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Competitors:
The following are the main competitors that I will be comparing BURL to using a variety of profitability metrics. These two companies were chosen because they represent the major competitors for BURL based on their products as well as their business strategy.
Profitability metrics:
The provided key metrics compare the performance of BURL and two of its major competitors (TJX and ROST) to the industry average across four years. The year 2019 was omitted due to the unavailability of industry average data for that year. Noteworthy events for BURL in 2019 were minimal and therefore not included.
Figure 1: Gross Profit Margin
Source: S&P Capital IQ
Gross Profit Margin: compared to its competitors BURL has a higher gross profit margin. This indicates that BURL is generating a significant percentage of revenue as profit after accounting for all expenses. Compared to its competitors BURL has the lowest cost of goods sold (COGS) which accounts for its higher gross profit margin. However, BURL categorize certain expenses differently on their financial statements, listing them under "Selling, general and administrative expenses" and "Depreciation and amortization." This can lead to differences in their cost of sales and gross margin compared to other companies, as they may include various expenses like buying, distribution, and store-related costs.
Despite being higher than its competitors, BURL's gross profit margin shows fluctuating trends. For instance, one year (2021) it's higher, and the next (2020, 2022) it's lower. These trends are mainly influenced by reduced merchandise margins, primarily caused by increased markdowns and shortage, along with rising freight costs.
It's important to note that the transition from 2020 to 2021 coincided with the onset of the Covid-19 pandemic, which significantly disrupted BURL's day-to-day operations. The increase in the cost of sales during Fiscal 2020 was mainly due to markdowns on aged inventory and extended store closures. Consequently, this impacted the lower gross profit margin in 2020 compared to 2021.
Compared to the industry average none of these companies surpass the industry average, but ROST consistently remains towards the lower end, while BURL tends to be positioned at the higher end of the spectrum.
Source: 2021, 2022, 2023 Burlington Stores 10K
Figure 2: Operating Profit Margin
Source: S&P Capital IQ
Operating Profit Margin: compared to its competitors, BURL has a lower operating profit margin. This can suggest that BURL may be facing challenges in generating profits from its core business operations. It may indicate that the company is struggling with high operating expenses relative to its revenue.
Intense competition within the industry can significantly impact this margin, as competition is fierce in the off-price retail sector. Companies often find themselves needing to lower prices to attract customers and remain competitive. Additionally, BURL's reporting of certain expenses under different account names compared to its competitors, as discussed in the gross profit margin analysis, is another factor worth noting.
The results for fiscal 2020 were notably affected by the COVID-19 pandemic, leading to a negative operating profit margin. The temporary closure of all stores during parts of fiscal 2020 resulted in a sales decline and higher inventory markdowns. Reopening after the pandemic also caused business disruption. Additionally, there was an increase in the cost of sales during Fiscal 2020, as discussed in the gross profit margin analysis.
During the same year, selling and administrative expenses rose as a proportion of net sales, mainly due to store closures and the overall sales decrease. BURL took significant measures to reduce these expenses, such as negotiating modified lease terms with landlords and furloughing employees. However, these cost-saving efforts were outweighed by increased product sourcing costs and expenses related to COVID-19 and store re-opening.
In 2021, there was a notable improvement in the operating profit margin. This was due to a decrease in selling, general, and administrative expenses as a percentage of net sales, primarily propelled by the overall increase in sales. Additionally, the net sales from the 79 new stores opened since the end of Fiscal 2020 contributed to this improvement.
However, in 2022, net sales declined, primarily because of a 13% decrease in comparable store sales during Fiscal 2022. This drop was influenced by economic pressures on BURL's core customers, promotional activities in the retail sector, and strong comparable store sales of 15% in the previous period. Despite this decline, the decrease in net sales was partially offset by the addition of 87 new stores since the end of Fiscal 2021.
These store closures did not repeat in fiscal 2021 or fiscal 2022. However, certain lingering economic effects of the pandemic did continue to impact results, including supply chain disruptions.
Compared to the industry average, BURL appears to underperform (with the exception of Fiscal year 2021). Interestingly, BURL's competitors consistently outperform the industry average, even during the pandemic. This suggests that these companies excel in managing expenses and maximizing profitability, which reflects positively on their financial health and operational efficiency.
Source: Source: 2021, 2022, 2023 Burlington Stores 10K
Figure 3: Return on Assets (ROA)
Source: S&P Capital IQ
Return on Assets (ROA): The ongoing impact of COVID-19 continues to affect BURL's operations. In Fiscal year 2020, the company experienced a negative return on assets (ROA). The decline in net sales, as mentioned earlier, contributed to the negative return. Furthermore, other revenue decreased notably, primarily due to a reduction in layaway fees and shipping income following the closure of the e-commerce store. BURL suspended its layaway program by the end of Fiscal 2020. Additionally, the company incurred a net loss in income in 2020, further contributing to the negative ROA. Compared to BURL, its competitors possess a larger quantity of assets. These factors, combined with those mentioned earlier, can explain the lower ROA observed for BURL.
Source: 2021, 2022, 2023 Burlington Stores 10K
Figure 4: Return on Net Operating Assets (RNOA)
Source: S&P Capital IQ
Return on Net Operating Assets (RNOA): RNOA assesses how effectively a company utilizes its net assets to generate profits by comparing its net profits to its net assets. RNOA is calculated by taking the Net Operating Profit after Tax (NOPAT) and dividing it by the average Net Operating Assets (NOA).
