Q2 2021 Burlington Stores Inc Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Burlington stores, Inc. Second quarter 2021 earnings webcast and conference call.

At this time all participant lines are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question during the.

Session.

You will need to press Star then one on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today.

David Glick Senior Vice President Investor Relations and Treasurer. Please go ahead.

Thank you operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2021 second quarter operating results are.

Our presenters today are Michael O'sullivan, our Chief Executive Officer, and John Crimmins, Chief Financial Officer.

Turn the call over to Michael.

I would like to inform listeners that this call may not be transcribed.

Or did or broadcast without our expressed permission.

Replay of the call will be available until September 2nd 2021.

We take no responsibility for inaccuracy that may appear in transcripts of this call by third.

Before I remarks, and the Q&A that follows are copyrighted today by Burlington stores.

Remarks made on this call concerning future expectations events strategies objectives trends or projected financial results are subject to certain risks and uncertainties.

Actual results may differ materially.

So is that are projected in such forward looking statements.

Such risks and uncertainties include those that are described in the company's 10-K for fiscal 2020 and in other filings with the SEC all of which are expressly incorporated herein by reference.

Please note that the financial results and expectations.

From those we discussed today are on a continuing operations basis reconciliations of the non-GAAP measures. We discuss today to GAAP measures are included in today's press release now Here's Michael.

Thank you David good morning, everyone.

And thank you for joining us.

We are going to structure.

Patients mornings discussion as far as.

First I will review our second quarter results.

Second I will discuss the outlook for the second half of fiscal 2021.

And third.

I will share some comments on our ESG initiatives.

And our most recent corporate social responsibility report.

After that I will hand, the call over to Jon to walk through the financial details.

Then we will be happy to respond to any questions.

As a reminder, the results that we discuss today.

Trucks is being compared to the equivalent period in 2019.

Given the impact of the pandemic last year.

<unk> 2020 results do not provide a good basis for comparability.

Okay. So let's talk about our results.

Total.

<unk> grew 34% in the second quarter.

Which followed a 35% increase in Q1.

Think about that.

We grew our sales by over a third versus the first half of 2019.

This is compelling evidence that.

Filing from 2.2 initiatives are working.

And we are taking significant market share as the consumer and the broader economy begins to recover from the COVID-19 pandemic.

Now I will talk about comp store sales.

Comparable store.

In the second quarter increased 19%.

We believe that there were several factors that drove that very strong comp performance.

These factors included.

Number one.

The residual impact of the federal stimulus payments that.

We're distributed in March.

Number two pent up demand as the Covid vaccines became more widely available during the quarter and consumer spending picked up.

Number three the beginning of the monthly child tax credit payments in July.

Sales before our own very strong execution of our buildings and two point and type of strategies.

Turning to category and regional performance once again, our strength in the second quarter was it very broad based.

All of our major merchandise.

Henry's easily outperform their plans.

And comp store sales in all regions of the country, we're well ahead of our expectations.

Our gross margin in the second quarter increased by 88 zero basis points.

This.

Cash bank, a 120 basis points increase in <unk>.

Freight expense.

Of course, this means that our merchandise margin grew by a very robust 200 basis points.

This increase was once again driven by lower markdowns.

Just the buying environment in the second quarter was very favorable and we were able to find great merchandise values to flow to stores and to fuel. How we're ahead of plan sales trend.

At quarter end, our in store inventory levels were down 7% on a comp store basis.

This is a relatively modest decrease compared to recent quarters and it reflects a deliberate strategy.

In fact, we chose to accelerate back to school receipts to ensure that global supply chain challenges did not impede our ability to take advantage of.

The opportunity that we see for the back to school period.

To better understand how we managed our inventories during the second quarter. It is more instructive to look at our average weekly comp store inventories.

These were down 25% during the quarter.

But the balance of fiscal 2021, you should expect to see similar double digit decreases in comp store inventory.

As you know this is a core element of our Burlington two point strategy to run with leaner inventories and to ensure a fresher assortment.

The sales front of the customer.

Reserve inventory was 31% of our total inventory at the end of the second quarter versus 33% in the 2019 period.

Again, this end of quarter metric does not convey.

Ingalls, scoring.

We have continued to significantly expand our use of reserve inventory as a tool to chase the sales trend.

In fact, our reserve receipts during Q2 increased 86%, while our reserve releases.

Increased 64%.

In other words, there was a lot more movement in and out of reserve and that was in 2019.

In the second quarter, we were able to make some great opportunistic and strategic buys to put into reserve.

At the same time.

We moved up the release of other goods from reserve to fuel has strong sales trend.

Moving on to new store performance.

We are very pleased with the initial rollout of our new smaller store prototype.

During the spring season.

We opened 16 stores that with 30000 square feet or less.

And the results are extremely encouraging.

As you know we expect the smaller formats to become our main new store prototype over the next couple of years.

As a point of information one of these recent openings is in Patchogue New York.

This is fairly close to those of you who live in the New York City area. So I encourage you to visit the floor spend some money and of course, let me know.

Inc.

In a moment I will talk about the outlook for the rest of the year.

But before I do that do that now that the results of the second quarter are in I would like to briefly review our performance for the year to date.

In other words for the spring season has a home.

As a retailer.

Taylor, we break the year into two hearts.

Building, our plans and strategies for the first half of the year the spring season.

And then separately building, our plans and strategies for the second half of the year before season.

So I think it is helpful and instructive to step back and ask.

I will get our strategies work in the spring season, and how well did we execute on these strategies.

Also by looking at the season as a whole this naturally flattens some of the timing issues that can affect or distort one quarter or another.

So how did.

We do.

Well for the spring season, Q1, and Q2 combined our top line sales growth was 34%.

Our comp store sales growth was 20%.

Our operating margin grew by 240 basis points.

And our adjusted.

Earnings per share was ahead by 73%.

Look we know this was not all of us.

There were onetime factors such as the federal stimulus payments and the release of pent up consumer demand.

There is no doubt that these one time factors helped drive.

Our results have.

It helped drive every retailers results.

That said, we feel very good about our own performance on an absolute and on a relative basis.

With that said, let me turn to our outlook for the second half of fiscal 2021.

Based on our stronger than expected year to date results. We have increased our baseline plan for comp store sales for the full season as a whole from our previous plan of flat to a new plan of plus 10% comp growth.

We are already three and a half weeks into the quarter.

And I'm happy to report that our August month to date sales trend is currently running well ahead of this.

We are chasing the trend and we have growing confidence that we will exceed the 10% hurdle for Q3.

As we get further into the quarter, we will update and adjust.

Our baseline plan.

But for now there are significant reasons to remain cautious.

Yeah.

At this point the surge in Covid cases, driven by the Delta variant shows no signs of letting up.

And it is unclear what impact this may have on consumer spending in.

In the weeks ahead.

In this environment it makes sense to plan our business conservatively and then adjust as we learn more.

Throughout this year, we have demonstrated our.

Extraordinary ability to chase the sales trend.

We will do the same.

<unk> in the pool season, if the sales trend is there.

Moving on from the sales outlook I would like to spend some time talking about the extraordinary freight and supply chain expense pressures that we're seeing.

For several quarters now there has been a significant inbound.

Imbalance in global transportation systems between demand and available capacity.

This has caused unprecedented volatility and disruption in deliveries and merchandise across all sectors of retail.

And it has caused a significant spike in international.

<unk> and domestic freight rates.

As we move into Q3 and the peak period for retail deliveries the situation is getting much worse.

Again this is not at all unique to Burlington. These conditions are affecting all retailers.

Based on our experience and success. So far this year, we are confident that despite these issues.

We will be able to get timely receipt of the merchandise that we need to support our trend.

But in doing this.

Back to income significantly higher freight and.

And supply chain expenses.

As John will detail in a moment, we are anticipating some offsets to these higher expenses in particular continued markdown savings driven by faster inventory turns.

<unk> leverage on other expenses, if we achieve our sales plans.

But overall these higher logistics costs will put significant pressure on our operating margins.

Before I leave this topic. It is important to make the point that the issue I have just described a huge imbalance between demand and available capacity in.

Patient systems is being driven by short term factors.

On the one hand, the surge in consumer demand in the United States and on the other hand, the limited capacity of domestic and international transportation systems further hampered by labor shortages and restriction.

Transplant associated with the pandemic.

We do not believe that this this imbalance or these factors are permanent.

It will not happen right away, but we expect these issues to normalize over time.

As they normalize we would anticipate that freight rates will.

<unk> back down.

We also believe that as the situation normalizes that could be a significant backlog of merchandize that.

Makes its way into the off price channel.

Okay before I turn the call over to John There was one other very important topic that I would like.

We will comment Sean.

Earlier this week, we published our third annual corporate social responsibility report.

We are very proud of this report and the accomplishments and progress that it describes.

As a company, we recognize that driving shareholder value is extremely important.

But it should not be the only thing that we focus on.

And it cannot be the only objective that we measure ourselves against.

We have a much broader set of responsibilities.

Our associates to our customers and to the communities that we serve.

These are all critically important.

