10,500 |
|
|
|
— |
|
Income tax expense |
|
|
3,991 |
|
|
|
21,210 |
|
|
|
5,524 |
|
|
|
61,847 |
|
Adjusted EBIT |
|
$ |
42,613 |
|
|
$ |
182,918 |
|
|
$ |
101,708 |
|
|
$ |
420,798 |
|
Comparable Store Sales. Comparable store sales measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of a prior year. Due to the impact of the COVID-19 pandemic, including the temporary closing of all stores during Fiscal 2020, we are using Fiscal 2019 as the comparable previous year period when calculating comparable store sales for Fiscal 2021. The method of calculating comparable store sales varies across the retail industry. As a result, our definition of comparable store sales may differ from other retailers.
For Fiscal 2022, we define comparable store sales as merchandise sales of those stores commencing on the first day of the fiscal month one year after the end of their grand opening activities, which normally conclude within the first two months of operations. If a store is closed for seven or more days during a month, our policy is to remove that store from our calculation of comparable stores sales for any such month, as well as during the month(s) of their grand re-opening activities. The change in our comparable store sales was as follows:
|
|
Three Months Ended |
|
Six Months Ended |
|
-17% |
|
-17% |
|
|
19% |
|
20% |
Various factors affect comparable store sales, including, but not limited to, weather conditions, current economic conditions, the timing of our releases of new merchandise and promotional events, the general retail sales environment, consumer preferences and buying trends, changes in sales mix among distribution channels, competition, and the success of marketing programs.
Gross Margin. Gross margin is the difference between net sales and the cost of sales. Our cost of sales and gross margin may not be comparable to those of other entities, since some entities may include all of the costs related to their buying and distribution functions, certain store-related costs and other costs, in cost of sales. We include certain of these costs in the line items “Selling, general and administrative expenses” and “Depreciation and amortization” in our Condensed Consolidated Statements of Income. We include in our “Cost of sales” line item all costs of merchandise (net of purchase discounts and certain vendor allowances), inbound freight, distribution center outbound freight and certain merchandise acquisition costs, primarily commissions and import fees.
Gross margin as a percentage of net sales decreased to 38.9% during the three month period ended July 30, 2022, compared with 42.2% during three month period ended July 31, 2021, driven primarily by decreased merchandise margins, primarily due to higher markdowns and increased shortage, as well as increased freight costs. Product sourcing costs, which are included in selling, general and administrative expenses, increased approximately 130 basis points as a percentage of net sales.
26
Gross margin as a percentage of net sales decreased to 39.9% during the six months ended July 30, 2022, compared with 42.7% during six months ended July 31, 2021, driven primarily by decreased merchandise margins, primarily due to higher markdowns and increased shortage, as well as increased freight costs. Product sourcing costs, which are included in selling, general and administrative expenses, increased approximately 150 basis points as a percentage of net sales.
Inventory. Inventory at July 30, 2022 increased to $1,266.7 million compared with $828.2 million at July 31, 2021. The increase was attributable primarily to increased reserve inventory, which was 52% of total inventory as of July 30, 2022, compared with 31% as of July 30, 2021, as well as 85 net new stores opened since the end of the second quarter of Fiscal 2021, partially offset by a 5.4% decrease in comparable store inventory.
The difference between inventory and comparable store inventory is primarily the result of the latter not including distribution center and warehouse inventory or inventory at new and non-comparable stores. Inventory held at our warehouses and distribution centers includes merchandise being readied for shipment to our stores and reserve inventory acquired opportunistically for future store release. The magnitude of reserve inventory, at any one point in time, is dependent on the buying opportunities identified in the marketplace.
Reserve inventory includes all inventory that is being stored for release either later in the season, or in a subsequent season. We intend to use our reserve merchandise to effectively chase sales trends. Inventory at January 29, 2022 was $1,021.0 million.
In order to better serve our customers and maximize sales, we continue to refine our merchandising mix and inventory levels within our stores. By appropriately managing our inventories, we believe we will be better able to deliver a continual flow of fresh merchandise to our customers.
Store Payroll as a Percentage of Net Sales. Store payroll as a percentage of net sales measures our ability to manage our payroll in accordance with increases or decreases in net sales. The method of calculating store payroll varies across the retail industry. As a result, our store payroll as a percentage of net sales may differ from other retailers. We define store payroll as regular and overtime payroll for all store personnel as well as regional and territory personnel, exclusive of payroll charges related to corporate and warehouse employees. Store payroll as a percentage of net sales was 8.2% and 8.1% during the three and six month periods ended July 30, 2022, respectively, compared with 8.1% and 8.0% during the three and six month periods ended July 31, 2021, respectively.
Liquidity. Liquidity measures our ability to generate cash. Management measures liquidity through cash flow, which is the measure of cash generated from or used in operating, financing, and investing activities. Cash and cash equivalents, including restricted cash and cash equivalents, decreased $636.1 million during the six months ended July 30, 2022, compared with a decrease of $36.0 million during the six months ended July 31, 2021. Refer to the section below entitled “Liquidity and Capital Resources” for further explanation.
