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BURL's Revenue components:
The company reports segment information following ASC Topic No. 280 "Segment Reporting." Burlington operates as an off-price retailer, offering customers a wide range of value-priced apparel, including women’s ready-to-wear apparel, menswear, youth apparel, baby items, beauty products, footwear, accessories, home goods, toys, gifts, and coats.
Sales percentages by major product category are as follows:
Figure 1: Revenue % by product category
Source: 2022, 2023 Burlington Stores 10K
As evident from the sales breakdown, Burlington's primary revenue drivers are accessories and shoes, with these categories contributing the largest portion of sales. Following closely behind is the segment of ladies' apparel, which also constitutes a significant portion of the company's sales. This highlights the importance of these product categories within Burlington's overall business model and emphasizes the company's focus on offering a diverse range of fashion-forward accessories, footwear, and apparel to its customer base.
Revenue Recognition:
BURL record revenue when goods are transferred to the customer, usually at the point of sale and delivery of merchandise. They deduct allowances for expected returns based on historical return rates. Sales, excluding sales taxes, are shown in their Consolidated Statements of Income (Loss). Layaway sales are recognized when the merchandise is delivered to the customer. The cash received at the start of a layaway is recorded as a liability. Stored value cards (like gift cards and store credits) are recorded as a liability when issued, and the sale is recorded when redeemed.
Breakage income from stored value cards is estimated and recognized based on actual redemptions. Breakage income is recognized monthly, reflecting historical redemption patterns for cards unlikely to be redeemed.
Source: 2023 Burlington Stores 10K
Vertical Analysis:
A vertical analysis was conducted comparing BURL to one of its closest competitor TJX companies over a period of 5 years (2019-2023)
Burlington
The cost of goods sold (COGS)
The cost of goods sold (COGS)
COGS is BURL's most significant expense, and it naturally rises with increased sales. Another factor impacting COGS is the high supply chain costs incurred by BURL as it endeavors to procure off-price merchandise to maintain its customer appeal.
COGS is BURL's most significant expense, and it naturally rises with increased sales. Another factor impacting COGS is the high supply chain costs incurred by BURL as it endeavors to procure off-price merchandise to maintain its customer appeal.
Source: 2019, 2021, 2022, 2023 Burlington Stores 10K, S&P Capital IQ
Selling General and Administrative Expenses (SG&A)
Selling General and Administrative Expenses (SG&A)
SG&A are Burlington's second highest expense. For Fiscal year 2020 we see a higher SG&A cost as % of revenue compared to the other years where it remained around 30% of sales. This increase was due to temporary closure of all stores and the overall decline in sales. Although significant steps were taken to reduce selling general, and administrative expenses during this period, they were outweighed by increased product sourcing costs, as well as expenses related to COVID-19 and store re-opening.
SG&A are Burlington's second highest expense. For Fiscal year 2020 we see a higher SG&A cost as % of revenue compared to the other years where it remained around 30% of sales. This increase was due to temporary closure of all stores and the overall decline in sales. Although significant steps were taken to reduce selling general, and administrative expenses during this period, they were outweighed by increased product sourcing costs, as well as expenses related to COVID-19 and store re-opening.
Other factors that affect the SG&A costs are increased product sourcing costs and deleverage in occupancy as well as higher store count and sales volume.
Source: 2019, 2021, 2022, 2023 Burlington Stores 10K, S&P Capital IQ
Depreciation and amortization costs
Depreciation & Amort. for BURL represent the third-highest expense as a percentage of revenue. The highest percentage observed was 3.83% during Fiscal year 2020. This increase was primarily driven by capital expenditures related to new and non-comparable stores, as well as expenditures related to the supply chain.
Source: 2019, 2021, 2022, 2023 Burlington Stores 10K, S&P Capital IQ
Gross Profit
Gross profit as a % of sales has remained around 40%, except for Fiscal year 2020. As previously mentioned, this was during the COVID-19 pandemic, which led to a decrease in sales, consequently affecting the gross profit. During this period, we also observed an increase in the cost of goods sold (COGS), primarily due to markdowns on aged inventory resulting from extended store closures.