Horton stakeholders.

We believe that by serving these stakeholders, we will build a stronger better and more sustainable company.

And that in doing this we will further enhance and drive shareholder value over the longer term.

The CSR report that we pumped.

Earlier. This week is intended to back up these words with specific details on the programs that we're pursuing and data on the progress that we're making.

It covers important topics like inclusion and diversity.

Community outreach and support and environmental sustainability.

To be clear, while we are proud of our commitment and our accomplishments. We regard this as a journey and we know that we have plenty of work still to do.

I would encourage you all to take a look at the report which is available on our Investor Relations website.

I invite you to follow up with.

With us if you have questions or would like more information.

Now I would like to turn the call over to John to provide more detail on our second quarter financial performance.

Sean.

Thanks, Michael and good luck.

Morning, everyone.

Let.

Let me start with a review of the income statement.

As a reminder, the results we discussed for the second quarter of fiscal 2021 are being compared to the second quarter of fiscal 2019.

For the second quarter total sales grew 34% while comparable store sales increase.

Increased by 19%.

The gross margin rate was 42, 2% an increase of 80 basis points versus 2019 second quarter rate of 41, 4%.

This improvement was driven by an approximately 200 basis point increase.

And our merchandise margins, which was attributable primarily to a reduction in markdowns.

This merchandize margin improvement more than offset a significant increase in trade expense, which was approximately 120 basis points higher than 2019 second quarter.

Quarter right.

Okay.

Product sourcing costs, which include the cost of processing goods through our supply chain and buying costs were.

$146 million versus $82 million in the second quarter of 2019, increasing 160 basis points.

As a percentage of sales.

Higher supply chain costs accounted for nearly all of the deleverage.

The drivers of this expense pressure were consistent with what we had seen in Q4 and Q1 <unk>.

Higher wage rates and wage incentives and.

And the disruption in the flow.

Oh of receipts across the global retail supply chain.

Adjusted SG&A was $550 million.

$441 million in 2019.

Decreasing 170 basis points as a percentage of sales.

SG&A leverage was primarily due to leverage in occupancy and store payroll.

Adjusted EBIT margin increased to eight 3%.

110 basis points higher than the second quarter of 2019.

All of this resulted.

And diluted earnings per share.

Of $1.50 versus a $1.26 in the second quarter of 2019.

Adjusted diluted earnings per share were $1.94.

Versus $1.36 in the second quarter of 2019 and increase.

A 43%.

During the quarter, we opened eight net new stores, bringing our store count at the end of the second quarter two.

Two 792 stores.

This included 11, new store openings.

One relocation and two closures.

This brings us to total store openings of 37 gross and 31 net for the spring.

We still expect to open 100, new stores in fiscal 2021, while closing or relocating 25 stores for a net addition of 75 stores.

We ended the period with available liquidity of approximately 1.9 billion, including approximately $1.3 billion in unrestricted cash and $534 million of availability on our ABL.

Our total balance sheet debt is now one.

8 billion, which includes $961 million on our term loan and $805 million in convertible notes with no outstanding balance on our ABL.

During the second quarter, we executed a make whole call for the $300 million outstanding of our six two.

Two 5% 2025 senior secured notes.

Additionally, during the second quarter, we refinanced our term loan extending the maturity to June 2028 from November 2024, while our interest rate spread.

Increased modestly by 25 basis points to LIBOR, plus 200 basis points.

We continue to remain hedge on $450 million of the 961 million notional value.

We extended our current interest rate swaps.

Swapped through a blend and extend transactions moving the maturity of the swap out to June 2028, and lowering the LIBOR rate on the swap from 272% to $2 one 9%.

Okay.

Our previous share repurchase authorization expired.

Earlier, this month and our board recently approved a new $400 million authorization that expires in August 2023.

As we've said in the past our first priority remains investing in our long term growth and reducing our leverage.

We.

We are pleased with the recent reduction in our leverage and the progress we've made over the last nine months.

Going down to $400 million previously outstanding on our ABL.

End of fiscal 2020, and retiring our $300 million in senior secured notes in June.

Looking ahead, we are focused.

Our display deploying excess cash where we see the most accretive use.

Now I will turn to our outlook.

Despite the recent strength of our business the outlook remains very unpredictable. So we are not providing specific sales or earnings guidance.

For the remainder of fiscal 2021.

But as we did in our last earnings call.

We would like to share some high level comments on how we are thinking about our financial performance for the second half of 2021.

Yeah.

Like other retailers, we are seeing significant.

Incremental pressure from freight and supply chain costs.

As we discussed on our first quarter call. These pressures impact us primarily in three areas.

First.

Ocean freight.

The capacity versus demand imbalance for all imports.

<unk> has continued to worsen.

It is driven related costs, well past, what we had been anticipating.

These higher rates affect our margin on all merchandise.

The small portion of our business that we directly import.

And the merchandise that is important by the vendors we buy from.

Second domestic for them.

A very similar story demand far exceeds supply for all modes of transportation and as the situation has continued to worsen rates have continued to escalate well past, what we had been anticipating.

And third supply chain costs.

This demand has far exceeded what most retailers are planned for the competition to increase staffing levels to meet the higher volumes.

Has driven wages higher again.

Our expected price.

Our expected increase in supply chain cost is driven partly.

By additional base wage increases.

Me by temporary incentives and partly by inefficiencies caused by the overall disruption in the global supply chain.

With that as background.

Let's move to some specifics.

As Michael mentioned earlier.

We will continue to plan sales conservatively and adjust our business to the trends that we see just as we did in the first half of fiscal 2021.

Our current baseline comp sales plan for the second half of the year is a 10% increase.

As Michael mentioned earlier, given our strong.

Start to the quarter, we have growing confidence that Q3 may exceed this hurdle.

But we will keep our fault baseline comp sales plan at 10% until we are further along and have better visibility as to as to what to expect in the fourth quarter.

Based on this.

This revised comp store plan for the fall season to.

Combined with our better than expected Q2 comp sales results.

We are now planning for our full year comp store sales increase of 14%.

As our previous plan for a 7% increase.

As you think about.

<unk> sales growth for the full fiscal year versus FY 19.

Remember, it's a factor in two years of new stores over this time period.

We opened 31 net new stores during the first half and we expect to open 44 net new stores in the second half of this year primarily in Q3.

<unk> totally growth in new store in non comp sales combined with our updated full year comp baseline assumption of 14%.

Would potentially deliver approximately 28% total sales growth for the full fiscal year.

Given the dynamic and volatile.

Boston environment, we are facing.

It's difficult to provide specific margin metrics for the balance of this year.

However, we thought it might be helpful to share some of our internal modeling assumptions for Q3.

Yes, we were to hit a baseline pump sales plan of 10% in Q.

Until.

Then our modeling suggests that our EBIT margin would decline by approximately 250 basis points.

Driven by 450 basis points, combined freight and product sourcing cost deleverage.

Offsetting that cost pressure.

We would.

Three 200 basis points.

<unk> merchandise margin expansion and SG&A expense leverage.

Okay.

On our last earnings call, we shared that with the Q1 results and our planning assumptions of a 10% comp in Q2 and flat.

Flat comp in Q3, and Q4, we would've expected a full year EBIT margin decline of 20 to 30 basis points compared to fiscal 2019.

Now after factoring in our Q2 results, our new 10% comp sales planning assumptions for the fall season.

And the significant incremental freight and supply chain cost pressures.

Our modeling assumptions result in relatively flat.

EBIT margins for fiscal 2021.

We do expect most of the deleveraging impact of freight and supply chain costs.

To be temporary.

And the global supply chain capacity and demand are more in balance.

We would expect to see an operating margin tailwind.

But it's not yet clear when to expect that to happen.

Two final points before I turn the call back to Michael.

First please keep in mind that these comments, we are making on our planning assumptions are intended to help you understand how we are modeling our business.

As we said earlier, we expect the business environment in the second half of the year to continue to be very difficult to predict for sales demand.

And for freight and supply chain costs.

Our planning assumptions are based on estimates that may not be accurate.

Second word.

We wanted to reinforce the point, we made on last quarter's call.

As you update your model for 2022, it will be there.

Very important to back out the impact of onetime sales benefits from external factors such as the federal stimulus checks in Q1.

Up demand we saw in Q2.

And the additional benefit from a child tax credits for the balance of 2021.

Of course.

We'll provide more information on our 2022 sales outlook later this year or early next year.

With that I will turn it over to Michael for closing remarks.

Thank you John.

Let me wrap up my remarks by congratulating.

We like Burlington family.

Our exceptional performance in the second quarter and the first half of fiscal 2021.

As I have said before this is a really exciting time to be at the company.

We have very strong momentum.

We are building and strengthening our team.

The income and we are achieving results that are at the top of our retail peer group.

Our 34% total sales growth year to date reinforces our confidence in our ability to take significant market share over time.

Meanwhile, despite the temporary.

<unk> expense headwinds that we're facing we remain very excited about our ability to significantly expand operating margins over the next few years.

With that I will turn it over to the operator for your questions.

