Burlington (BURL) Up 13.3% Since Earnings Report: Can It Continue?

About a month has gone by since the last earnings report for Burlington Stores, Inc. (NYSE:BURL) . Shares have added about 13.3% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Burlington Stores Q3 Earnings Beat, Revenues Miss

Burlington Stores continued with its positive earnings surprise streak in the third quarter of fiscal 2017. However, net sales fell short of the Zacks Consensus Estimate, after surpassing the same in the preceding quarter.

This off-price retailer posted adjusted earnings of 70 cents a share that beat the Zacks Consensus Estimate of 65 cents and surged from 51 cents delivered in the year-ago period. Higher sales, margin expansion, cost control and share repurchase activity drove the bottom line.

Net sales came in at $1,438.2 million, increasing 7.1% year over year but falling short of the consensus mark of $1,441.1 million. Comparable store sales (comps) rose 3.1% during the quarter compared with 3.7% growth registered in the year-ago quarter. This was the 19th straight quarter of comps growth.

Gross margin increased 100 basis points to 42.2% mainly owing to higher merchandise margin. Adjusted operating income increased 29% to $88.9 million, while operating margin grew 104 basis points to 6.2%.

Adjusted EBITDA soared 22.2% to $133.9 million, while EBITDA margin as a percentage of sales, expanded 115 basis points to 9.3% on account of higher gross margin. Management now anticipates adjusted EBITDA margin expansion of 80-90 basis points in fiscal 2017.

Burlington Stores now intends to focus more on categories such as home, beauty and ladies apparel. Further, the company remodeled 34 stores in fiscal 2017. During the quarter, the company opened 31 net new stores, and plans to open an outlet and close four by the end of the final quarter. Management informed that new and non-comp outlets contributed $60 million to the third-quarter sales. The company plans to open 37 net new stores. Further, it believes that there is room to increase the store count to 1,000.

Other Financial Aspects

Burlington Stores ended the quarter with cash and cash equivalents of $48.1 million, long-term debt (excluding current maturities) of $1,294.3 million and shareholders’ deficit of $110.5 million. For fiscal 2017, the company projects net capital expenditures of approximately $215 million.

During the quarter, the company bought back 804,577 shares worth $70 million, of which $39 million was remaining under the previous share buyback program and $31 million was done under the new $300 million authorization announced on Aug 16, 2017. At the end of the quarter, the company had $269 million remaining under its current share buyback program.

Outlook

Management now expects total sales to increase in the band of 8.1-8.4%, including 1.4% from the 53rd week during fiscal 2017. Earlier, the company had forecast total sales growth of 8.4-8.9%. The fall in the rate of growth is attributable to the closure of 19 stores in the third quarter and expected closure of eight stores in the fourth quarter, lowering sales by $17 million and $25 million, respectively.

The company projects comps growth of 2-3% for the final quarter, resulting in comps increase of 2.3-2.6% for the fiscal year. Burlington Stores forecasts total sales increase of 11-12%, including 5% from the 53rd week for the fourth quarter.

The company now envisions fiscal 2017 adjusted earnings in the range of $4.23-$4.27 per share compared with $3.24 reported in the prior year. This includes an expected benefit of 4 cents on account of the 53rd week and 20 cents a share related to the accounting change for share-based compensation. For the fourth quarter, earnings are expected to come within the range of $2.02-$2.06 per share compared with $1.78 reported in the prior-year period.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one upward revision lower for the current quarter.

Burlington Stores, Inc. Price and Consensus

Burlington Stores, Inc. Price and Consensus | Burlington Stores, Inc. Quote

VGM Scores

At this time, the stock has a strong Growth Score of A, though it is lagging a lot on the momentum front with a D. Following the exact same course, the stock was allocated also a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth investors than those looking for value.

Outlook

While estimates have been moving downward, the magnitude of the revision is net zero. The stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.