Results of Operations
The following table sets forth certain items in the Condensed Consolidated Statements of Income as a percentage of net sales for the three and six months ended July 30, 2022 and the three and six months ended July 31, 2021.
|
|
Percentage of Net Sales |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
|
|||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Other revenue |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.1 |
|
Total revenue |
|
|
100.2 |
|
|
|
100.1 |
|
|
|
100.2 |
|
|
|
100.1 |
|
Cost of sales |
|
|
61.1 |
|
|
|
57.8 |
|
|
|
60.1 |
|
|
|
57.3 |
|
Selling, general and administrative expenses |
|
|
34.6 |
|
|
|
31.7 |
|
|
|
34.9 |
|
|
|
31.0 |
|
Costs related to debt issuances and amendments |
|
|
— |
|
|
|
0.2 |
|
|
|
— |
|
|
|
0.1 |
|
Depreciation and amortization |
|
|
3.4 |
|
|
|
2.8 |
|
|
|
3.4 |
|
|
|
2.7 |
|
Impairment charges - long-lived assets |
|
|
0.2 |
|
|
|
0.0 |
|
|
|
0.2 |
|
|
|
0.0 |
|
Other income - net |
|
|
(0.6 |
) |
|
|
(0.3 |
) |
|
|
(0.4 |
) |
|
|
(0.2 |
) |
Loss on extinguishment of debt |
|
|
— |
|
|
|
1.4 |
|
|
|
0.4 |
|
|
|
0.7 |
|
Interest expense |
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.8 |
|
Total costs and expenses |
|
|
99.5 |
|
|
|
94.4 |
|
|
|
99.4 |
|
|
|
92.4 |
|
Income before income tax expense |
|
|
0.7 |
|
|
|
5.7 |
|
|
|
0.8 |
|
|
|
7.7 |
|
Income tax expense |
|
|
0.2 |
|
|
|
1.0 |
|
|
|
0.1 |
|
|
|
1.4 |
|
Net income |
|
|
0.5 |
% |
|
|
4.7 |
% |
|
|
0.7 |
% |
|
|
6.3 |
% |
27
Three Month Period Ended July 30, 2022 Compared With the Three Month Period Ended July 31, 2021
Net sales
Net sales decreased approximately $228.9 million, or 10.3%, to $1,983.9 million during the second quarter of Fiscal 2022, primarily driven by a decrease of 17% in comparable stores sales during the second quarter of Fiscal 2022. We believe this decrease was driven by economic pressure on our core customers and promotional activity throughout the retail environment. This decrease was partially offset by the net sales of 85 net new stores since the end of the second quarter of Fiscal 2021.
Cost of sales
Cost of sales as a percentage of net sales increased to 61.1% during the second quarter of Fiscal 2022, compared to 57.8% during the second quarter of Fiscal 2021. This increase was primarily driven by decreased merchandise margins, primarily due to higher markdowns and increased shortage, as well as increased freight costs. On a dollar basis, cost of sales decreased $68.4 million, or 5.3%, primarily driven by our overall decrease in sales. Product sourcing costs, which are included in selling, general and administrative expenses, increased approximately 130 basis points as a percentage of net sales.
Selling, general and administrative expenses
The following table details selling, general and administrative expenses for the three month period ended July 30, 2022 compared with the three month period ended July 31, 2021.
|
|
(in millions) |
|
|||||||||||||||||||||
|
|
Three Months Ended |
|
|||||||||||||||||||||
|
|
July 30, |
|
|
Percentage |
|
|
July 31, |
|
|
Percentage |
|
|
|
|
|
|
|
||||||
|
|
2022 |
|
|
Net Sales |
|
|
2021 |
|
|
Net Sales |
|
|
$ Variance |
|
|
% Change |
|
||||||
Store related costs |
|
$ |
417.2 |
|
|
|
21.0 |
% |
|
$ |
432.9 |
|
|
|
19.6 |
% |
|
$ |
(15.7 |
) |
|
|
(3.6 |
)% |
Product sourcing costs |
|
|
157.2 |
|
|
|
7.9 |
|
|
|
145.9 |
|
|
|
6.6 |
|
|
|
11.3 |
|
|
|
7.7 |
|
Corporate costs |
|
|
79.6 |
|
|
|
4.0 |
|
|
|
84.9 |
|
|
|
3.8 |
|
|
|
(5.3 |
) |
|
|
(6.2 |
) |
Marketing and strategy costs |
|
|
6.7 |
|
|
|
0.3 |
|
|
|
12.7 |
|
|
|
0.6 |
|
|
|
(6.0 |
) |
|
|
(47.2 |
) |
Other selling, general and administrative expenses |
|
|
24.8 |
|
|
|
1.4 |
|
|
|
25.9 |
|
|
|
1.1 |
|
|
|
(1.1 |
) |
|
|
(4.2 |
) |
Selling, general and administrative expenses |
|
$ |
685.5 |
|
|
|
34.6 |
% |
|
$ |
702.3 |
|
|
|
31.7 |
% |
|
$ |
(16.8 |
) |
|
|
-2.4 |
% |
The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by deleverage on store related costs and increased product sourcing costs. On a dollar basis, the decrease in selling, general and administrative expenses was primarily driven by decreases in store payroll costs, incentive compensation, and marketing costs, partially offset by increases in occupancy costs and product sourcing costs.