Operator.

Thank you.

Reminder, to ask a question you will need to press Star then one on your telephone to withdraw your question. Please press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Matthew Boss your.

Your line is now open.

Great Thanks, and congrats on another nice quarter.

Yeah.

Michael maybe first on the top line could you just help quantify or provide any additional color around some of the factors that drove your second quarter comp growth.

Okay.

Sure well good morning, Matt and thank you for the question.

As you'll probably recall in the for the first quarter, we estimated the impact.

Of the federal stimulus checks as being worth 10 to 15 points of comp growth.

That analysis was fairly straightforward.

Grateful with the checks were sent out.

Over a very short time period in March of this year.

And we could see the sales lift in the days and the weeks that the.

So the analysis wasn't hard with any confidence about that estimate.

For Q2.

As I said in the script.

There were several factors that we think drove our comp growth, including probably a residual impact from those stimulus checks plus pent up demand as lifestyle, let's get back to normal in Q2, and then the child tax credit payments that were made later in the quarter.

We certainly try to quantify the impact of each of those.

But it was much more difficult.

For example, how do you quantify pent up demand. So so we don't really have an estimate that we can we can share for Q2.

But nevertheless, I would say.

We're pretty sure that the impact of those items was pretty significant.

The reason that that's important.

Is that.

Is that all of those items and nonrecurring. This year. These factors have been like a rising tide, they they've lifted all retailers.

In 2022, we would expect that that tide is going to recede.

So as John said earlier as you think.

About the sales models for 2022.

It will be very important to back out the significant impact of those onetime items not just for us but for every retailer.

Great and then maybe just a follow up on freight and supply chain expenses for for John could you just help provide some color on.

The higher freight and supply chain expenses that youre seeing today and then maybe more so what makes you think that these costs are temporary.

Well, thanks, Matt good morning.

It's a really good question I think it's worth taking a couple of minutes to explain in some detail what we're seeing.

Coming into this year, we and really all of the retailers were tentative and somewhat conservative in our sales plans.

But he was really sure what to expect.

Driven by the government stimulus payments pent up consumer demand and other onetime factors.

Sales levels across the retail industry have gone well beyond what anyone would have expected six months ago.

Faced with this surge in demand all retailers have been competing with each other for capacity alone really every link of the global supply chain.

The competition.

So that capacity has driven rates to unprecedented levels.

An example, the spot rate per shipping container from China to a west coast Port shortly before the pandemic had been running around 1500 Bucks.

To do that now cost $15000 and the rates are still increase.

<unk> print.

There arent enough containers.

Shifts.

Trucks are trains there's more volume now than any part of the supply chain pipe can adequately handle.

Every piece of the pipe is slower.

Our backlogs to work through every step of the way.

Can work around these issues.

Most retailers have increased their orders and tried to accelerate them ahead of the fall and holiday season.

This is even further increase the pressure on the supply chain, helping to drive even higher rates.

The companies that can afford to.

The additional costs are worth incurring.

Increase for Italy, because even after covering these costs be added operating profit is accretive even if it temporarily enhance operating margins.

Temporarily there may be the case the keyword.

The situation.

We believe most economists seem to agree.

<unk> will moderate over time as demand subsides and as capacity is added.

So like many others, we think the global supply chain issues will likely carry into next year, but at some point the imbalance between demand on the one hand and capacity and the other will start to correct.

<unk> itself.

When this happens.

Would expect freight and the rest of the temporary costs related to the disruption in the DC labor shortage to become a tailwind for most companies, including us and.

I remember.

Well it continues.

We do expect the disruption to help us.

To be able to continue to find plenty of terrific merchandise values for our customers.

Thanks for all the color and congrats again on the continued momentum guys.

Thanks, Matt.

Thank you.

Our next question comes from the line of Lorraine Hutchinson. Your line is now open.

Thank you good morning.

John you you've achieved similar comp growth in the first and second quarters, but your operating margin expansion was much stronger in <unk> can you take us through the factors that drove the difference between the quarters.

Sure Good morning Lauren.

For the question.

Let me just frame the question a little bit.

I'll answer it.

EBIT margin expanded 360 basis points in the first quarter and.

And only 110 basis points in the second quarter. So that's about a 250 basis point difference.

We had a very similar comp.

Level, so why is that.

Well gross margin was really the key driver of the difference expanding only 80 basis points from the second quarter versus 230 basis points from the first so that's 150 basis points of the difference.

Markdowns were the big driver of the gross.

Margin difference and this wasn't unexpected for us.

You may remember that during the first quarter call, we said that the markdown improvement in Q1 would not be sustainable.

Q1 was kind of unique we were comparing to the first quarter of 2019 that quite a bit of clearance activity.

Activity.

Historically first quarter had been a weak gross margin quarter for us we often carried over holiday clearance merchandise from the fall, which dragged our first quarter margin that this did happen to us in the first quarter of 2019, but.

But in the first quarter of 2021.

Started with incredibly fresh.

<unk> and lean inventory.

And then with the well above plan, 20% top of the first quarter, our inventory turns increased nearly 60%, which.

Which we also said we would not be sustainable.

And it turns out we were right or inventory turns did slow down in Q2.

But they still improved by a.

Very respectable 49%.

Aside from gross margin the remaining 100 basis points difference was largely driven by less SG&A leverage.

Most of that was driven by less advertising leverage in Q2 compared to Q1 and.

And more deleverage from its.

In.

Incentive comp in the second quarter.

Yeah.

Thanks, and then my second question is from Michael related to pricing several retailers have talked recently about taking up prices to offset some of these cost pressures.

What are you seeing in terms of pricing in the market.

And could this be an opportunity for Burlington as well.

Well good morning, Lorraine, great to hear from you.

I would say that we are very skeptical about the ability.

A retailer to sustainably raised prices across the categories that we compete in.

There are really two reasons for that skepticism.

Lee.

It's important to grow a distinction between.

Higher realized prices in the short term versus permanently higher prices longer term.

Okay.

Clear.

The inventory levels across the retail industry have been very lean this year and as a consequence.

It's been very little promotional activity that means that realized prices have been higher for many retailers.

We just don't think that's sustainable.

Realized prices the highest because inventories are lean but the.

And the inventories are lean is that theres been a huge surge in consumer demand at the same time.

Supply chains have been constrained.

So we think that when the situation normalizes.

It's slightly realized prices will come back down to more like historical levels.

That's the first reason was skeptical the second.

The second factor that may be feeding into that is that the.

Is the spike in freight and supply chain costs. If you. If you believe that those costs are permanent.

And I think you could make a good case that retailers may.

Posco concern in the form of higher prices.

But you know as we.

As we said in the remarks and as John just described we think those costs.

Most of your back a moment in time.

Short term imbalance between demand and capacity.

Just picking up on one of the data points that John.

Quite a bit earlier.

Ocean freight rates are about 10 times higher now than they were in 2019.

That is not because operating a ship or paying adult artwork is 10 times higher it's because demand exceeds capacity.

That inbound when it launched it will normalize.

Sure. So we think any price increase that's based on those short term costs again, it's just not likely to be sustainable.

So that's our assessment now let me wrap up my answer by saying we could be wrong.

Prices across retail really will move up in the next year or two and to be clear we wouldn't mind.

A tool for an off price, we kind of like how much that would be terrific.

It would help to further expand our value differentiation.

Through the lens of Burlington to point out.

We would see this as a great opportunity to drive sales not not to drive molecule that could drive sales.

Yeah.

Thank you.

Thanks Helane.

Thank you. Our next question comes from the line of Ike Boy Chao. Your line is now open.

Hey, Good morning, Michael John David.

Michael question for you.

To start just a couple of long term question is actually just I guess based on the comments today I'm curious.

Curious if you could help us on how you're thinking about 2022.

Given what you are up against in 2021 is there a way you could help us understand how you are planning the business next year in any way.

Yeah.

Well good morning.

Thank you.

No.

A very good question.

You know having.

Having just done at 20% comp for the spring of 2021.

It is pretty challenging to think about well how should we planned spring of 2022.

We're getting to a point, where we're starting to work on that because typically as.

As we move into October November we start working on our plans for the following spring I don't have a lot of details to share, but but let me do this let me offer up a possible scenario for 2022 in terms of what the I could look like.

We think that it's possible that 2022 will be a very difficult.

Yeah across the retail industry.

And I'm, not saying that with any sense of do more pessimism on the country.

Difficult and turbulent is in retail are often very good for off price.

So as I sort of lay out why we think it could be difficult you should interpret this is me feeling upbeat and not the opposite.

And so really two reasons why why I'm, saying I think 2022 could be.

A difficult year in retail the first reason, we kind of touched on earlier.

In 2021 every retailer has benefited from significant onetime items that are grip and much higher sales levels than they otherwise would have.

Got it.

When we kind of anniversary those items in 2022.

Comps could well turn negative in fact mathematically that seems very lightly.

Secondly, in 2021 that surge in sales.

Was accompanied by Glu.

Global supply chain constraint.

Teens.

And very lean inventory levels.

