Burlington Targeted by Short Seller Spruce Point Capital

  • Firm points to ‘aggressive’ accounting in research report
  • Executive turnover and insider selling also are cited

Burlington Stores Inc.’s share price has the potential to drop 40 percent because of “aggressive accounting” and other issues, according to a report from short seller Spruce Point Capital Management.

The discount apparel retailer has been touting impressive sales, gross margins and earnings-per-share gains, and “we don’t think it can last,” New York-based Spruce Point said in a report. We’ve “identified numerous financial presentation, accounting and business issues that could be signaling a slowdown in future financial results.”

Burlington, formerly called Burlington Coat Factory, has been on a run since its initial public offering in 2013, with the shares rising to $72.44 on Tuesday from $17. After the report was published on Wednesday, Burlington fell as much as 4.7 percent to $69.22.

Sales have gained 6.6 percent to $5.34 billion in the past 12 months. In the same period, earnings per share have increased by more than 80 percent to $2.37.

Spruce Point, which has gone public with short bets against other companies such as Planet Fitness Inc., said Burlington sold a tax credit from New Jersey in the third quarter of 2015 but booked the $2.5 million gain in the first quarter of this year. That boosted its earnings per share by 2 cents, which helped it beat analysts’ estimates. The firm also cited management turnover, including Chief Financial Officer Todd Weyhrich leaving in January 2015, and current executives selling stock as signs of instability.

Short sellers borrow shares of a company and then sell them, hoping to buy them back at a lower price.

Burlington didn’t immediately respond to requests for comment.

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