Value Line has initiated coverage of Burlington Stores, Inc. (BURL) in its flagship product, The Value Line Investment Survey. It is a nationally recognized retailer of high-quality, branded apparel at everyday low prices.

The company opened its first store in Burlington, New Jersey in 1972, selling primarily coats and outerwear. Since then, the retailer has expanded its store base to 521 stores, inclusive of an internet store, in 44 states and Puerto Rico. Furthermore, Burlington diversified its product categories by offering an extensive selection of in-season, fashion-focused merchandise, including: women’s ready-to-wear apparel, menswear, youth apparel, baby, footwear, accessories, home, and coats. The company acquires a broad selection of desirable, first-quality, current-brand, labeled merchandise directly from nationally recognized manufacturers and other suppliers. For the fiscal year ended February 1, 2014, it generated total revenue of $4,462.0 million.

The business was organized in 2013 under the name Burlington Holdings, Inc. and was incorporated in Delaware. Its indirect subsidiary, Burlington Coat Factory Warehouse Corporation (BCFWC), initially organized in 1972 as a New Jersey corporation, was reincorporated in 1983 in Delaware when the company originally became a public company and currently exists as a Delaware corporation. BCFWC later emerged as a direct, wholly-owned subsidiary of Burlington Coat Factory Investments Holdings, Inc. in connection with the acquisition of BCFWC on April 13, 2006 by affiliates of Bain Capital Partners, LLC. Following, in a take private transaction, the company became an indirect, wholly-owned subsidiary of Bain Capital on February 14, 2013, in connection with its corporate reorganization. Finally, the investment firm completed an initial public offering of BURL in October 2013. At present, affiliates of Bain Capital continue to beneficially own a controlling interest of Burlington Stores’ common stock.

The retailer’s average store size represents a competitive advantage. Indeed, a typical location occupies approximately 80,000 square feet, representing significantly more selling square footage than most off-price or specialty store competitors. Major landlords frequently seek BURL as a tenant because the appeal of its apparel merchandise profile attracts a desired customer base. Moreover, the company can take on larger facilities than many of its peers. In addition, Burlington has built long-standing relationships with major shopping center developers. The U.S. retail apparel and home furnishings markets are highly fragmented and competitive. Thus, Burlington competes for business with department stores, off-price retailers, specialty stores, discount stores, wholesale clubs, and outlet stores. At various times throughout the year, traditional full-price department store chains and specialty shops offer brand-name merchandise at substantial markdowns, which can result in prices approximating those offered by the retailer at its BCF stores.

Burlington Stores has performed well of late. Both the top and bottom lines have benefited from increased same-store sales. The company has indicated that it intends to open nearly 25 new stores by the end of this year, with a bulk of the openings slated for the fall (around the all-important holiday shopping season). Nevertheless, the retailer’s stock has registered lackluster results since its IPO, climbing just 8% during a time when equity markets soared to record-highs.

Although the company holds intriguing sales and earnings prospects over the long haul, it does not come without an element of risk. Burlington presently has a debt-to-capital ratio north of 100%, signaling that it is highly-leveraged at the moment. Therefore, the volatile nature of its business, coupled with shaky financials, suggest potential investors ought to exercise caution when evaluating a position here.

All told, subscribers interested in this retail apparel provider are advised to consult Value Line’s quarterly reports for Burlington Stores, Inc., as well as any supplemental reports and relevant articles as important news items arise.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.