Which means that many retailers have seen just a remarkable recovery in margins.

Okay, and if you scroll forward to 2022.

Consumer demand does Paul.

And it's likely that those supply chain constraints are going to ease.

So you could you could see an increase in the flow of merchandise into the country.

At the very time that comp sales trends have turned negative.

Now the scenario I've just described are negative sales trend across retail and a looser supply of merchandize.

Could create huge disruption.

The consequences for off price.

And so Burlington to point in time in particular.

Could be very favorable.

Also with the potential to further accelerate our ability to take share.

I don't I don't want to oversell the scenario I've just described.

For the past 18 months have demonstrated.

There are serious hazard to anyone making predictions so the top of that next year, that's kind of the point.

For 2022, given the uncertainty we think that we're going to need to be very flexible and very nimble. So we can respond to any scenario, we face, including the scenario I've just described.

And if there is an opportunity so that.

We can we're in a position to take advantage of it.

Got it so a follow up actually.

You've teed it up pretty well.

To take advantage of it seems like you're having a lot of success with the with the Burlington to point of strategy.

Aspects of the strategy that you could accelerate or leverage you guys could.

Or accelerate going forward. If this is in fact, how the environment actually shakes out.

Yes.

Good question in fact for the last several months.

I've been working with the executive team on exactly. This question you know can we move faster.

Again.

Paul the detailed answer, but let me offer a few comments.

Number one.

Mindful.

And we are building a company for the long term here, where everything we do needs.

Need to be done in a very high quality way, so we're not going to accelerate.

Anything if we have to compromise.

I don't know how well we do it that's point number one.

Point number two I would say is that there are there are areas, where if the opportunity presents itself. Then we will absolutely move faster. That's the best example of this is the investment we're making in our merchandising organization.

We see strong.

Strong talent in.

In a market or a stronger flow of talent in the market. We'll move on it very quickly we won't be held back by existing hiring plans or budgets.

And then I guess the third point is that there are there may be some other initiatives that we can accelerate.

But we need to do more homework for us before we make a decision.

<unk>.

To formally adjust our plans.

The key thing.

I guess, bringing it back to this year.

The key thing is that for the balance of 2021, we need to focus heavily on doing what we've been doing offering great value.

<unk> the business conservatively.

Decision and being ready to chase. So we'll certainly in parallel sort of work on some of those longer term opportunities and possibly accelerating some of those longer term opportunities.

Our main focus for the next six months needs to be to keep doing what we're doing it's been it's been a winning game for us so far this year.

Thanks, so much.

Thank you.

Thank you. Our next question comes from the line of John Kernan. Your line is now open.

Good morning, Michael John David Congrats on strong execution and huge market share gains here.

Thanks for your question.

For Jai.

First can you give us more color on the operating margin outlook.

Based on the freight and supply chain costs, it sounds like for the full year.

21, you expect operation operating margins to be flat on a 14 comp how do we think about the margin structure going forward you still see.

The same opportunities Saul.

Several months ago to increase margins over time.

Okay, well first of all good morning Chuck.

Thanks for your question.

I'll start with the first part of this year's EBIT margin.

Back in May.

When we spoke we shared that freight and supply chain costs are rising faster than what we had originally planned for.

And while we had planned for these costs to continue to increase we underestimated the magnitude of the increase.

It looks considerably worse now than it did then.

So today, we shared our Q3 adjusted.

<unk> EBIT margin outlook.

Down 250 basis points on a tough comp.

Our updated full year adjusted EBIT margin plan implies a similar decline for Q4 based on our updated fall comp plan of 10%.

Our strong first half margin rate performance as being roughly.

The offset in the back half because we do expect operating margins to be down by over 200 basis points. If we perform in line with our 10% comp planning assumptions for the fall.

And yes, assuming a 10% comp performance for the fall.

We.

We would expect our operating margin rate to be flat.

This full year performance is driven by 450 points of deleverage, mostly from freight and supply chain costs.

And to a lesser degree by incentive comps costs.

We expect to be able to.

A fully offset these costs with about 150 basis points of combined gross margin expansion driven by lower markdowns and leverage on SG&A costs.

So while the impact of these incremental costs in this year's operating margin is disappointing.

There are a few other things to keep in mind.

Our updated planning assumptions that we shared today, if realized would deliver a 28% total sales growth.

With a flat operating margin that would mean, 28% EBIT dollar growth also.

And as we've mentioned a few times today.

We think.

Think that with the exception of some permanent changes in D C wage rates.

The rest of the drivers the 450 bps of deleverage are temporary.

We estimate the D C wage deleverage impact.

And these estimates to be less than 100 bps of about 450.

So for the second part of your question, how do we think about operating margins going forward.

Well, we still see fundamentally the same long term operating margin opportunity that we've been describing.

We expect freight and supply chain cost to improve.

We expect to continue to drive faster inventory turns which should.

The result in lower markdowns, we expect to see occupancy leverage increase accelerated by our new smaller stores and.

And we see opportunities to drive better operational efficiency, creating other expense leverage so yeah, we still see the same path to continued operating margin expansion that we've been talking.

Talking about.

Got it that was a lot of detail. Thank you I have another one for you John.

It sounds like you're excited about what youre seeing with the new smaller prototype.

Is there any more you can tell us about the new store format any detail on how the unit economics of the stores compare to.

We're a larger format.

Thanks, John Yeah, we're really excited about the performance of <unk>.

All of our new stores, but particularly the 16 stores we opened this spring.

Our 30000 square feet or smaller most of them are about 25000 square feet.

25000 square feet.

<unk>.

All of them are actually a bit smaller on average.

<unk> group the new stores that we opened this spring are running well ahead of our underwriting targets.

And this is also true for the group of smaller stores.

The most exciting things about the smaller store format is the potential.

So the OLED has helped us improved leverage on occupancy costs.

As I just mentioned it is a big part of our long term margin opportunity.

The hypothesis is always been that if we can drive similar sales volumes in smaller less expensive boxes, that's going to help us drive operating margin expansion.

<unk> still early days, but what we've seen so far with the new batch of smaller stores is really encouraging and it only strengthens our confidence in the potential of the new format.

And now that we have several of these stores open.

Should have enough of a sample to begin to work through the learning curve how to best operate in the smaller size.

So the economics and the new stores should be a great operating margin tailwind and the availability of boxes. In this size range should provide plenty of very attractive sites for future new stores. So so yes, we're really pleased with what we've seen so far this year.

Awesome. Thank you.

Thank you.

Our next question comes from the line of Kimberly Greenberger. Your line is now open.

Okay, great. Thanks, so much very nice quarter here I wanted to.

Just come back to one of the comments that you've made on the call today that August here is running.

Ahead of the 10% comp plan here for the third quarter I'm wondering if you can just give us a little more color on trends here for Q3.

What are you seeing in your business and you know as you look out to the balance of Q3, I know youll monitor the business, but what are the risks and opportunities.

You see them for the quarter.

Well no so good.

Good morning, Kimberly, it's Michael I'll take that question.

It's a good question and I would concede.

But ordinarily after.

After after such a strong start to the quarter, we would've taken up the plan for the quarter by now.

But.

In this particular situation, where we are.

We're being a little cautious I think for two reasons. The first that I kind of mentioned in the remarks the surge.

In Covid cases related to the Delta variant so far that there's absolutely no evidence that that's had any impact on our business bumps.

It's essentially.

But patients deteriorate, then obviously that could change that.

One reason to be a little bit cautious the SEC.

Second reason, we're being a little bit cautious as the third quarter much more so than any other quarter of the year.

Weather really matters.

Given I know we've talked about this before given our legacy of.

What other things can coat factory.

I would say that a good or bad.

Weather affects us in the third quarter most of that.

Most of them more than it does most of other retailers you know when the weather turns cooler.

Chop is naturally thinking out to where so if the weather turns cooler.

Earlier in the quarter and that really helps us.

Versus other retailers just if on the other hand it remains warm until later in the quarter, they're not that can hurt us.

Right now most of the long range forecast, whether pool counts the same but October and even November could be unusually warm.

We never really know how.

Place to place and those forecast so that they could be wrong, but it makes sense for us given that outlook to be cautious in Q3, if the forecast. So wrong, we know that we can chase actually.

And our reserve inventory, we have a pretty good outerwear position. So so if the weather did 10 coolers sooner than we would chase the trend.

How much that fantastic that's great color Michael Thank you for that.

And John just a follow up on that is.

In the third quarter for example, you were able to deliver.

Our 15 comp instead of your 10 plan.

How would that change your outlook for the.

And maybe just take it to the second half of the year, how would that change your outlook for the.

The operating margin decline.

Sure Kimberly good question so.

I'm going to answer the question in two pieces so.

If we were to perform at a 15 comp.

C.

Yeah that that would give us an opportunity to get some additional leverage on our fixed cost base.

Ponant of SG&A.

We're already showing really good leverage.

And it would also help our gross margin performance, we could have we would expect.

To drive.

I've, even lower markdowns on our higher sales demand.

That part of the way that we would typically think about our flow through on incremental sales.