The formula for computing NOPAT is EBIT multiplied by (1 - tax rate). This indicates the profit the company would achieve if it didn't have any interest expense, interest income, or other non-operational income or expenses. The formula for NOA is the subtraction of excess assets and operating liabilities from total assets.
When compared to its competitors, BURL exhibits a lower Return on Net Operating Assets (RNOA). This is primarily attributed to its lower Earnings Before Interest and Taxes (EBIT) as well as average Net Operating Assets (NOA) in comparison to its industry counterparts. It's worth noting that BURL also maintains lower total assets, cash reserves, and other excess liabilities overall. Additionally, while its net operating liabilities are lower, they are closer to those of its competitors compared to the aforementioned metrics.
Therefore, although it could be argued that BURL may not be effectively utilizing its operating assets to generate income from operations, its competitors demonstrate a greater capability to generate more income with their asset base, if they operate efficiently.
Source: S&P Capital IQ
Figure 5: Operating Assets - Beginning of year
Source: S&P Capital IQ
Figure 6: Average Net Operating Assets (NOA)
Source: S&P Capital IQ
Figure 7: Net Operating Profit After Tax
Source: S&P Capital IQ
DuPont analysis
The DuPont equation looks at specific key metrics and helps us explain why the return on equity (ROE) has changed.
Net Profit Margin Total Assets Turnover Equity Multiplier
Figure 8: DuPont Analysis
Source: S&P Capital IQ
Figure 9: Net Profit Margin
Source: S&P Capital IQ
Net Profit Margin: The impact of the pandemic is evident again in the negative net profit margin for BURL and relatively low margins for its competitors. With the decrease in sales and a net loss in the Fiscal year 2020, a lower net profit margin is expected. However, in the subsequent years, the company still has a lower net profit margin compared to its competitors. This can be due to various factors such as higher operating expenses relative to its revenue compared to its competitors. Additionally, differences in scale, market positioning, geographic footprint, merchandise mix, and supply chain efficiency can also contribute to the variation in net profit margins. For example, the larger scale of TJX, which operates three stores, allows it to benefit from economies of scale. TJX can spread its fixed costs over a larger revenue base, leading to potentially higher profitability margins compared to Burlington, which operates as a single brand and may not have the same level of scale efficiency.
In Fiscal Year (FY) 2021, there was an improvement relative to FY 2020. This improvement was primarily driven by net sales generated from the 79 new stores opened since the end of Fiscal 2020, as well as the reopening of stores that were closed during FY 2020.
However, in FY 2022, the net profit margin experienced a decline compared to FY 2021. This decrease was primarily attributed to lower sales, as well as a reduction in the gross margin rate.
In contrast, for FY 2023, there was a slight improvement in the margin, which can be attributed to an increase in sales during that period.
Source: 2021, 2022, 2023 Burlington Stores 10K
Figure 10: Total Asset Turnover
Source: S&P Capital IQ
Total Asset Turnover
Even during FY 2020, BURL maintained a generally positive asset turnover ratio. While consistently trailing behind its competitors, its ratio remained close to the industry average. To contextualize this ratio in relation to competitors, it's crucial to consider the assets held by each company. For instance, TJX boasts a significant asset base and generates higher sales compared to BURL. Therefore, the higher asset turnover ratio exhibited by TJX isn't unexpected. Despite these differences, BURL has consistently demonstrated effective performance by efficiently utilizing its assets to generate revenue.
Figure 11: Equity Multiplier
Source: S&P Capital IQ
Equity Multiplier:
Burlington has a higher equity multiplier compared to its competitors, indicating that it relies more on shareholders' equity to finance its assets. While this might suggest heavy reliance on debt, it's actually a strategic choice for Burlington. The company is focused on aggressive expansion, improving operating margins, and driving growth in existing stores. To support these initiatives, Burlington needs significant funds, which come from both shareholders and retained earnings.
For instance, in FY2020, Burlington opened 62 new stores, including 17 relocations. In FY2021, the company opened 101 new stores, including 17 relocations. In Fiscal 2022, 113 new stores were opened, including 22 relocations. These expansion efforts are part of Burlington's ongoing growth plans, and the company continues to invest in capital projects to meet its financial needs.
Source: 2021, 2022, 2023 Burlington Stores 10K
What Is the Equity Multiplier? Definition, Formula, and Examples (investopedia.com)
Figure 12: Return on Equity
Source: S&P Capital IQ
Return on Equity:
When comparing Burlington (BURL) to TJX, BURL demonstrates a lower return on equity (ROE). However, its ROE is higher than the industry average and comparable to or higher than ROST. This comparison aligns with the findings from the DuPont analysis of the other aforementioned metrics.
Specifically, Burlington's lower net profit and asset turnover, combined with a higher equity multiplier compared to its counterparts, contribute to its lower ROE when compared to TJX. However, considering these factors collectively, it becomes apparent that Burlington's ROE over different years is not significantly deviating from what would be expected given its financial metrics and industry context.
Indeed, this analysis indicates that Burlington is adept at efficiently converting its equity financing into profits. Despite its lower return on equity compared to some competitors like TJX, Burlington's ability to generate profits relative to its equity investment is still notable, especially when considering industry averages.
Source: S&P Capital IQ
Return on Equity (ROE) Calculation and What It Means (investopedia.com)
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