Depreciation and amortization
Depreciation and amortization expense amounted to $68.0 million during the second quarter of Fiscal 2022 compared with $62.8 million during the second quarter of Fiscal 2021. The increase in depreciation and amortization expense was primarily driven by capital expenditures related to our new and non-comparable stores.
Impairment charges – long-lived assets
Impairment charges on long-lived assets were $4.4 million during the second quarter of Fiscal 2022, related to declines in revenue and operating results for two stores. Impairment charges on long-lived assets were $1.0 million during the second quarter of Fiscal 2021, related to the expected sale of one owned store.
The recoverability assessment related to these store-level assets requires various judgments and estimates, including estimates related to future revenues, gross margin rates, store expenses and other assumptions. We base these estimates upon our past and expected future performance. We believe our estimates are appropriate in light of current market conditions. However, future impairment charges could be required if we do not achieve our current revenue or cash flow projections for each store. Refer to Note 6, “Fair Value Measurements,” for further discussion regarding impairment charges.
28
Other income - net
Other income - net improved $6.8 million to $12.6 million during the second quarter of Fiscal 2022, compared to the same period in the prior year. The increase was primarily driven by the gain on sale of real estate related assets and interest income on a tax refund.
Loss on Extinguishment of Debt
During the second quarter of Fiscal 2021, we incurred a debt extinguishment charge of $30.2 million related to the premium paid on redemption of the Secured Notes, as well as a $1.2 million charge related to the refinancing of our Term Loan Facility. Refer to Note 4, “Long Term Debt,” for further discussion regarding our debt transactions.
Interest expense
Interest expense improved $2.1 million during the second quarter of Fiscal 2022 to $15.4 million, compared to the same period in the prior year. The decrease was driven by the redemption in full of the $300.0 million aggregate principal amount of Secured Notes and repurchase of $297.3 million of Convertible Notes since the end of the second quarter of Fiscal 2021, partially offset by the increase in LIBOR rates on our Term Loan Facility.
The average interest rates and average balances related to our variable rate debt for the second quarter of Fiscal 2022 compared with the second quarter of Fiscal 2021, are summarized in the table below:
|
|
|
Three Months Ended |
|
||||||
|
|
|
July 30, |
|
|
|
|
|||
|
|
|
|
|
|
2021 |
|
|||
Average balance – ABL Line of Credit (in millions) |
|
$ |
|
— |
|
|
$ |
|
— |
|
Average interest rate – ABL Line of Credit |
|
|
|
— |
|
|
|
|
— |
|
Average balance – Term Loan Facility (in millions) (a) |
|
$ |
953.4 |
|
|
$ |
961.4 |
|
||
Average interest rate – Term Loan Facility |
|
|
3.2% |
|
|
|
2.0% |
|
||
(a) Excludes original issue discount.
Income tax expense
Income tax expense was $4.0 million during the second quarter of Fiscal 2022 compared with income tax expense of $21.2 million during the second quarter of Fiscal 2021. The effective tax rate for the second quarter of Fiscal 2022 was 25.0% compared with 17.1% during the second quarter of Fiscal 2021. The decrease in income tax expense in the current year was primarily the result of lower pre-tax income. The lower tax rate in the prior year is primarily related to higher tax benefit from stock compensation.
At the end of each interim period we are required to determine the best estimate of our annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. Use of this methodology during the second quarter of Fiscal 2022 resulted in an annual effective income tax rate of approximately 26% (before discrete items) as our best estimate.
Net income
We earned net income of $12.0 million for the second quarter of Fiscal 2022 compared with $102.6 million for the second quarter of Fiscal 2021. This decrease was primarily driven by lower sales, as well as decreased gross margin rate.
29
Six Month Period Ended July 30, 2022 Compared With the Six Month Period Ended July 31, 2021
Net sales
Net sales decreased approximately $493.9 million, or 11.2%, to $3,909.5 million during the first half of Fiscal 2022, primarily driven by a decrease of 17% in comparable stores sales during the first half of Fiscal 2022, partially offset by the net sales of 85 net new stores since the end of the second quarter of Fiscal 2021.
Cost of sales
Cost of sales as a percentage of net sales increased to 60.1% during the first half of Fiscal 2022, compared to 57.3% during the first half of Fiscal 2021. This increase was primarily driven by decreased merchandise margins, primarily due to higher markdowns and increased shortage, as well as increased freight costs. On a dollar basis, cost of sales decreased $173.7 million, or 6.9%, primarily driven by our overall decrease in sales. Product sourcing costs, which are included in selling, general and administrative expenses, increased approximately 150 basis points as a percentage of net sales.