Source: 2021, 2022, 2023 Burlington Stores 10K, S&P Capital IQ
Operating Income
BURL's operating income remained around 8.5% for Fiscal years 2019 and 2021. However, there was a negative percentage in 2020, which coincided with the COVID-19 period, causing numerous disruptions. In other years, such as 2022 and 2023, other expenses were higher compared to previous years, potentially accounting for the observed decrease in operating income as a percentage of revenue.
Source: 2021, 2022, 2023 Burlington Stores 10K, S&P Capital IQ
Net Income
The net income as a percentage of sales was negative during Fiscal year 2020 due to the disruptions caused by the pandemic, including the temporary closure of all stores and subsequent business disruption upon reopening caused by the COVID-19 pandemic.
In Fiscal year 2019, the highest percentage of net income is primarily attributed to an improvement in gross margin dollars.
In other years, lower net income as a percentage of revenue can be attributed to lower sales, as well as a decreased gross margin rate.
Source: 2020, 2021, 2022, 2023 Burlington Stores 10K, S&P Capital IQ
TJX & comparison to Burlington
The cost of goods sold (COGS)
The cost of goods sold (COGS)
Compared to BURL, TJX has a higher COGS as a percentage of revenue. This is expected because TJX is larger in size and generates significantly more sales than BURL. Therefore, any increase in sales would directly lead to an increase in the COGS account.
Source: S&P Capital IQ
Selling General and Administrative Expenses (SG&A)
Selling General and Administrative Expenses (SG&A)
TJX maintains lower SG&A compared to BURL. This indicate that TJX effectively manages its costs relative to its revenues. Despite generating more revenue than BURL, TJX finds ways to keep SG&A expenses lower.
In Fiscal year 2022, TJX's reduced SG&A costs were influenced by lower store payroll due to reduced COVID-19 related expenses and decreased share-based and incentive compensation costs.
Additionally, TJX benefited from $214 million from government programs for Fiscal 2022 in regions with temporary store closures.
Source: 2022, 2023 The TJX Companies, INC. 10K, S&P Capital IQ
Gross Profit
BURL has a higher gross profit as a percentage of revenue compared to TJX. This can be attributed to the fact that Burlington has a lower cost of goods sold (COGS) as a percentage of revenue compared to TJX. This difference in COGS percentage helps explain the higher gross profit percentage observed for Burlington.
Source: S&P Capital IQ
Operating Income
Compared to Burlington, TJX has a higher operating income as a percentage of revenue. This can be attributed to the lower Selling, General, and Administrative Expenses (SG&A) as well as lower other operating expenses that TJX incurs.
Source: S&P Capital IQ
Operating Income
Based on the factors we have discussed, such as lower SG&A expenses, other expenses, and higher operating income, it is reasonable to expect that TJX would have a higher net income as a percentage of revenue compared to Burlington.
Source: S&P Capital IQ
Quality of Earnings:
Source: S&P Capital IQ
The Earnings Quality Ratio has shown a consistent increase over the years, except for Fiscal year 2020. This decline can be attributed to both reduced cash generated from operations and a net loss of $216.50 incurred by the company during that period, justifying the negative Earnings Quality Ratio observed. The decline in operating cash flows was mainly due to the temporary closure of all stores and the subsequent disruption upon re-opening caused by the COVID-19 pandemic.
In the subsequent years, the Earnings Quality Ratio continued to rise, indicating that Burlington's earnings provide a reliable measure of its current performance and serve as a good predictor of future performance.
Additionally, cash from operations increased over time, except for Fiscal year 2022 where a decrease was observed compared to other years (except for FY 2020). This decline in operating cash flows was mainly due to lower sales and margins in Fiscal year 2022, as well as changes in working capital, particularly resulting from a policy change in accounts payable leading to earlier payments to vendors.
Source: 2020, 2021, 2022, 2023 Burlington Stores 10K
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