Very much in place it's even there you know if you look at the 10 comp even though it's a flat margin you were getting 450 basis points.

Leverage on a full year performance.

On our SG&A and on our gross margin is just all been eaten up by the product sourcing cost supply chain cost and some incentive comp.

So.

We're very comfortable with that part of our algorithm.

But you know the freight and supply chain costs are very difficult.

Protect so I don't want to give you an exact how it would flow through because we just don't know yet.

We think we have some pretty conservative assumptions in here realistic.

But yeah, it's just not clear.

How that situation is going to play out and that's why we've stayed away from giving.

Specific guidance.

Understood. Thank you so much.

Thank you Mike.

Thank you our last question will come from the line of Michael Binetti. Your line is now open.

Hey, guys.

Congrats on a nice quarter and thanks for all the detail here today.

So.

The merch margins were.

200 basis points lower.

<unk> Q.

Alright, opt into Cuba, but where I'm sorry, they're up they were up less than one Q I'm curious Michael if you could just maybe give us some comment on what drove that moderation and then I think you said three Q would be.

So 200 basis points from both merchandise margin and SG&A leverage so it seems like you're baking in further moderation of the merch margin in the third quarter and second half, but given how tight supply chains are in inventories that you spoken to getting backed up into the market I'm trying to think what what would be some.

Incremental headwinds to merch margin as you look out to the plant in second half.

Sure.

Good morning, Michael.

Yeah on everything you said is correct in terms of the comparisons of the quarters. So we saw a nice margin improvement in Q2, but it wasn't as big as the improvement in Q1.

That's really driven by the point that come with making your own you know that.

Q1 was the anomaly in Q1, and we are much cleaner coming into Q1 than we've been historically and as a result, we.

Fewer markdowns in Q1.

So that was really that was really what drove that difference between Q1 and Q2 looking forward.

To the back half.

You know, obviously outback comp.

Baseline comp assumption is a 10% comp if.

If we do a 20% comp in the back half of the year I would be hoping for I would be expecting much.

Much stronger inventory turns much stronger markdowns and haven't tried.

A stronger much more.

Merch margin performance than we have indicated.

Linking this though to the point you were making about availability of merchandise I would say that so far this year availability has been pretty good I guess, we've had no problem. Okay Crosstie business, we've had no problem overall.

Casing.

Receipts.

Income from our we started the year with a flat comp has a plan and we've always run a 20 <unk>. So we've been able to find the goods.

Well as I think about the backlog and supply chains I think.

I think the availability is going to get better much better even than the pretty good availability, we have seen but I think that <unk>.

We made available if he may not happen for a few months, we're going to get to a point probably in.

TOBA something like that.

Goods that had been ordered that haven't arrived in the United States aren't going to make it a holiday and I think at that point it could be a good a good buying opportunity for off price, but we'll see and a lot of that merchandise.

Proven theyre, putting in reserve anyway, but it.

We do think that that's going to be some opportunities.

In the months ahead.

Is it safe thanks for that Michael is it safe to say that the IMU.

On the pack away inventory in channels you spoke about it I think earlier in the remarks, you mentioned that reserves your intake of reserved inventory was up I think 86%.

We would have it.

Would that suggest that in August you are seeing the ability to continue bringing in reserve flows.

At a bit of a slower pace and then but you have confidence that it picks up through the quarter or what are you what kind of a pace relative to that 86 did you assume as you thought about the 10 comps.

Yeah, it's a it's a good question.

And we.

We're kind of assuming that that reserve inventory over the next month or two it's going to kind of come in at a similar rate to what we've been experiencing.

But we do think that there's a.

As it is.

A buying opportunity down the road, probably though for merchandise that we wouldn't necessarily.

Necessary flow to stores, so it wouldn't necessarily hit the tank comp some of it might but most of it might be packed away for next year, because it will be seasonal merchandise.

Okay. Thanks, a lot again guys.

Thanks, Mike.

Thank you.

Sure.

Yes.

This concludes today's question and answer session I will now turn the call over to Michael Sullivan for closing remarks.

Thank you everyone for joining us on the call today, we appreciate your questions and your interest in Burlington stores.

Look forward to talking to you again in November to discuss our third quarter results. Thanks again.

Ken.

Okay.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

[noise].

No.

[music].

[music].

Ladies and gentlemen, thank you for standing by.

By and welcome to the Burlington stores, Inc. Second quarter, 2021 earnings webcast and conference call.

At this time all participant lines are in a listen only mode.

So the speaker's presentation there'll be a question and answer session to ask a question during the session.

You will need to press Star then.

One on your telephone.

Be advised that today's conference is being recorded if you require any further assistance. Please press star then zero.

I would now like to hand, the conference over to your host today, David Glick Senior Vice President Investor Relations and Treasurer. Please go ahead.

Yeah.

Thanks, Bob.

Operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2021 second quarter operating results.

Our presenters today are Michael O'sullivan, our Chief Executive Officer, and John <unk>, Chief Financial Officer.

Before I turn the call.

Call over to Michael.

I would like to inform listeners that this call may not be transcribed.

Or did or broadcast without our express permission.

Play of the call will be available until September 2nd 2021.

Take note responsibilities, where in accuracies that may appear in transcripts of this call by third parties.

Our remarks, and the Q&A that follows are copyrighted today by Burlington stores.

Remarks made on this call concerning future expectations events strategies objectives trends or projected financial results are subject to certain risks and uncertainties.

Actual results may differ materially.

From those that are projected in such forward looking statements.

Such risks and uncertainties include those that are described in the company's 10-K for fiscal 2020 and in other filings with the SEC all of which are expressly incorporated herein by reference.

Please note that the financial results and expectations.

Patients. We discussed today are on a continuing operations basis reconciliations of the non-GAAP measures. We discuss today to GAAP measures are included in today's press release now here with Michael.

Thank you David Good morning, everyone and thank you for joining us.

We are going to structure.

This morning's discussion as far as.

First I will review our second quarter results.

Second I will discuss the outlook for the second half of fiscal 2021.

And third I will share some comments on our ESG initiatives.

And that most recent corporate social responsibility report.

After that I will hand, the call over to Jon to walk through the financial details.

Then we will be happy to respond to any questions.

As a reminder, the results that we discuss today.

Being compared to the equivalent period in 2019.

Given the impact of the pandemic last year, our 2020 results do not provide a good basis for comparability.

Okay. So let's talk about our results.

Total.

<unk> grew 34% in the second quarter.

Which followed a 35% increase in Q1.

Think about that we grew our sales by over a third this is the first half of 2019.

This is compelling evidence that.

At our Burlington to point, our initiatives are working.

And we are taking significant market share as the consumer and the broader economy begins to recover from the COVID-19 pandemic.

Now I will talk about comp store sales.

Comparable school.

Sales in the second quarter increased 19%.

We believe that there were several factors that drove this very strong comp performance.

These factors included.

Number one.

The residual impact of the federal stimulus payments that.

Completed in March.

Number two pent up demand as the Covid vaccines became more widely available during the quarter and consumer spending picked up.

Number three the beginning of the monthly child tax credit payments in July.

And number four our own very strong execution of our Burlington two <unk> strategies.

Turning to category and regional performance once again, our strength in the second quarter was it very broad based.

All of our major merchandise.

Categories easily outperform their plans.

And comp store sales in all regions of the country, we're well ahead of our expectations.

Our gross margin in the second quarter increased by 88 zero basis points.

This was.

Despite a 120 basis point increase in freight expense.

Of course, this means that our merchandise margin grew by a very robust 200 basis points.

This increase was once again driven by lower markdowns.

The buying environment in the second quarter was very favorable and we were able to find great merchandise values to flow to stores and to fuel. How we're ahead of plan sales trend.

At quarter end, our in store inventory levels were down 7% on a comp store basis.

This is a relatively modest decrease compared to recent quarters and it reflects a deliberate strategy.

In fact, we chose to accelerate back to school receipts to ensure that global supply chain challenges did not impede our ability to take advantage of.

The opportunity that we see for the back to school period.

To better understand how we managed our inventories during the second quarter. It is more instructive to look at our average weekly comp store inventories.

These were down 25% during the quarter.

Sales for the balance of fiscal 2021, you should expect to see similar double digit decreases in comp store inventory.

As you know this is a core element of our Burlington to point to a strategy.

Run with leaner inventories and to ensure a fresher assortment.

Front of the customer.

Reserve inventory was 31% of our total inventory at the end of the second quarter versus 33% in the 2019 period.

Again, this end of quarter metric does not convey.

Ingalls story.

We have continued to significantly expand our use of reserve inventory as a tool to chase the sales trend.

In fact, our reserve receipts during Q2 increased 86%, while our reserve releases.

<unk> the fleece, 64%.

In other words, there was a lot more movement in and out of reserve and that was in 2019.

In the second quarter, we were able to make some great opportunistic and strategic buys to put into reserve.

At the same time.

<unk> moved up the release of other goods from reserve to fuel strong sales trend.

Moving on to new store performance, we are very pleased with the initial rollout of our new smaller store prototype.

