Weak selling in March at Burlington Stores Inc. plus a cautious second quarter projection means the off-price retailer will have to rely on a really strong back half to meet its reiterated full year sales and earnings guidance.
In a Nutshell: Burlington’s Q1 missed its own comparable sales growth projection, and adjusted diluted earnings per share (EPS) missed Wall Street’s estimates for the period.
CEO Michael O’Sullivan said the quarter “fell off in March” after a strong start. Until mid-March, comp growth was “running up double digits,” but lower tax refunds and cooler weather leading up to Easter curbed that trend, he told investors on a call. O’Sullivan pointed to a “nice pick-up in our trend since mid-April” that’s continued into May.
He believes sustained momentum could turn things around. Merchants are “ready and able to chase” sales, he said, noting that there’s “great merchandise coming into the off-price channel.”
Much depends on what happens with lower-income customers. “So it makes sense to manage our business cautiously and be ready to chase the stronger trend,” he said.
The CEO acknowledged that charging higher prices last year was a mistake that “backfired.” With many of Burlington’s customers struggling to make ends meet, asking them to pay more when rivals were rolling out promotions wasn’t the best move.
The off-price retailer seems to be seeing “early evidence of a trade-down customer in our stores,” according to the CEO, who said locations in higher-income areas are “outperforming the rest of the chain.”
Burlington is starting to deploy its Merchandising 2.0 strategy aimed at better responding to trends.
At the end of the quarter, inventories were down 2 percent to $1.23 billion. Reserve inventory was 44 percent of total inventory at the end of the first quarter versus 50 percent a year ago.
The gross margin rate was 42.3 percent, up from 41 percent a year ago. Lower freight costs offset a slight decline in merchandise margins from higher markdowns.
The company opened six net new stores, bringing the total store count to 933 doors. That includes 13 new store openings and seven stores it relocated or closed. O’Sullivan said Burlington is on track to open 90 to 100 new stores this year.
Net Sales: For the three months ended April 29, net sales were up 10.8 percent to $2.13 billion from $1.93 billion. Comparable store sales rose 4 percent from year-ago levels, below the company’s guidance for a gain of 5 to 7 percent. However, comps on a three-year stack were up 3 percent from 2019 levels.
Earnings: Net income more than doubled in the quarter to $32.7 million, or 50 cents a diluted share, from $16.2 million, or 24 cents, in the same year-ago period. On an adjusted basis, EPS was 84 cents for the quarter.
Wall Street was expecting an adjusted diluted EPS of 92 cents on revenue of $2.17 billion.
For the second quarter ending July 29, 2023, Burlington forecasted sales to rise in the range of 8 to 10 percent, with comparable store sales up 2 to 4 percent versus year-ago levels. Adjusted EPS was guided to the range of 35 cents to 45 cents.
For the full year ending Feb. 3, 2024, total sales are expected to be up 12 to 14 percent, with comparable store sales up 3 to 5 percent. The fiscal year includes a 53rd week. Adjusted EPS was guided to the range of $5.50 to $6.00. The company expects to open 70 to 80 net new stores during the year.
CEO’s Take: “We feel very good about our underlying strategies and our focus on delivering strong value to our customers, and we are encouraged by the recent trend that we have seen in our business,” O’Sullivan said. “We are being cautious in how we are planning Q2, but we are ready to chase if the sales trend turns out to be stronger than guidance.”