Selling, general and administrative expenses
The following table details selling, general and administrative expenses for the six month period ended July 30, 2022 compared with the six month period ended July 31, 2021.
|
|
(in millions) |
|
|||||||||||||||||||||
|
|
Six Months Ended |
|
|||||||||||||||||||||
|
|
|
|
Percentage |
|
|
|
|
Percentage |
|
|
$ Variance |
|
|
% Change |
|
||||||||
Store related costs |
|
$ |
824.8 |
|
|
|
21.1 |
% |
|
$ |
844.4 |
|
|
|
19.2 |
% |
|
$ |
(19.6 |
) |
|
|
(2.3 |
)% |
Product sourcing costs |
|
|
313.9 |
|
|
|
8.0 |
|
|
|
286.4 |
|
|
|
6.5 |
|
|
|
27.5 |
|
|
|
9.6 |
|
Corporate costs |
|
|
157.6 |
|
|
|
4.0 |
|
|
|
160.7 |
|
|
|
3.6 |
|
|
|
(3.1 |
) |
|
|
(1.9 |
) |
Marketing and strategy costs |
|
|
20.7 |
|
|
|
0.5 |
|
|
|
25.0 |
|
|
|
0.6 |
|
|
|
(4.3 |
) |
|
|
(17.2 |
) |
Other selling, general and administrative expenses |
|
|
48.8 |
|
|
|
1.3 |
|
|
|
50.6 |
|
|
|
1.1 |
|
|
|
(1.8 |
) |
|
|
(3.6 |
) |
Selling, general and administrative expenses |
|
$ |
1,365.8 |
|
|
|
34.9 |
% |
|
$ |
1,367.1 |
|
|
|
31.0 |
% |
|
$ |
(1.3 |
) |
|
|
(0.1 |
)% |
The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by deleverage on store related costs and increased product sourcing costs. On a dollar basis, the decrease in selling, general and administrative expenses was primarily driven by decreases in store payroll costs, incentive compensation, and marketing costs, partially offset by increases in occupancy costs and product sourcing costs.
Depreciation and amortization
Depreciation and amortization expense amounted to $134.3 million during the first half of Fiscal 2022 compared with $118.4 million during the first half of Fiscal 2021. The increase in depreciation and amortization expense was primarily driven by capital expenditures related to our new and non-comparable stores.
Impairment charges – long-lived assets
Impairment charges on long-lived assets were $7.0 million during the first half of Fiscal 2022, related to declines in revenue and operating results for two stores, one owned store expected to be sold below net carrying value, and unrecoverable fixed assets at two relocating stores. Impairment charges on long-lived assets were $1.7 million during the first half of Fiscal 2021, related to the expected sale of one owned store, as well as declines in revenues and operating results for one store.
The recoverability assessment related to these store-level assets requires various judgments and estimates, including estimates related to future revenues, gross margin rates, store expenses and other assumptions. We base these estimates upon our past and expected future performance. We believe our estimates are appropriate in light of current market conditions. However, future impairment charges could be required if we do not achieve our current revenue or cash flow projections for each store. Refer to Note 6, “Fair Value Measurements,” for further discussion regarding impairment charges.
30
Other income - net
Other income - net improved $8.8 million to $16.0 million during the first half of Fiscal 2022, compared to the same period in the prior year. The increase was primarily driven by the gain on sale of real estate related assets and interest income on a tax refund.
Loss on Extinguishment of Debt
During the first half of Fiscal 2022, we entered into separate, privately negotiated exchange agreements (Exchange Agreements) with certain holders of the Convertible Notes. Under the terms of the Exchange Agreements, the holders exchanged $64.6 million in aggregate principal amount of Convertible Notes held by them for $78.2 million in cash. These exchanges resulted in aggregate pre-tax debt extinguishment charges of $14.7 million.
During the first half of Fiscal 2021, we incurred a debt extinguishment charge of $30.2 million related to the premium paid on redemption of the Secured Notes, as well as $1.2 million related to the refinancing of our Term Loan Facility. Refer to Note 4, “Long Term Debt,” for further discussion regarding our debt transactions.
Interest expense
Interest expense improved $7.1 million during the first half of Fiscal 2022 to $30.0 million, compared to the same period in the prior year. The decrease was driven by the redemption in full of the $300.0 million aggregate principal amount of Secured Notes and repurchase of $297.3 million of Convertible Notes since the end of the second quarter of Fiscal 2021, partially offset by the increase in LIBOR rates on our Term Loan Facility.
The average interest rates and average balances related to our variable rate debt for the first half of Fiscal 2022 compared with the first half of Fiscal 2021, are summarized in the table below:
|
|
|
Six Months Ended |
|
||||||
|
|
|
July 30, |
|
|
|
|
|||
|
|
|
|
|
|
2021 |
|
|||
Average balance – ABL Line of Credit (in millions) |
|
$ |
|
— |
|
|
$ |
|
— |
|
Average interest rate – ABL Line of Credit |
|
|
|
— |
|
|
|
|
— |
|
Average balance – Term Loan Facility (in millions) (a) |
|
$ |
954.6 |
|
|
$ |
961.4 |
|
||
Average interest rate – Term Loan Facility |
|
|
2.7% |
|
|
|
1.9% |
|
||
(a) Excludes original issue discount.
Income tax expense
Income tax expense was $5.5 million during the first half of Fiscal 2022 compared with income tax expense of $61.8 million during the first half of Fiscal 2021. The effective tax rate for the first half of Fiscal 2022 was 16.4% compared with 18.4% during the first half of Fiscal 2021. The decrease in income tax expense in the first half of Fiscal 2022 was a result of lower pre-tax income. The decrease in effective tax rate is due to favorable permanent items having a greater impact as a result of the lower pretax income compared to the prior year.