During the spring season.

We opened 16 stores that with 30000 square feet or less.

And the early results are extremely encouraging.

As you know we expect the smaller formats to become our main new store prototype over the next couple of years.

<unk> as a point of information one of these recent openings is in Patchogue New York.

This is fairly close to those of you who live in the New York City area.

So I encourage you to visit <unk>.

Floor <unk>.

Some money and of course, let me.

You think.

In a moment I will talk about the outlook for the rest of the year.

But before I do that do that now that the results of the second quarter are in I would like to briefly review our performance for the year to date.

In other words for the spring season has a home.

As a retailer.

We break the year into two parts.

Building, our plans and strategies for the first half of the year the spring season.

And then separately building, our plans and strategies for the second half of the year before season.

So I think it is helpful and instructive to step back and ask.

I will get our strategies work in the spring season, and how well did we execute on these strategies.

Also by looking at the season as a whole this naturally flattens some of the timing issues that can affect or distort one quarter or another.

So how did.

We do.

Well for the spring season, Q1, and Q2 combined our top line sales growth was 34%.

Our comp store sales growth was 20%.

Our operating margin grew by 240 basis points and our adjusted.

Earnings per share was ahead by 73%.

Look we know this was not all of us.

There were onetime factors such as the federal stimulus payments and the release of pent up consumer demand.

There is no doubt that these one time factors helped drive.

Our results.

It helped drive every retailers results.

That said, we feel very good about our own performance on an absolute and on a relative basis.

With that said, let me turn to our outlook for the second half of fiscal 2021.

Based on our stronger than expected year to date results. We have increased our baseline plan for comp store sales for the full season as a whole from our previous plan of flat to a new plan of plus 10% comp growth.

We are already three and a half weeks into the quarter.

And I am happy to report that our August month to date sales trend is currently running well ahead of this.

We are chasing the trend and we have growing confidence that we will exceed this 10% hurdle for Q3.

As we get further into the quarter, we will update and adjust.

Baseline plan.

But for now there are significant reasons to remain cautious.

Okay.

At this point the surge in Covid cases, driven by the Delta variant shows no signs of letting up.

And it is unclear what impact this might have on consumer spending in.

All of the head.

In this environment it makes sense to plan our business conservatively and then adjust as we learn more.

Throughout this year, we have demonstrated our.

Extraordinary ability to chase the sales trend.

We will do the same.

In the weeks and the pool season, if the sales trend is there.

Moving on from the sales outlook I would like to spend some time talking about the extraordinary freight and supply chain expense pressures that we're seeing.

For several quarters now there has been a significant inbound.

Same ends in global transportation systems between demand and available capacity.

This has caused unprecedented volatility and disruption in deliveries of merchandise across all sectors of retail.

And it has caused a significant spike in international.

Inbound and domestic freight rates.

As we move into Q3 and the peak period for retail deliveries the situation is getting much worse.

Again this is not at all unique to Burlington. These conditions are affecting all retailers.

Based on our experience and success. So far this year, we are confident that despite these issues.

We will be able to get timely receipt of the merchandise that we need to support our trend.

But in doing this.

Back to income significantly higher freight and.

And supply chain expenses.

As John will detail in a moment, we are anticipating some offsets to these higher expenses in particular continued markdown savings driven by faster inventory turns and leverage on other expenses, if we achieve our sales plans.

But overall these higher logistics costs will put significant pressure on our operating margins.

Before I leave this topic. It is important to make the point that the issue I have just described a huge imbalance between demand and available capacity in.

Transportation systems is being driven by short term factors.

On the one hand, the surge in consumer demand in the United States and on the other hand, the limited capacity of domestic and international transportation systems further hampered by labor shortages and restriction.

Associated with the pandemic.

We do not believe that this imbalance or these factors are permanent.

It will not happen right away, but we expect these issues to normalize over time.

As they normalize we would anticipate that freight rates will.

Actions back down.

We also believe that as the situation normalizes that could be a significant backlog of merchandise.

Makes its way into the off price channel.

Okay before I turn the call over to John There was one other very important topic that I would like.

We will comment Sean.

Earlier this week, we published our third annual corporate social responsibility report.

We are very proud of the support and the accomplishments and progress that it describes.

As a company, we recognize that driving shareholder value is extremely important.

Potent.

But it should not be the only thing that we focus on.

And it cannot be the only objective that we measure ourselves against.

We have a much broader set of responsibilities to our associates, our customers and to the communities that we serve.

These are all critically.

Horton stakeholders.

We believe that by serving these stakeholders, we will build a stronger better and more sustainable company.

And that in doing this we will further enhance and drive shareholder value over the longer term.

The CSR report that we publish.

Earlier. This week is intended to back up these words with specific details on the programs that we're pursuing and data on the progress that we're making.

It covers important topics like inclusion and diversity.

Community outreach and support and environmental sustainability.

To be clear, while we are proud of our commitment and our accomplishments. We regard this as a journey and we know that we have plenty of work still to do.

I would encourage you all to take a look at the report which is available on our Investor Relations website and I invite you to follow up with.

US if you have questions or would like more information.

Now I would like to turn the call over to John to provide more detail on our second quarter financial performance.

John.

Thanks, Michael and good morning, everyone.

Let.

Start with a review of the income statement.

As a reminder, the results we discussed for the second quarter of fiscal 2021 are being compared to the second quarter of fiscal 2019.

Or the second quarter total sales grew 34% while comparable store sales increase.

Increased by 19%.

The gross margin rate was 42, 2% an increase of 80 basis points versus 2019 second quarter rate of 41, 4%.

This improvement was driven by an approximately 200 basis point increase.

And our merchandise margins, which was attributable primarily to a reduction in markdowns.

This merchandize margin improvement more than offset a significant increase in trade expense, which was approximately 120 basis points higher than 2019 second quarter.

Quarter rate.

Okay.

Product sourcing costs, which include the cost of processing goods through our supply chain and buying costs were.

Were $146 million versus $82 million in the second quarter of 2019.

Increasing 160 basis points.

As a percentage of sales.

Higher supply chain costs accounted for nearly all of the deleverage.

The drivers of this expense pressure were consistent with what we had seen in Q4 and Q1.

Higher wage rates and wage incentives.

And the disruption in the flow.

ROE of receipts across the global retail supply chain.

Adjusted SG&A was $550 million.

$441 million in 2019 dike.

Decreasing 170 basis points as a percentage of sales.

SG&A leverage was primarily due to leveraging occupancy and store payroll.

Adjusted EBIT margin increased to eight 3%.

110 basis points higher in the second quarter of 2019.

All of this resulted.

Diluted earnings per share.

A $1.15 versus $1.26 in the second quarter of 2019.

Adjusted diluted earnings per share were $1.94.

Versus $1.36.

In the second quarter of 2019, an increase.

A 43%.

During the quarter, we opened eight net new stores, bringing our store count at the end of the second quarter two.

Two 792 stores. This included 11, new store openings, one relocation and two closures.

This brings us to total store openings of 37 gross and 31 net for this spring.

We still expect to open 100, new stores in fiscal 2021, well closing or relocating 25 stores for a net addition of 75 stores.

We ended the period with available liquidity of approximately $1.9 billion.

Including approximately $1.3 billion in unrestricted cash and $534 million of availability on our ABL.

Our total balance sheet debt is now one.

8 billion, which includes $961 million on our term loan and $805 million in convertible notes with no outstanding balance on our ABL.

During the second quarter, we executed a make whole call for the $300 million.

Ending of our six two.

<unk> percent 2025 senior secured notes.

Additionally, during the second quarter, we refinanced our term loan extending the maturity to June 2028 from November 2024, while our interest rate spread.

<unk> modestly by 25 basis points to LIBOR, plus 200 basis points.

We continue to remain hedge on $450 million of the 961 million notional value.

We extended our current interest rates.

And crop through a blend and extend transactions moving the maturity of the swap out to June 2028, and lowering the LIBOR rate on the swap from 272% to $2 one 9%.

Okay.

Our previous share repurchase authorization expired.

So here this month and our board recently approved a new $400 million authorization that expires in August 2023.

As we've said in the past our first priority remains investing in our long term growth and reducing our leverage.

We.

Our earliest with a recent reduction in our leverage and the progress we've made over the last nine months.

Going down to $400 million previously outstanding on our ABL.

End of fiscal 2020, and retiring our $300 million in senior secured notes in June.

Looking ahead, we are focused.

We are deploying.

Deploying excess cash where we see the most accretive use.

Now I will turn to our outlook.

Despite the recent strength of our business the outlook remains very unpredictable. So we are not providing specific sales or earnings guidance.

This was the remainder of fiscal 2021.

But as we did on our last earnings call we.

We would like to share some high level comments on how we are thinking about our financial performance for the second half of 2021.

Yeah.

Other retailers, we are seeing significant.

Incremental pressure from freight and supply chain costs.

As we discussed on our first quarter call. These pressures impact us primarily in three areas.

First.

Ocean freight.

The capacity versus demand imbalance for all imports.

