Burlington More Than Doubles Q2 Profits
Burlington Stores Inc. had a very good second quarter.
“Our well-ahead of plan sales growth plus healthy margin expansion drove very strong earnings growth in the second quarter,” Burlington’s CEO Michael B. O’Sullivan told analysts Thursday during a company conference call. He said new stores were the key driver of growth in the quarter.
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He also said the company is on track to open 100 net new stores for the year. Burlington opened 36 net new stores for the quarter, ending with 1,057 locations. On average, new stores typically hit $7 million in sales in their first full year.
“I am pleased to say that our new stores are running ahead of this benchmark,” O’Sullivan said, adding that the company continues to see “very strong” performance in full-price selling. “Our merchants are focused on offering really sharp value out of the gate at the initial ticketed price. This is driving faster turns and lower markdowns. This means that there is less inventory making it to the clearance rack,” he said. Both the faster turns and lower number of markdowns booster the off-pricer’s gross margin for the quarter. Also helping with profitability in the quarter was Burlington’s faster-than-expected progress on its supply chain efficiency initiatives.
O’Sullivan also noted that Burlington has made progress on a number of changes and improvements to its business in merchandising and operations. In addition, helping the quarter’s results was the external retail backdrop, which the CEO described as “more favorable.”
He also said that while inflation has moderated, which helped lower-income shoppers, “economic pressure and uncertainty has spread and broadened well beyond” just the lower income shopping cohort. The CEO said the now greater focus on value across demographic groups and income levels is what has helped Burlington, and which provides grounds for optimism for the back half of the year.
For the three months ended Aug. 3, net income more than doubled to $73.8 million, or $1.15 a diluted share, from $30.9 million, or 47 cents, a year ago. Total revenue rose 13.4 percent to $2.47 billion from $2.17 billion, which included a 13.4 percent increase in net sales to $2.46 billion from $2.17 billion. Comparable store sales were up 5 percent. On and adjusted basis, diluted earnings per share (EPS) were $1.24.
Wall Street was expecting adjusted diluted EPS of 95 cents, on a revenue estimate of $2.41 billion.
For the six months, net income also more than doubled to $152.3 million, or $2.37, from $63.6 million, or 98 cents, in the same year-ago period. Total revenue rose nearly 12 percent to $4.83 billion from $4.31 billion, which also included a nearly 12 percent gain in net sales to $4.81 billion from $4.30 billion.
For the third quarter ending Nov. 2, the company expects adjusted EPS at between $1.45 to $1.55, with total sales rising between 10 percent to 12 percent and comparable store sales up 0 percent to 2 percent. For the full year ending Feb. 1, adjusted EPS was guided to the range of $7.66 to $7.96, with total sales up 9 percent to 10 percent and comparable store sales rising 2 percent to 3 percent.
O’Sullivan said comp sales in the first half of the third quarter are driven by back-to-school trends, but the back half is dependent on weather. If weather is unseasonably warm, the comp trend gets suppressed. The hope is that the flat-to-2-percent comp guidance for the third quarter turns out to be conservative. “If the trend is stronger, then we will chase it,” he said.
He also said that the retailer had good back-to-school trends in July, which for Burlington includes kids’ apparel, accessories, and footwear, as well as juniors’ and young men’s, and other specific categories within the footwear business. And there’s also a component in home due to back-to-campus opportunities. The CEO also noted that those sales trends continue to perform well in August.
O’Sullivan said the company has been increasing its mix of better brands, which helps to drive increased trade-down traffic to the company’s stores. But he also noted that while brands are very important in sportswear, they are less important in juniors, where styles and fashions are critical. And he pointed out that better brands carry a lower markup, adding pressure on gross margin.
Kristin Wolfe, executive vice president and CFO, added that while the company opened a new distribution center (DC) this year, it is constructing another much larger DC that it expects to open in 2026. The new DCs are designed for off-price and with more automation. She said there’s an opportunity to go back and look at modernizing some of its existing legacy DCs.