Burlington Coat Factory Investments Holdings Inc. said second-quarter profits declined more than 20 percent but instituted a cost-cutting program that it expects will reduce costs by more than $45 million during the back half of the year.

In the three months ended Nov. 29, the Burlington, N.J.-based off-price chain’s net income fell 21.6 percent to $18.2 million from $23.2 million in the 2007 quarter, despite an almost $6 million reduction in interest expense against last year’s period and a $6.8 million impairment charge in the year-ago quarter.

However, the most recent quarter included $11.5 million in markdowns that in previous years had been taken in subsequent periods, and a $1.7 million write-off of Burlington’s investment in the troubled Reserve Primary [Mutual] Fund.

Sales moved up 5.9 percent to $1 billion from $946.6 million as a net increase of 33 stores helped overcome a 2.1 percent decline in same-store sales.

In December, sales increased 4 percent but declined 4.2 percent on a same-store basis.

Based on “weaker than expected second-quarter earnings and lower-than-expected December comparable-store sales,” Moody’s Investors Service last week downgraded the company’s corporate family rating to “B3” from “B2” and its speculative grade liquidity rating to “SGL-3” from “SGL-2.” About $1.2 billion in loans and notes were affected, and the outlook remained negative.

“The downgrades also reflect the risk that this lower earnings performance places Burlington Coat at risk for a potential financial covenant violation,” the ratings agency said, noting that further deterioration in sales and earnings was possible and that the firm might need to amend its covenants. “This could result in higher pricing under its term loan and revolving credit facilities, and may further weaken its interest coverage,” Moody’s said.
Without providing specifics, the company said it had undertaken several initiatives “to enhance the organization’s productivity…including some that have resulted in the elimination of certain positions and the restructuring of certain other jobs and functions.”

Tom Kingsbury, who joined Burlington as chief executive officer in December from Kohl’s Corp., said, “We are pleased to report a total sales and market share increase in a difficult economic and retail sales environment. In addition, by remaining focused on receipt management and staying current on seasonal product, we are well positioned to take advantage of opportunistic buys, which we believe will help us sustain our planned gross margin rate for the fiscal year.”

For the six months to date, the company reduced its net loss by almost half, to $14.3 million from $27.2 million as sales expanded 5.2 percent to $1.71 billion, with a 1.1 percent comparable-store sales drop.

The firm, acquired by Bain Capital Partners for about $2.1 billion in early 2006, is privately held, but discloses its financial results because of public debt. It operates 427 off-price stores in 44 states and Puerto Rico.