<unk> has continued to worsen.

And his driven related costs, well past, what we had been anticipating.

These higher rates affect our margin on all merchandise.

A small portion of our business that we directly import.

And the merchandise that is important by the vendors we buy from.

Second domestic frame.

A very similar story demand far exceeds supply for all modes of transportation and as the situation has continued to worsen.

Rates have continued to escalate well past, what we had been anticipating.

And third supply chain costs.

This demand has far exceeded what most retailers are planned for the competition to increase staffing levels to meet the higher volumes.

Has driven wages higher again.

Our expected pace.

Our expected increase in supply chain cost is driven partly.

Additional base wage increases partly by temporary incentives and partly by inefficiencies caused by the overall disruption in the global supply chain.

Yeah.

With that as background.

Let's move to some specifics.

As Michael mentioned earlier.

Baidu will continue to plan sales conservatively and adjust our business to the trends that we see.

Just as we did in the first half of fiscal 2021.

Our current baseline comp sales plan for the second half of the year is a 10% increase.

As Michael mentioned earlier, given our strong.

Strong start to the quarter, we have growing confidence that Q3 may exceed this hurdle.

But we will keep our fault baseline comp sales plan at 10% until we are further along and have better visibility as to as to what to expect in the fourth quarter.

Based on this.

<unk> comp store plan for the fall season to.

Combined with our better than expected Q2 comp sales results.

We are now planning for our full year comp store sales increase of 14%.

Versus our previous plan for a 7% increase.

As you think about.

Total sales growth for the full fiscal year versus FY 19.

Remember, it's a factor in two years of new stores over this time period.

We opened 31 net new stores during the first half and we expect to open 44 net new stores in the second half of this year primarily in Q3.

The growth in new store in non comp sales combined with our updated full year comp baseline assumption of 14%.

Would potentially deliver approximately 28% total sales growth for the full fiscal year.

Given the dynamic and volatile.

It'll cost environment, we are facing it.

It's difficult to provide specific margin metrics for the balance of this year.

However, we thought it might be helpful to share some of our internal modeling assumptions for Q3.

Yes, we were to hit a baseline pump sales plan of 10% in Q.

Three then our modeling suggests that our EBIT margin would decline by approximately 250 basis points.

Driven by 450 basis points, combined freight and product sourcing costs deleverage.

Offsetting that cost pressure, we would expect.

Expect 200 basis points.

<unk> merchandise margin expansion and SG&A expense leverage.

Okay.

On our last earnings call.

We shared that with the Q1 results and our planning assumptions of a 10% comp in Q2 and <unk>.

Flat comp in Q3, and Q4, we would've expected a full year EBIT margin decline of 20 to 30 basis points compared to fiscal 2019.

Now after factoring in our Q2 results, our new 10% comp sales planning assumptions for the fall season.

And the significant incremental freight and supply chain cost pressures.

Our modeling assumptions result in relatively flat.

EBIT margins for fiscal 2021.

We do expect most of the deleveraging impact of freight and supply chain costs.

To be temporary.

And the global supply chain capacity and demand are more in balance.

We would expect to see an operating margin tailwind.

But it's not yet clear when to expect that to happen.

Two final points before I turn the call back to Michael.

First please keep in mind that these comments, we are making on our planning assumptions are.

<unk> tended to help you understand how we are modeling our business.

As we said earlier, we expect the business environment in the second half of the year to continue to be very difficult to predict for sales demand.

And for freight and supply chain costs.

Our planning assumptions are based on estimates that may not be accurate.

Second.

We wanted to reinforce the point, we made on last quarter's call.

As you update your model for 2022 they'll be there.

An important to back out the impact of onetime sales benefits from external factors such as the federal stimulus checks in Q1.

Up demand we saw in Q2.

And the additional benefit from a child tax credits for the balance of 2021.

Of course.

Maryann will provide more information on our 2022 sales outlook later this year or early next year.

With that I will turn it over to Michael for closing remarks.

Thank you John.

Let me wrap up my remarks by congratulating.

We like Burlington family.

Our exceptional performance in the second quarter and the first half of fiscal 2021.

As I have said before this is a really exciting time to be at the company.

We have very strong momentum.

We are building and strengthening our team.

And we are achieving results that are at the top of our retail peer group.

Our 34% total sales growth year to date reinforces our confidence in our ability to take significant market share over time.

Meanwhile, despite the temporary.

<unk> expense headwinds that we have.

Anything we remain very excited about our ability to significantly expand operating margins over the next year again.

With that I will turn it over to the operator for your questions.

Operator.

Thank you as a reminder to ask a question you would need to press Star then one on your telephone to withdraw your question. Please press the pound key.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Matthew Boss your.

I'll open.

Great Thanks, and congrats on another nice quarter.

Michael maybe first on the top line could you just help quantify or provide any additional color around some of the factors that drove your second quarter comp growth.

Yeah.

Sure well good morning, Matt. Thank you for the question.

Youll, probably recall in the for the first quarter, we estimated the impact.

Oh, the federal stimulus checks as being worth 10 to 15 points of comp growth.

That analysis was fairly straightforward.

Grateful with the checks were sent out.

Over a very short time period in March of this year.

And we could see the sales lift in the days and the weeks.

Solid so.

This wasn't hard with any confidence about that estimate.

For Q2.

As I said in the script.

There were several factors that we think go back home growth, including probably a residual impact from those stimulus checks plus pent up demand as <unk> started to get back to normal in Q2, and then the child tax credit payments that were made later in the quarter.

We certainly try to quantify the impact of each of those.

It was much more difficult.

For example, how do you quantify pent up demand. So so we don't really have an estimate that we can we can share for Q2.

But nevertheless, I would say.

We're pretty sure that the impact of those items was pretty significant.

The reason that that's important.

Is that.

Is that all of those items are nonrecurring.

This year. These factors have been like a rising tide, they they've lifted all retailers.

In 2022, we would expect that that tide is going to recede.

So as John said earlier.

Think about your sales models for 2022.

But it'll be very important to back out the significant impact of those one time items not just for us but for every retailer.

Great and then maybe just a follow up on freight and supply chain expenses for for John could you just help provide some color on.

And to higher freight and supply chain expenses that youre seeing today and then maybe more so what makes you think that these costs are temporary.

Well, thanks, Matt good morning.

It's a really good question I think it's worth taking a couple of minutes to explain in some detail what we're seeing.

Coming into this year, we and really all of the retailers were tentative and somewhat conservative in our sales plans and nobody was really sure what to expect.

Driven by the government stimulus payments pent up consumer demand and other onetime factors.

Dose levels across the retail industry have grown well beyond what anyone would have expected six months ago.

Faced with this surge in demand all retailers have been competing with each other for capacity alone really every link.

Global supply chain.

The competition.

So that capacity has driven rates the unprecedented levels.

As an example, the spot rate per shipping container from China to a west coast Port shortly before the pandemic had been running around 500 Bucks.

To do that now cost $15000 and the rates are still increasing.

Increasing.

There aren't enough containers arent enough shifts.

Trucks are trains.

It's more volume now than any part of the supply chain pipe can adequately handle.

Every piece of the pipe is slower.

And our backlogs to work through every step of the way.

<unk> per work around these issues.

Most retailers have increased their orders and tried to accelerate them ahead of the fall and holiday season.

This is even further increase the pressure on the supply chain, helping to drive even higher rates.

The companies that can afford to.

The additional costs are worth incurring.

Correctly, because even after covering these costs be added operating profit is accretive even if it temporarily hurts operating margins.

Temporarily there may be the case the keyword.

The situation, we believe most economists seem to agree.

This situation will moderate over time as demand subsides.

As capacity is added.

So like many others, we think the global supply chain issues will likely carry into next year, but at some point the imbalance between demand on the one hand and capacity and the other will start to correct.

<unk>.

When this happens we.

Would expect freight and the rest of the temporary costs related to the disruption in the DC labor shortage to become a tailwind for most companies, including us and.

And remember.

While it continues.

We do expect the disruption to help us.

That's able to continue to find plenty of terrific merchandise values for our customers.

Thanks for all the color and congrats again on the continued momentum guys.

Thanks, Matt.

Thank you.

Our next question comes from the line of Lorraine Hutchinson. Your line is now open.

Thank you good morning.

John.

Similar comp growth in the first and second quarters, but your operating margin expansion was much stronger in <unk> can you take us through the factors that drove the difference between the quarters.

Sure Good morning, Lorraine Thanks for the question.

Let me just frame the question a little bit and then I'll I'll answer it.

EBIT margin expanded 360 basis points in the first quarter.

And only 110 basis points in the second quarter. So that's about a 250 basis point difference.

We had a very similar comp.

So why is that.

Well gross margin was really the key driver of the difference expanding only 80 basis points from the second quarter versus 230 basis points in the first so that's 150 basis points of the difference.

Markdowns were the big driver of the gross.

Level difference and this wasn't unexpected for us.

You may remember that during the first quarter call, we said that the markdown improvement in Q1 would not be sustainable.