At the end of each interim period we are required to determine the best estimate of our annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. Use of this methodology during the first half of Fiscal 2022 resulted in an annual effective income tax rate of approximately 26% (before discrete items) as our best estimate.
Net income
We earned net income of $28.1 million for the first half of Fiscal 2022 compared with $273.6 million for the first half of Fiscal 2021. This decrease was primarily driven by lower sales, as well as decreased gross margin rate.
Liquidity and Capital Resources
Our ability to satisfy interest payment and future principal payment obligations on our outstanding debt will depend largely on our future performance which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service interest payment and future principal payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of
31
operations will be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could be successfully completed on terms similar to our current financing agreements, or at all.
On June 11, 2021, we redeemed the full $300.0 million aggregate principal amount of the Secured Notes. The redemption price of the Secured Notes was $323.7 million, plus accrued and unpaid interest to, but not including, the date of redemption. Additionally, we repurchased $232.7 million of principal on the Convertible Notes during the second half of Fiscal 2021. During the first quarter of Fiscal 2022, we repurchased an additional $64.6 million of principal on the Convertible Notes. During the second quarter of Fiscal 2022, we finalized an increase to the aggregate principal amount of the commitments of our current asset-based lending facility (the ABL Line of Credit) from $650.0 million to $900.0 million.
We believe that cash generated from operations, along with our existing cash and our ABL Line of Credit, will be sufficient to fund our expected cash flow requirements and planned capital expenditures for at least the next twelve months as well as the foreseeable future. However, there can be no assurance that we would be able to offset declines in our comparable store sales with savings initiatives in the event that the economy declines.
As market conditions warrant, we may, from time to time, repurchase our outstanding debt securities in the open market, in privately negotiated transactions, by tender offer, by exchange transaction or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity and other factors and may be commenced or suspended at any time. The amounts involved and total consideration paid may be material.
Cash Flow for the Six Month Period Ended July 30, 2022 Compared With the Six Month Period Ended July 31, 2021
We used $636.1 million of cash during the six month period ended July 30, 2022 compared with a use of $36.0 million during the six month period ended July 31, 2021.
Net cash used in operating activities amounted to $152.9 million during the six month period ended July 30, 2022, compared with net cash provided of $426.9 million during the six month period ended July 31, 2021. The decrease in our operating cash flows was primarily driven by lower sales and decreased gross margin rate, as well as changes in working capital, primarily decreased accounts payable and increased inventory. The decrease was partially offset by a $245.5 million tax refund received during Fiscal 2022.
Net cash used in investing activities was $186.4 million during the six month period ended July 30, 2022 compared with $141.6 million during the six month period ended July 31, 2021. This change was primarily the result of an increase in capital expenditures related to our stores (new stores, remodels and other store expenditures).
Net cash used in financing activities was $296.8 million during the six month period ended July 30, 2022 compared with $321.2 million during the six month period ended July 31, 2021. This change was primarily driven by full paydown of Secured Notes in Fiscal 2021, partially offset by repurchase of shares of our common stock under our share repurchase program, as well as cash paid for partial redemptions of Convertible Notes during Fiscal 2022.
Changes in working capital also impact our cash flows. Working capital equals current assets (exclusive of restricted cash) minus current liabilities. We had working capital at July 30, 2022 of $320.5 million compared with $853.8 million at July 31, 2021. The decrease in working capital was primarily due to a decrease in cash and cash equivalents due to payments on the Convertible Notes and Secured Notes, partially offset by an increase to the inventory balance and decreased accounts payable. We had working capital at January 29, 2022 of $593.4 million.
Capital Expenditures
For the six month period ended July 30, 2022, cash spend for capital expenditures, net of $9.1 million of landlord allowances, amounted to $200.6 million.
We estimate that we will spend approximately $640 million, net of approximately $15 million of landlord allowances, in capital expenditures during Fiscal 2022, including approximately $240 million, net of the previously mentioned landlord allowances, for store expenditures (new stores, remodels and other store expenditures). In addition, we estimate that we will spend approximately $255 million to support our supply chain initiatives, with the remaining capital used to support our information technology and other business initiatives.
32
Share Repurchase Program
On August 18, 2021, our Board of Directors authorized the repurchase of up to $400.0 million of common stock, which was authorized to be executed through August 2023. This authorization was completed during the second quarter of Fiscal 2022.
On February 16, 2022, our Board of Directors authorized the repurchase of up to an additional $500.0 million of common stock, which is authorized to be executed through February 2024.
During the first half of Fiscal 2022, we repurchased 1,111,183 shares of common stock for $200.1 million under these repurchase programs. As of July 30, 2022, we had $449.9 million remaining under our share repurchase authorization.
We are authorized to repurchase shares of our outstanding common stock from time to time on the open market or in privately negotiated transactions under our repurchase program. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. Our share repurchase program may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common stock under the program.
Dividends
We currently do, and intend to continue to, retain all available funds and any future earnings to fund all of the Company's capital expenditures, business initiatives, and to support any potential opportunistic capital structure initiatives. Therefore, at this time, we do not anticipate paying cash dividends in the near term. Our ability to pay dividends on our common stock will be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions under the terms of current and any future agreements governing our indebtedness. Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to compliance with covenants in our current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors that our Board of Directors deems relevant.
