Liabilities and Debt Financing

Leverage usage

Debt to Equity 

The two charts provided depict the comparison of BURL's debt to equity ratio with those of its primary competitors, TJX and ROSS, spanning a period of five years. Throughout all five years, BURL consistently maintains a higher ratio compared to TJX and ROSS. This indicates that BURL heavily relies on debt to support its operational activities. This reliance on debt may be attributed to BURL's strategic initiatives aimed at ongoing expansion with establishment of new stores.

Debt to Total Assets 

Over the five-year period, BURL exhibits the highest Debt to Total Assets ratio compared to ROST and TJX. This suggests that a significant portion of the company's assets is financed by debt. More than half of BURL's debt are financed by creditors and over the years this proportion has remained consistent (not decreased). To investors this may mean increased financial risks, therefore BURL should prudently manage its debt obligations and explore strategies to reduce its leverage, thereby enhancing its financial stability.

On the other hand, ROST and TJX display similar ratios to each other, with consistent patterns of both increase and decrease. This suggests a favorable trend in their financial well-being. These companies possess significant asset holdings, with less than half being financed by creditors.

EBTIDA Coverage Ratio

Over the five-year period, BURL consistently displays a lower EBITDA Coverage Ratio compared to its peers. This suggests potential challenges for BURL in covering its interest expenses with its earnings before interest, taxes, depreciation, and amortization. Such a scenario could indicate increased sensitivity to changes in interest rates and may raise concerns among investors, stakeholders, and creditors.

In fiscal year 2020, BURL recorded an EBITDA Coverage Ratio of -1.09, primarily attributed to a combination of lower EBITDA and higher interest rates during that specific period. Despite experiencing a gradual increase in interest expenses over the years, BURL's EBITDA did not parallel the same trajectory.

Conversely, ROST and TJX demonstrate higher EBITDA Coverage Ratios, indicating their ability to meet interest obligations with earnings. In fiscal year 2019, ROST notably achieved a high EBITDA Coverage Ratio, largely attributable to significantly lower interest rates prevailing during that period.

Cash Flow Coverage Ratio

Over the course of five years, BURL consistently exhibits a lower Cash Flow Coverage Ratio compared to ROST and TJX. This suggests that the company may encounter challenges in covering its interest expenses with its operating cash flow. As a result, several issues may arise, including liquidity challenges, as a significant portion of its operating cash flow might be needed to fulfill interest obligations. Furthermore, there could be an increased risk of default if the company struggles to make timely interest payments. Overall, this indicates potential financial difficulties and underscores the importance of closely monitoring the company's cash flow management and debt servicing capabilities.

In contrast, ROST and TJX demonstrate a higher Cash Flow Coverage Ratio, reflecting their financial health and ability to meet interest payments with operating cash flow. In fiscal year 2019, ROST notably boasts a remarkably high Cash Flow Coverage Ratio, attributed to considerably lower interest expenses and robust cash flows from operations.

Altman Z-Score

Altman Z-Score was developed by the American finance professor Edward Altman. It is used to predict the chances of a business going bankrupt in the next two years. It is considered an effective method of predicting the state of financial distress of any organization by using five different variables which will be summarized below. 

The tables provided illustrates the variables utilized to compute each company Z-score. Each variable carries a distinct weight in the calculations, with variable C exerting the greatest influence and variable D the least.

A. Working Capital / Total Assets (TA)

Variable A is a liquidity indicator. It provides valuable information about a company's liquidity and its ability to meet short-term obligations. Compared to competitors BURL has the highest ratio indicating that it is in a good position to meet its short-term obligations. This aligns with earlier analyses (asset recognition), which indicated that BURL is well-positioned to handle its short-term obligations.

B. Retained Earnings / (TA)

This ratio provides insights into a company's long-term profitability. It provides knowledge into how much of a company's total assets are financed by internally generated funds that have been retained and reinvested in the business over time. In comparison to its peers, BURL demonstrates the lowest ratio, suggesting that a relatively smaller portion of its assets has been funded through retained earnings. This observation is consistent with previous findings that suggested a significant portion of BURL's assets is financed through external borrowing.

C. EBIT / (TA)

This variable weights the most in the Z-Score calculation. It demonstrates short term profitability. This ratio is a key indicator of a company's ability to generate operating income from its asset base. Among the three companies BURL has the lowest ratio, which may indicate that the company may be using its asset inefficiently to generate revenues. It is important to note that both ROST and TJX have significantly higher operating income compared to BURL suggesting that other factors/metrics must be considered in order to determine BURL capability to generate revenue using its assets. 

When compared to its counterparts, BURL boasts the lowest Z-Score, yet it remains within the favorable "green zone," suggesting financial stability. ROSS, on the other hand, exhibits the highest Z-Score among the trio, aligning with its consistently higher Z-Score variables throughout the analysis. Overall, all three companies reside within the "green zone," indicating solvent financial conditions.

Types of debt

 Long Term Debt

Long term debt consists of: 

Figure 14: Long term debt composition

Source: Burlington Stores 2024 10K

Term Loan Facility

The Term Loan Facility maturity date was extended from November 17, 2024 to June 24, 2028. Interest rate margins applicable to the Term Loan Facility were also changed. In the case of prime rate loans from 0.75% to 1.00%, and from 1.75% to 2.00%, in the case of LIBOR loans, with a 0.00% LIBOR floor. Quarterly principal payments of $2.4 million were also mandated.

2025 Convertible Notes

The 2025 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. The 2025 Convertible Notes will mature on April 15, 2025, unless earlier converted, redeemed or repurchased.

2027 Convertible Notes

The 2027 Convertible Notes bear interest at a rate of 1.25% per year, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2023. The 2027 Convertible Notes will mature on December 15, 2027, unless earlier converted, redeemed or repurchased.

ABL line of credit

The Amended ABL Credit Agreement provides Burlington Stores with commitments totaling $900.0 million, with the possibility of increasing to $1,200 million under certain conditions. Interest rates for loans drawn under this agreement are determined by the Secured Overnight Financing Rate (SOFR) or the prime rate. The ABL Line of Credit is collateralized by a first priority lien on inventory, receivables, bank accounts, and related assets, with a second priority lien on other assets.

At January 28, 2023, the Company had $795.7 million available under the ABL Line of Credit. The Company did not have any borrowings during Fiscal 2022.

At February 3, 2024, the Company had $708.8 million available under the ABL Line of Credit. The Company did not have any borrowings during Fiscal 2023.

Defered Financing Cost:

As of February 3, 2024, Burlington Stores had $2.1 million in deferred financing costs related to its ABL Line of Credit, recorded under "Other assets" on the Consolidated Balance Sheets. Additionally, $7.0 million in deferred financing costs associated with the Term Loan Facility and Convertible Notes were recorded under "Long term debt."

During Fiscal 2023, Fiscal 2022, and Fiscal 2021, the amortization of deferred financing costs amounted to $3.2 million, $3.6 million, and $5.3 million, respectively. These costs were included in the "Interest expense" line item on the Consolidated Statements of Income.

Amortization expense related to deferred financing costs as of February 3, 2024 for each of the next five fiscal years and thereafter is estimated to be as follows:

Scheduled maturities of the Company’s long term debt obligations, as they exist as of February 3, 2024, in each of the next five fiscal years and thereafter are as follows: 

Link to excel file