BURL Calls: 44.82% Returns in 15 Days

On September 5, I wrote a piece on trading options of Burlington Stores Inc. (NYSE:BURL) in a post titled “Hit and Run with BURL Calls.” You probably already know that Burlington Stores with its small market capitalization of $2.69B is a national off-price retailer of branded apparel, operating 503 stores, inclusive of an Internet store, in 44 states and Puerto Rico. The Company offers its merchandise using an Every Day Low Price (EDLP) model with savings up to 60-70% off department and specialty store regular prices.

In that post, I talked about the Burlington Stores’ upcoming release of second quarter results and optimistic analysts’ recommendations on the stock. Based on the bullish sentiments around the company, I gave the company a $39 price target and I recommended buying the BURL Dec 2014 35.000 call (BURL141220C00035000at an asking price of $4.35.

Performance in 15 Days

On September 5 when I went long BURL, the stock was trading around $36.35 per share and the Dec 2014 call that I recommended had an asking price of $4.35. As at 10.15AM EDT today, shares of Burlington stores have made a new 52-week high to $40.80 and the stock is currently trading around $40.46 per share. The options contract I recommended at an asking price of $4.35 now has an asking $6.30. Hence, shares of Burlington Stores have gained 12.24% and the options have delivered returns of 44.82% in 15 days.

Is it Time to Take Winnings and Run?

If you reexamine my September 5 article on Burlington Stores, you will observe that I was advocating a quick trade in BURL option. I mentioned the stock’s RSI index of 72.08 as an indication that the stock is foraying into overbought territory. The stock’s overbought situation still stands as it sports an RSI of 77.04.

Nonetheless, I posit that Burlington Store still has much upside potential ahead based on the strength of its second quarter (Q2 2014) results and the guidance for the third quarter.

The company reported second quarter revenue at $1.04B to beat analysts’ estimates of $1.03B and to mark an 8.3% improvement over revenue from the same quarter last year.

The company reported adjusted net loss of $0.9M to mark an improvement over the $13.6M that was reported in the same quarter last year.

The adjusted loss per share was $0.1 per share to beat the consensus analysts’ estimate of net loss of $0.8 and to mark a 47% improvement over the net loss of $0.19 that was reported in the same quarter last year

I am also impressed with the optimistic third quarter outlook and the raising of the FY 2014 outlook as presented in the highlights below:

For the third quarter of Fiscal 2014 (the 13 weeks ending November 1, 2014), the Company expects:

  • Net sales to increase in the range of 6.4% to 7.4%;
  • Comparable store sales to increase in the range of 3.0% to 4.0%;
  • Interest expense to approximate $17 million reflecting the debt refinancing completed on August 13, 2014;
  • Adjusted Net Income per diluted share in the range of $0.09 to $0.12 on 75.8 million diluted shares outstanding. This compares to an adjusted loss per pro forma share of $(0.05) in the third quarter of Fiscal 2013
  • To open 17 new stores and close one existing store resulting in a total store count of 539 at the end of the third quarter

How to Trade BURL Options

There remains more upside potential in the stock and options of Burlington Stores. Nonetheless, I will be running with my 42% gain on the Dec 2014 calls as I sell the contract to close. In the meantime, I recommend buying the BURL Dec 2014 40.000 call (BURL141220C00040000) at an asking price of $3.20.

— Daily Option Alerts

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