Burlington Stores Is In Even More Trouble After Sales Fall 31%

Back in the Summer I wrote you two separate articles telling you to avoid Burlington Stores…

Today, I want to give you an update on them and answer the question – Burlington Stores Sales Fall 31% – What Should You Do?

You can read those past articles in full by using the links above…

But if you don’t want to; here’s a quick recap of what I said back in the Summer about it…

***

From Article #1 Linked Above

4 Reasons To Avoid Burlington Stores Stock

  1. It’s Got A Lot Of Debt

As a percentage of its balance sheet, Burlington Stores (BURL) is enormously indebted.

As of the most recent quarter its balance sheet is made up of 95.8% of total liabilities.  And its debt-to-equity ratio is 16.75.

I want to invest in safe stocks that will be around for decades to come to help me build wealth over the long term.  This helps insure I lose as little money as possible over time.

Typically, this means I invest in companies that have little to no debt compared to their cash and equity.

Burlington has the opposite problem – in too much debt on an individual basis.   And this makes it enormously risky.

I usually invest in companies that have debt to equity ratios at 1 or below.  Burlington’s is 16.75X this.

But there’s another reason to stay away from its stock.

2. It’s Not Producing Enough Profits and Cash Flow

In the most recent quarterly data Burlington is barely profitable on a net income basis.  And it produced below average free cash flow.

These both due to increased costs related to the coronavirus which I’ll detail more below…

Its net income profitability margin in the trailing twelve months (TTM) period was 0.8%.  And its free cash flow to sales (FCF/Sales) margin in this same time was 4%.

EDITOR’s NOTE – Trailing twelve months just means the last 12 months consecutively.

Generally, you want these numbers to be as high as possible on the positive side because that means the company is generating profits and cash flow from its operations.

But net income is barely positive.

On this metric I look for anything above 10% on a consistent basis to consider investing in the stock.

And its FCF/Sales is below my minimum threshold of 5% that I look for to invest in a stock.

These important metrics are both far below what I look for to invest in a company.

The problem with low profitability combined with a massive amount of debt is dangerous by itself…

But there are still other reasons to avoid its stock.

3. The Retail Apocalypse

The Retail Apocalypse is former great retailers like Sears, JC Penney, Macy’s, Bed Bath & Beyond and others losing out to people shopping online and collapsing.

It’s impossible to give you exact stats on the following due to the slow decline of individual companies in the retail industry.

But millions of jobs have been lost to this trend already.  And thousands if not tens of thousands of stores have closed nationwide.

And it’s only going to continue with the rise of people shopping and then getting things delivered directly to their houses.

This has been going on for years… But retail store closures due to the coronavirus is accelerating this.

Since the start of the coronavirus pandemic in March the following retailers declared bankruptcy.

  • JC Penney
  • Brooks Brothers
  • Lucky Brands
  • GNC
  • J. Crew
  • Neiman Marcus

And according to reports many other retailers are preparing to file for bankruptcy.

A few retail stores like Bed Bath & Beyond, Burlington, and Macy’s are hanging on as best they can by laying off employees and closing stores to conserve on costs.

But it won’t work.

All these companies are likely to head to $0 at some point barring some kind of discounted buyout or the companies going private.

And speaking of the coronavirus…

That gets us to reason #4 to avoid Burlington stock.

4. Uncertainty Related To The Coronavirus

This all circles back to the beginning and the coronavirus.

Air travel, hotels, and restaurants are still getting hammered.

But so are many other industries worldwide.  And clothing retail stores are one of those industries.

Retail sales in general are still way down from their high levels before the pandemic hit in March.

And clothing sales specifically are still down 63.3% in the year-to-year period from May 2019 to May 2020.

With coronavirus cases now exploding in the US and worldwide people will continue avoiding retail stores for the foreseeable future… And that’s if these stores continue to remain open and not get shut down again.

For all the reasons talked about above, retail stores – outside of grocery stores – are in massive trouble.

And with Burlington already having a lot of debt and low margins this will negatively affect them a ton.

I recommend you stay far away from this entire industry for the time being for the reasons above.  But especially stay away from Burlington.

***

From Article #2 Linked Above

This was proved out more on August 27th, 2020 when Burlington released its up-to-date quarterly numbers… They weren’t good.

Revenue fell 39% to $1 billion in the 2nd quarter of 2020 compared to $1.39 billion in the 2nd quarter of 2019.

Net income fell to negative $46.8 million in the 2nd quarter of 2020 compared to positive $84 million in the 2nd quarter of 2019.

The company kept its share buyback program suspended.  And Burlington removed its guidance for the rest of the year…  Both due to the “uncertainties” surrounding the coronavirus.

In other words, due to these uncertainties Burlington removed its yearly financial guidance… Usually companies only do this when they expect bad numbers for the rest of this year.

Due to the continued large numbers of coronavirus cases and the still mass unemployment nationwide this issue won’t be resolved any time soon.

And because of its large debt load Burlington is in major danger of going bankrupt due to the large fall in sales to unprofitability.

For this reason, and the 4 in the earlier article I recommend you avoid the entire old school retail industry… But especially avoid Burlington Stores.

***

This thesis to avoid Burlington Stores continued to play out on November 24th, 2020 when its most up to date quarterly earnings released.

  • Revenue fell 6% in the year-to-year quarterly period to $1.67 billion.
  • Revenue in the first 9 months of 2020 is down 31% to $3.47 billion compared to $5.06 billion in the first 9 months of 2019.
  • Net loss in the first 9 months of 2020 fell 244% to negative $372.5 million.

Ouch.

And just to stay afloat its taken on even more debt…

Debt and operating leases are now up 41% to a total of $4.57 billion compared to a total of $3.24 billion this time last year.

Much lower revenues combined with unprofitability and increased debt is bad enough for Burlington…

But things are about to get worse.

Coronavirus cases are still exploding nationwide.  And this is leading cities and states to begin lock downs again.

Which will lower revenue and profits even further.

Before this pandemic even hit, Burlington was in some danger of bankruptcy due to the Retail Apocalypse mentioned further above.

Now its in extreme danger.

For all these reasons continue avoiding Burlington stock.

Click here to see some of the stocks we recommend to Depression Proof Your Portfolio.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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