Burlington Coat hurt by leveraging costs

Burlington, N.J. -- Hobbled by soaring interest expense since its takeover a year ago, and picking up the tab for a sharp jump in stockpiles, Burlington Coat Factory Investments Holdings Inc. recorded a 74.1% slide in second fiscal quarter profits, to $11.7 million from $45.4 million during the same period a year ago.

Sales at the off-price retailer, the parent of Luxury Linens, grew by 4.2%, to $984.8 million from $945.4 million last year. Same-store sales declined by 2.4%, falling progressively during the period, hurt by unseasonably warm weather which stunted sales in its core apparel business. After rising by 5.0% in September, comps began their slide in October, slipping 1.3%, then dropping 8.8% in November.

Interest expense in the quarter jumped to $35.2 million from just $1.5 million last year. For the six months, interest costs climbed to $70.6 million from $3.3 million during the same period a year ago.

Putting the profits under even greater pressure, inventories climbed steeply, rising by 29.0%, and pulling $205.1 million away from the bottom line.

Average gross margin widened substantially during the second quarter, rising by 230 basis points, or 2.3 percentage points, to 39.0% from 37.7 % a year ago, helped by higher initial markups and lower freight costs. But offsetting some of that margin improvement, operating costs climbed higher when measured as a percentage of rising sales, creeping up by 130 basis points, or 1.3 percentage points, to 29.2% from 27.9% last year.

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