Burlington Stores, Inc. Q3 FY2024 earnings call

• Q3 Results: Total sales up 11%, comp sales up 1% (impacted by warmer temperatures, which subtracted 3 points from comp). Margin improved 80 basis points on 1% comp growth. - Q4 Outlook: Maintaining guidance of flat to 2% comp growth, total sales 5%-7% increase, adjusted EBIT margin down 50-80 basis points. - Long-Term Model: On track to grow total sales to ~$16 billion and operating income to $1.6 billion by 2028. Opened 147 new stores in 2024 (116 new, 31 relocations), projecting 101 net new stores by year-end. New store pipeline strong. - 2025 Outlook: Anticipates high single-digit total sales growth driven by 100 net new stores, flat to 2% comp growth, and modest margin expansion at the high end of the comp range.

Total sales increased 11% in the third quarter, with comp store sales growing 1%. The gross margin rate for the third quarter was 43.9%, an increase of 70 basis points versus the prior year. This was driven by a 50 basis point increase in merchandise margin due to strong regular price selling, faster inventory turns, lower markdowns, and better buying. Freight expenses decreased 20 basis points in the quarter. Product sourcing costs were $210 million versus $200 million in the third quarter of 2023, decreasing 50 basis points as a percentage of sales. Adjusted SG&A costs in Q3 were 40 basis points lower than last year. Adjusted EBIT margin expanded 80 basis points versus last year.

• Fourth Quarter 2024: Guiding comp sales flat to 2% growth, total sales 5%-7% increase, adjusted EBIT margin down 50-80 basis points, adjusted EPS range $3.55-$3.75. - Full-Year 2024: Factoring in Q3 actuals and Q4 guidance, comp store sales growth ~2%, total sales up 9%-10%, EBIT margins up 60-70 basis points, adjusted EPS range $7.76-$7.96. - 2025: Preliminary outlook for high single-digit total sales growth, flat to 2% comp growth, and modest margin expansion at the high end of the comp range.

• Weather impact: Unseasonably warm or cold weather can affect comp sales. - Economic factors: Potential economic slowdown or inflation could impact consumer spending. - Tariffs and tax code changes: Uncertainty around tariffs, tax changes, and other policies can create headwinds. - External uncertainties: General external uncertainties and disruptions can impact the business, but off-price retail may benefit in the long run from such disruptions.

Q: Matthew Boss from JPMorgan asked about weather impact on 3Q comp and Q4 risk.

A: Michael O’Sullivan responded that warmer temperatures impacted 3Q comp by 3 points, hurricanes added ~1 point, and Q4 is off to a good start with November month-to-date ahead of plan.

Q: Ike Boruchow from Wells Fargo asked about low-income consumer health and Q4 margin drivers.

A: Michael O’Sullivan discussed strong performance in lower income trade area stores and Kristin Wolfe detailed Q3 margin drivers (merch margin, freight, supply chain) and Q4 margin drivers (transitory headwinds in gross margin, higher shortage rate, lapping supply chain savings, calendar shift).

Q: Lorraine Hutchinson from Bank of America asked about new administration policies and 2025 margin outlook.

A: Michael O’Sullivan discussed potential impacts of policies and Kristin Wolfe outlined 2025 margin assumptions including merchandise margin improvement and supply chain efficiencies.

Q: John Kernan from TD Cowen asked about CEO timeframe and supply chain savings.

A: Michael O’Sullivan stated he's committed to Burlington and Kristin Wolfe detailed supply chain savings initiatives and future plans.

Q: Brooke Roach from Goldman Sachs asked about better brands mix and tariffs.

A: Michael O’Sullivan discussed assortment elevation and Kristin Wolfe provided details on tariff impact and mitigation strategies.

Q: Alex Straton from Morgan Stanley asked about Burlington 2.0 initiatives and Q3 comp trends.

A: Michael O’Sullivan highlighted merchandising and store-level initiatives and Kristin Wolfe discussed regular price vs clearance selling in Q3.