In addition, since we are a holding company, substantially all of the assets shown on our Condensed Consolidated Balance Sheets are held by our subsidiaries. Accordingly, our earnings, cash flow and ability to pay dividends are largely dependent upon the earnings and cash flows of our subsidiaries and the distribution or other payment of such earnings to us in the form of dividends.
Operational Growth
During the six month period ended July 30, 2022, we opened 46 new stores, inclusive of seven relocations, and closed two stores, exclusive of the aforementioned relocations, bringing our store count as of July 30, 2022 to 877 stores. During Fiscal 2022, we plan to open 90 net new stores.
We have identified numerous market opportunities that we believe will allow us to operate 2,000 stores over the long-term. We believe that our ability to find satisfactory locations for our stores is essential for the continued growth of our business. The opening of stores generally is contingent upon a number of factors including, but not limited to, the availability of desirable locations with suitable structures and the negotiation of acceptable lease terms. There can be no assurance, however, that we will be able to find suitable locations for new stores or that we will be able to open the number of new stores presently planned, even if such locations are found and acceptable lease terms are obtained. Assuming that appropriate locations are identified, we believe that we will be able to execute our growth strategy without significantly impacting our current stores.
Debt and Hedging
As of July 30, 2022, our obligations, inclusive of original issue discount, include $946.3 million under our Term Loan Facility, $507.7 million of Convertible Notes and no outstanding borrowings on our ABL Line of Credit. Our debt obligations also include $41.6 million of finance lease obligations as of July 30, 2022.
Term Loan Facility
On June 24, 2021, Burlington Coat Factory Warehouse Corporation, an indirect subsidiary of the Company (BCFWC), entered into Amendment No. 9 (the Ninth Amendment) to the Term Loan Credit Agreement governing the Term Loan Facility. The Ninth Amendment, among other things, extended the maturity date from November 17, 2024 to June 24, 2028, and changed the interest rate margins applicable to the Term Loan Facility from 0.75% to 1.00%, in the case of prime rate loans, and from 1.75% to 2.00%, in the
33
case of LIBOR loans, with a 0.00% LIBOR floor. Refer to Note 4, “Long Term Debt,” for further discussion regarding our debt transactions.
At July 30, 2022, our borrowing rate related to the Term Loan Facility was 4.4%.
ABL Line of Credit
On July 20, 2022, we entered into a Fourth Amendment to Second Amended and Restated Credit Agreement (the “Amendment”), by and among BCFWC, as lead borrower and the other borrowers party thereto, the facility guarantors party thereto, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent, which Amendment amends that certain Second Amended and Restated Credit Agreement dated as of September 2, 2011, by and among the BCFWC, the other borrowers party thereto, the facility guarantors party thereto, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent. The Amendment increased the aggregate principal amount of the commitments of the ABL Line of Credit from $650.0 million to $900.0 million and replaced the LIBOR-based interest rate benchmark provisions with interest rate benchmark provisions based on a term secured overnight financing rate (SOFR) or a daily SOFR rate (in the case of daily SOFR, available for borrowings up to $100 million, or up to the full amount of the commitments if the term SOFR rate is not available).
At July 30, 2022, we had $842.5 million available under the ABL Line of Credit. There were no borrowings on the ABL Line of Credit during the six month period ended July 30, 2022.
Convertible Notes
On April 16, 2020, we issued $805.0 million of Convertible Notes. The Convertible Notes have an initial conversion rate of 4.5418 shares per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $220.18 per share of the Company’s common stock), subject to adjustment if certain events occur.
The Convertible Notes are general unsecured obligations of the Company. The Convertible Notes bear interest at a rate of 2.25% per year, payable semi-annually in cash, in arrears on April 15 and October 15 of each year, beginning on October 15, 2020. The Convertible Notes will mature on April 15, 2025, unless earlier converted, redeemed or repurchased.
During the second half of Fiscal 2021, we entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of these exchange agreements, the holders exchanged $232.7 million in aggregate principal amount of Convertible Notes held by them for a combination of an aggregate of $199.8 million in cash and 513,991 shares of our common stock. These exchanges resulted in aggregate pre-tax debt extinguishment charges of $124.6 million in Fiscal 2021.
During the first quarter of Fiscal 2022, we entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged $64.6 million in aggregate principal amount of Convertible Notes held by them for $78.2 million in cash. These exchanges resulted in aggregate pre-tax debt extinguishment charges of $14.7 million.
Secured Notes
On April 16, 2020, BCFWC, issued $300.0 million of Secured Notes. The Secured Notes are senior, secured obligations of BCFWC, and interest was payable semiannually in cash at a rate of 6.25% per annum on April 15 and October 15 of each year, beginning on October 15, 2020. The Secured Notes were guaranteed on a senior secured basis by Burlington Coat Factory Holdings, LLC, Burlington Coat Factory Investments Holdings, Inc. and BCFWC’s subsidiaries that guarantee the loans under the Term Loan Facility and ABL Line of Credit.
