Americans must be chilly, because winter coats are selling like crazy. Burlington Coat Factory (BURL) seems to be keeping everyonewarm. The stock has doubled since coming public in 2013 and, judging from its earnings announcement last Friday, there's more to come.
However, there is one compelling reason why I am staying away from it right now.
The last time I was in a Burlington Coat Factory, the store looked like a place where Russian ladies lined up to get sausages and toilet paper during the Cold War. Dirty carpets, leaky ceilings, flickering florescent tubes, disorganized merchandise thrown all around. The place was depressing. I bought a baby gate to keep my puppy from falling down the stairs, because it was the least expensive gate I could find. I rushed out of the store so fast the cashier didn't have time to hand me a receipt.
The last thing I remember about the store was how large it was. In fact, the average store is between 50,000 and 80,000 square feet, much larger than the typical TJMaxx, which usually tops out at 30,000 square feet.
Today, Burlington has a new outlook. After hiring Tom Kinsgbury as CEO in 2008, Burlington has dramatically improved inventory turns and reduced inventory. By freshening up the merchandise, the company has increased store traffic and same store sales. It is renovating dingy stores and building about 25 new ones a year.
On Friday, the retailer boosted its outlook. Management told investors to expect net sales for the fourth quarter to increase between 9.6% and 10.1%, up from 7.2%-8.2%. The company hiked earnings per share guidance too, and now expects to earn $1.71 vs. pervious guidance of $1.66.
Burlington has been growing faster than its competitors because, according to NPD Research, its version of everyday low price is the fastest-growing piece of the discount category. It targets women with slightly lower incomes and focuses on "moderate" national brands. Companies like TJMaxx focus on consumers with a higher income who shop for better-know national brands. Burlington's stores are larger, which allows the company to offer a great depth to its merchandise.
Burlington's off-price apparel strategy has been growing at a compounded annualized rate of 6.2%. The traditional off-price retailers have been growing at rates of around 5%, while the department store sector has seen a three-year decline of 0.2%.
Because of the company is serving a less affluent market that is growing faster, its revenue is expected to grow 8% to $4.7 billion in fiscal 2015. Analysts think the company can extend its growth streak into next year and put up similar revenue growth. With about 7.5% growth for fiscal 2016, it could report as much as $5.1 billion in revenue and earnings of $2.23 a share.
After Monday's close, Bain Capital Partners announced it was selling 12.5 million shares in a secondary offering. Trading at 29x earnings and with a secondary offering, I'd be reluctant to chase this stock.