Stock Analysis

Does Burlington Stores (NYSE:BURL) Have A Healthy Balance Sheet?

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NYSE:BURL
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Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Burlington Stores, Inc. (NYSE:BURL) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Burlington Stores

What Is Burlington Stores's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of October 2020 Burlington Stores had US$2.16b of debt, an increase on US$979.2m, over one year. However, it does have US$1.35b in cash offsetting this, leading to net debt of about US$810.3m.

debt-equity-history-analysis
NYSE:BURL Debt to Equity History February 25th 2021

A Look At Burlington Stores' Liabilities

The latest balance sheet data shows that Burlington Stores had liabilities of US$1.74b due within a year, and liabilities of US$4.88b falling due after that. On the other hand, it had cash of US$1.35b and US$274.8m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$5.00b.

Burlington Stores has a very large market capitalization of US$17.7b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Burlington Stores's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Burlington Stores made a loss at the EBIT level, and saw its revenue drop to US$5.7b, which is a fall of 20%. That's not what we would hope to see.

Caveat Emptor

While Burlington Stores's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost US$245m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of US$166m into a profit. So we do think this stock is quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Burlington Stores that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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What are the risks and opportunities for Burlington Stores?

Burlington Stores, Inc. operates as a retailer of branded apparel products in the United States.

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Rewards

  • Earnings are forecast to grow 30.41% per year

Risks

  • Debt is not well covered by operating cash flow

  • High level of non-cash earnings

  • Significant insider selling over the past 3 months

  • Profit margins (1.9%) are lower than last year (4.9%)

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