When it comes to red-hot IPOs, the usual suspects are fast-growing tech operators like Facebook (FB) or LinkedIn (LNKD). But such thinking overlooks many great offerings. Just look at the retailer Burlington Stores (BURL), which went public back October 2013.
Though it looks nothing like most sizzling growth companies, BURL has nonetheless provided bountiful returns for investors. Consider that it has gained about 190% over its IPO price!
True, things have calmed down today. BURL stock is off about 9% in today’s trading, on news of the company’s latest earnings report. But rather than being a cause for alarm, today’s drop might actually make for a nice entry point.
First, let’s take a deeper look at the fiscal Q1 numbers.
Burlington Stores Earnings
Sales climbed by nearly 5% to $1.18 billion and adjusted earnings came to 41 cents per share, up from 25 cents per share in the same period a year ago. The Street was expecting revenues of $1.18 billion and earnings of 40 cents per share.
However, same-store sales growth was meager, coming to 0.8% — down from 2.7% a year ago.
A variety of factors weighed on Burlington in Q1. The timing of refunds crimped sales, and the company suffered from adverse weather, light sales for Easter and less availability of markdown inventory. Fortunately, these are all temporary problems for BURL stock.
Indeed, Q2 forecast for BURL was in line with the analysts’ consensus, forecasting earnings per share to range from 10 cents to 13 cents on revenue growth of 7% or 8%.
If anything, the core business looks solid. BURL has hit a strong sweet-spot with consumers, focusing on branded, trendy merchandise that is sold at discounted prices (up to 60%-70% off department and specialty store regular prices). A key to the success is a sophisticated sourcing platform, which has roughly 5,000 vendors.
Over the years, the company has made some savvy moves. For example, Burlington has invested heavily in revamping its stores, adding better lighting, improved signage, better floor organization and faster checkout. The company has also been focused on providing a much cleaner environment.
Something else: There remains lots of room for growth. According to a recent BURL investor presentation, the company believes it can add another 1,000 locations to existing and new markets (the company currently has more than 500 stores).
In terms of valuation, BURL stock is certainly trading at reasonable levels. Consider that its forward price-to-earnings ratio is about 18, which is in line with other players in the market like Ross Stores Inc. (ROST).
Bottom Line for BURL
BURL stock is positioned nicely for the current economic environment. While job growth remains strong, wages are still fairly sluggish. So there is likely to be continued demand for off-price, branded apparel. The company’s investment in its furniture and home decor items also looks well timed, especially in light of the improvement in the real estate market.
Granted, the recent plunge in the stock is a bit scary. But for investors looking for a longer-term play, BURL stock looks very attractive right now.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