On June 11, 2021, BCFWC redeemed the full $300.0 million aggregate principal amount of the Secured Notes. The redemption price of the Secured Notes was $323.7 million, plus accrued and unpaid interest to, but not including, the date of redemption. Refer to Note 4, “Long Term Debt,” for further discussion regarding our debt transactions.
Hedging
On June 24, 2021, the Company terminated its previous interest rate swap and entered into a new interest rate swap. The new interest rate swap, which hedges $450 million of variable rate exposure under our Term Loan Facility, is designated as a cash flow hedge and expires on June 24, 2028. Refer to Note 5, “Derivative Instruments and Hedging Activities,” for further discussion regarding our derivative transactions.
34
Certain Information Concerning Contractual Obligations
We had $1,059.3 million of purchase commitments related to goods that were not received as of July 30, 2022, and had $3,738.8 million of future minimum lease payments under operating leases as of July 30, 2022. Additionally, during the first quarter of Fiscal 2022, we repurchased $64.6 million in aggregate principal amount of the Convertible Notes. See Note 4, “Long Term Debt,” for additional information related to our debt transactions. There were no other significant changes regarding our obligations to make future payments under current contracts from those included in our Fiscal 2021 10-K.
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements have been prepared in accordance with GAAP. We believe there are several accounting policies that are critical to understanding our historical and future performance as these policies affect the reported amounts of revenues and other significant areas that involve management’s judgments and estimates. The preparation of our Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements; and (iii) the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, inventories, long-lived assets, intangible assets, goodwill, insurance reserves and income taxes. Historical experience and various other factors that are believed to be reasonable under the circumstances form the basis for making estimates and judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. As of the end of the second quarter of Fiscal 2022, the impact of the COVID-19 pandemic continues to unfold. As a result, many of our estimates and judgments carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods. A critical accounting estimate meets two criteria: (1) it requires assumptions about highly uncertain matters and (2) there would be a material effect on the consolidated financial statements from either using a different, although reasonable, amount within the range of the estimate in the current period or from reasonably likely period-to-period changes in the estimate.
Our critical accounting policies and estimates are consistent with those disclosed in Note 1, “Summary of Significant Accounting Policies,” to the audited Consolidated Financial Statements, included in Part II, Item 8 of the Fiscal 2021 10-K.
Safe Harbor Statement
This report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, the industry in which we operate and other matters, as well as management’s beliefs and assumptions and other statements regarding matters that are not historical facts. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). Our forward-looking statements are subject to risks and uncertainties. Such statements may include, but are not limited to, future impacts of the COVID-19 pandemic, proposed store openings and closings, proposed capital expenditures, projected financing requirements, proposed developmental projects, projected sales and earnings, our ability to maintain selling margins, and the effect of the adoption of recent accounting pronouncements on our consolidated financial position, results of operations and cash flows. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual events or results to differ materially from those we expected include: the impact of the COVID-19 pandemic and actions taken to slow its spread and the related impacts on economic activity, financial markets, labor markets and the global supply chain; general economic conditions, including inflation, and the related impact on consumer confidence and spending; competitive factors, including pricing and promotional activities of major competitors and an increase in competition within the markets in which we compete; weather patterns, including changes in year-over-year temperatures; the reduction in traffic to, or the closing of, the other destination retailers in the shopping areas where our stores are located; changing consumer preferences and demand; industry trends, including changes in buying, inventory and other business practices; natural and man-made disasters, including fire, snow and ice storms, flood, hail, hurricanes and earthquakes; our ability to successfully implement one or more of our strategic initiatives and growth plans; the availability, selection and purchasing of attractive merchandise on favorable terms; the availability of desirable store locations on suitable terms; industry trends, including changes in buying, inventory and other business practices; terrorist attacks, particularly attacks on or within markets in which we operate; our ability to attract, train and retain quality employees and temporary personnel in appropriate numbers; our ability to control costs and expenses; the solvency of parties with whom we do business and their willingness to perform their obligations to us; import risks, including tax and trade policies, tariffs and government regulations; our dependence on vendors for our merchandise; domestic and international events affecting the delivery of merchandise to our stores; unforeseen cyber-related problems or attacks; regulatory and tax changes; issues with merchandise safety and shrinkage; any
35
unforeseen material loss or casualty or the existence of adverse litigation; the impact of current and future laws and the interpretation of such laws; our substantial level of indebtedness and related debt-service obligations; consequences of the failure to comply with covenants in our debt agreements; the availability of adequate financing; and other risks discussed from time to time in our filings with the Securities and Exchange Commission (SEC), including those under the heading “Risk Factors” in the Fiscal 2021 10-K.
Many of these factors, including the ultimate impact of the COVID-19 pandemic, are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report might not occur. Furthermore, we cannot guarantee future results, events, levels of activity, performance or achievements.
Recent Accounting Pronouncements
Refer to Note 1, “Summary of Significant Accounting Policies,” to our Condensed Consolidated Financial Statements in Part I, Item 1 for a discussion of recent accounting pronouncements and their impact on our Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes to our quantitative and qualitative disclosures about market risk from those included in our Fiscal 2021 10-K.
Item 4. Controls and Procedures.
Our management team, under the supervision and with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of the last day of the fiscal period covered by this report, July 30, 2022. The term disclosure controls and procedures means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of July 30, 2022.
During the quarter ended July 30, 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
In the course of business, the Company is party to class or collective actions alleging violations of federal and state wage and hour and other labor statutes, representative claims under the California Private Attorneys’ General Act and various other lawsuits and regulatory proceedings from time to time including, among others, commercial, product, employee, customer, intellectual property, privacy and other claims. Actions against us are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties. Refer to Note 11, "Commitments and Contingencies," to our Condensed Consolidated Financial Statements for further detail.
Item 1A. Risk Factors.
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Fiscal 2021 10-K.
36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information regarding our purchases of common stock during the three fiscal months ended July 30, 2022:
Month |
|
Total Number |
|
|
Average Price |
|
|
Total Number |
|
|
Approximate |
|
||||
May 1, 2022 through May 28, 2022 |
|
|
72,449 |
|
|
$ |
183.12 |
|
|
|
66,012 |
|
|
$ |
538,985 |
|
May 29, 2022 through July 2, 2022 |
|
|
461,529 |
|
|
$ |
170.79 |
|
|
|
461,404 |
|
|
$ |
460,182 |
|
July 3, 2022 through July 30, 2022 |
|
|
70,862 |
|
|
$ |
145.67 |
|
|
|
70,862 |
|
|
$ |
449,859 |
|
Total |
|
|
604,840 |
|
|
|
|
|
|
598,278 |
|
|
|
|
||
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
37
Item 6. Exhibits.
Exhibit |
|
||
Number |
Exhibit Description |
Form |
Filing Date |
10.1 |
Current Report on Form 8-K |
||
10.2 |
Current Report on Form 8-K |
||
10.3 |
Employment Agreement dated May 24, 2022 by and between Burlington Stores, Inc. and Kristin Wolfe |
Current Report on Form 8-K |
|
10.4 |
Current Report on Form 8-K |
||
10.5 |
Current Report on Form 8-K |
||
10.6† |
|
|
|
10.7† |
|
|
|
10.8† |
|
|
|
10.9† |
|
|
|
10.10† |
|
|
|
38
10.11† |
|
|
|
10.12† |
|
|
|
10.13† |
|
|
|
10.14† |
|
|
|
10.15† |
|
|
|
10.16† |
|
|
|
31.1† |
|
|
|
31.2† |
|
|
|
32.1† |
|
|
|
32.2† |
|
|
|
101.INS† |
Inline XBRL Instance Document – the instance document does not appear in Interactive Data File, because its XBRL tags are embedded within the Inline XBRL document. |
|
|
101.SCH† |
Inline XBRL Taxonomy Extension Schema Document |
|
|
101.CAL† |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
39
101.DEF† |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
101.LAB† |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE† |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104† |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
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† Filed or furnished herewith.
1 Certain schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company undertakes to furnish supplemental copies of any of the omitted schedules to the SEC upon request.
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BURLINGTON STORES, INC. |
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Chief Executive Officer (Principal Executive Officer) |
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/s/ John Crimmins |
Executive Vice President, Finance (Principal Financial Officer) |
Date: August 25, 2022
41
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 6/24/28 | ||||
| 12/22/26 | ||||
| 4/15/25 | ||||
| 1/15/25 | ||||
| 11/17/24 | ||||
| 12/29/23 | ||||
| 4/15/23 | ||||
| 1/28/23 | ||||
| Filed on: | 8/25/22 | 8-K | ||
| 7/31/22 | ||||
| For Period end: | 7/30/22 | |||
| 7/22/22 | 8-K | |||
| 7/20/22 | 8-K | |||
| 7/3/22 | ||||
| 7/2/22 | ||||
| 5/29/22 | ||||
| 5/28/22 | ||||
| 5/26/22 | 10-Q, 8-K | |||
| 5/24/22 | 8-K | |||
| 5/1/22 | ||||
| 4/30/22 | 10-Q | |||
| 2/16/22 | ||||
| 1/29/22 | 10-K | |||
| 8/18/21 | ||||
| 7/31/21 | 10-Q | |||
| 7/30/21 | ||||
| 6/24/21 | 8-K | |||
| 6/11/21 | 8-K | |||
| 5/1/21 | 10-Q | |||
| 1/30/21 | 10-K | |||
| 10/15/20 | ||||
| 4/16/20 | 8-K | |||
| 4/13/20 | 8-K | |||
| 3/27/20 | ||||
| 5/1/19 | 4 | |||
| 12/17/18 | ||||
| 9/2/11 | ||||
| 2/24/11 | ||||
| 4/13/06 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 3/15/24 Burlington Stores, Inc. 10-K 2/03/24 110:15M Donnelley … Solutions/FA 3/13/23 Burlington Stores, Inc. 10-K 1/28/23 114:19M Donnelley … Solutions/FA |
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 7/22/22 Burlington Stores, Inc. 8-K:1,2,9 7/20/22 11:1.5M Donnelley … Solutions/FA 5/26/22 Burlington Stores, Inc. 8-K:2,5,9 5/26/22 15:1.4M Donnelley … Solutions/FA 5/24/22 Burlington Stores, Inc. 8-K:5,9 5/18/22 11:350K Donnelley … Solutions/FA |