Q1 was kind of unique we were comparing to a first quarter of 2019 that quite a bit of clearance activity.

Margin.

Historically first quarter had been a weak gross margin quarter for us we often carried over holiday clearance merchandise from the fall, which dragged our first quarter margin that this did happen to us in the first quarter of 2019, but.

But in the first quarter of 2021.

Started with incredibly fresh.

Activity in lean inventory.

And then with the well above plan, 20% top of the first quarter, our inventory turns increased nearly 60%, which.

Which we also set would not be sustainable.

And it turns out we were right our inventory churns did slow down in Q2.

But they still improved by a.

Irrespective of 49%.

Aside from gross margin the remaining 100 basis points difference was largely driven by less SG&A leverage.

Most of that was driven by less advertising leverage in Q2 compared to Q1 and.

And more deleverage from its.

In.

There is comp in the second quarter.

Yeah.

Thanks, and then my second question is from Michael related to pricing several retailers have talked recently about taking up prices to offset some of these cost pressures.

What are you seeing in terms of pricing in the market.

And could this be an opportunity for Burlington as well.

Well good morning, Lorraine, great to hear from you.

I would say that we are very skeptical about the ability.

A retailer to sustainably raised prices across the categories that we compete in.

There are really two reasons for that skepticism.

Firstly.

It is important to grow or distinction between.

Higher realized prices in the short term versus permanently higher prices longer term.

It's clear.

The inventory levels across the retail industry have been very lean this year and as a consequence.

It's been very little promotional activity that means that realized prices have been higher for many retailers.

We just don't think that's sustainable.

Realized prices are higher because inventories are lean but the.

And the reason the inventories are lean is that theres been a huge surge in consumer demand at the same time.

Supply chain have been constrained.

So we think that when the situation normalizes.

Slightly realized prices will come back down.

Like historical levels.

That's the first reason was skeptical the second.

The second factor that may be feeding into that is that the.

Is a spike in freight and supply chain costs. If you. If you believe that those costs are permanent.

And I think you could make a good case that retailers may.

They try to pass those costs on and in the form of higher prices.

But you know as we.

As we said in the remarks and as John just described we think those costs most of your back a moment in time.

A short term imbalance between demand and capacity.

It was just picking up on one of the data points that John.

Oh yeah.

Ocean freight rates are about 10 times higher now than they were in 2019.

That is not because operating a ship or pay an adult artwork is 10 times higher it's because demand exceeds capacity.

That inbounds weren't lost it it will normalize.

So we think any price increase that's based on those short term costs again, it's just not likely to be sustainable.

So that's our assessment now let me wrap up my answer by saying, we could be wrong, maybe prices across retail really will move up in the next year or two and could be say, we wouldn't mind.

Mind tool for an off price retailer like us that would be terrific.

It would help to further expand our value differentiation.

Through the lens of Burlington to Quinto.

We would see this as a great opportunity to drive sales not not to drive molecule that could drive sales.

Yeah.

Thank you.

Thanks, Brian.

Thank you. Our next question comes from the line of Ike Boy Chao. Your line is now open.

Hey, Good morning, Michael John David.

Michael question for you to start just a couple of long term questions actually just I guess based on the comments today I'm.

Curious if you could help us on how you're thinking about 2022.

Given what you're up against in 2021 is there a way you could help us understand how you are planning the business next year in any way.

Yeah.

Well good morning.

Thank you.

No.

A very good question.

Having.

Having just done a 20% comp for the spring of 2021.

It is pretty challenging to think about well how should we planned spring of 2022.

We're getting to a point, where we're starting to work on that because typically as.

We are into October November we stopped working on our plans for the following spring I don't have a lot of details to share, but but let me do this let me offer up a possible scenario for 2022 in terms of what <unk> could look like.

We think that it's possible that 2022 will be a very difficult.

And turbulent year across the retail industry.

And I'm, not saying that with any sense of do more pessimism on the country difficult and turbulent is in retail are often very good for off price.

So as I sort of lay out why we think it could be difficult you should interpret this is me feeling upbeat and not the opposite.

So really two reasons why why I'm, saying I think 2022 could be.

A difficult year in retail the first reason, we kind of touched on earlier.

In 2021 every retailer has benefited from significant onetime items that have driven much higher sales levels than they otherwise would have.

Correct.

When we kind of anniversary those items in 2022.

Comps could well kind of negative impact.

Mathematically that seems very lightly.

Secondly, in 2021 that surge in sales.

It was accompanied by Glu.

Global supply chain constraint.

Teens.

And very lean inventory levels.

Which means that many retailers have seen just a remarkable recovery in margins.

Again, if you scroll forward to 2022, if consumer demand does fall off.

And it's likely that those supply chain constraints are going to ease.

So you could you could see an increase in the flow of merchandise into the country.

Every time that comp sales trends have turned negative.

Now the scenario I've just described are negative sales trend across retail and a looser supply of merchandize.

Create huge disruption.

Sequencers for off price.

And for Burlington to point out in particular.

Flipping very favorable.

Could offer the potential to further accelerate our ability to take share.

No I don't I don't want to oversell the scenario I've just described.

For the past 18 months have demonstrated.

But there are serious hazard to anyone making predictions, so but without an extra about kind of the point.

For 2022, given the uncertainty we think that we're going to need to be very flexible and very nimble. So we can respond to any scenario, we face, including the scenario I've just described.

And if if there is an opportunity so that.

But we can we're in a position to take advantage of it.

So a follow up actually just.

Teed, it up pretty well.

To take advantage of your it seems like you're having a lot of success with the with the Burlington two point of strategy are there aspects of the strategy that you could accelerate or levers you guys could.

Paul.

Or accelerate going forward.

This is in fact, how the environment actually shakes out.

Yes, it's a it's a very easy.

Good question in fact for the last several months.

I've been working with the executive team on exactly. This question you know can we move faster.

Okay.

I don't have a detailed answer but let me offer a few comments.

Number one we're mindful.

And we're building a company for the long term here, where everything we do needs to be done in a very high quality way, so we're not going to accelerate.

Anything if we have to compromise.

Remind us how well we do it that's point number one.

Point number two I would say is that there are there are areas, where if the opportunity presents itself. Then we will absolutely move faster. That's the best example of this is the investment we're making in our merchandising organization, if we see strong.

Strong talent.

In a market or a stronger flow of talent in the market. We'll move on it very quickly we won't be held back by existing hiring plans or budgets.

And then I guess the third point is that there are there may be some other initiatives that we can accelerate.

But we need to do more homework first before we make a decision.

Decision to formally adjust our plans.

The key thing.

I guess, bringing it back to this year.

The key thing is that for the balance of 2021, we need to focus heavily on doing what we've been doing offering great value.

<unk> the business conservatively.

Evidently and being ready to chase. So we'll certainly in parallel sort of work on some of those longer term opportunities and possibly accelerating some of those longer term opportunities.

Our main focus for the next six months needs to be to keep doing what we're doing it's been it's been a winning game for us so far this year.

Thanks, so much.

Thank you.

Thank you. Our next question comes from the line of John Kernan. Your line is now open.

Good morning, Michael John David Congrats on strong execution and huge market share gains here.

Thanks for your question.

For Jai.

First can you give us more color on the operating margin outlook.

Based on the freight and supply chain costs, it sounds like for the full year.

21, you expect operation operating margins to be flat on a 14 comp how do we think about the margin structure going forward you still see.

The same opportunities Saul.

Several months ago to increase margins over time.

Okay, well first of all good morning, John.

Thanks for your question.

I'll start with the first part of this year's EBIT margin.

Back in May.

When we spoke we shared that freight and supply chain costs are rising faster than what we had originally planned for.

And while we had planned for these costs to continue increase we underestimated the magnitude of the increase.

It looks considerably worse now than it did then.

So today, we shared our Q3 adjusted.

Adjusted EBIT margin outlook.

250 basis points on a tough comp.

Our updated full year adjusted EBIT margin plan.

Plays a similar decline for Q4 based on our updated full comp plan of 10%.

Our strong first half margin rate performance as being roughly.

Set in the back half because we do expect operating margins to be down by over 200 basis points. If we perform in line with our 10% comp planning assumption for the fall.

And yes, assuming a 10% comp performance for the fall.

We.

We would expect our operating margin rate to be flat.

This full year performance is driven by 450 points of deleverage, mostly from freight and supply chain costs.

And to a lesser degree by incentive comp cost.

We expect to be able to.

To offset these costs with about 450 basis points with combined gross margin expansion driven by lower markdowns and leverage on SG&A costs.

So while the impact of these incremental costs in this year's operating margin is disappointing.

There are a few other things to keep in mind.

Our updated planning assumption assumptions that we shared today, if realized would deliver a 28% total sales growth.

With a flat operating margin that would mean, 28% EBIT dollar growth also.

And as we've mentioned a few times today.

We think.

With the exception of some permanent changes in D C wage rates.

The rest of the drivers the 450 bps of deleverage are temporary.

We estimate the DC wage deleverage impact.

And these estimates to be less than 100 bps of about 450.

Thank you Joe for the second part of your question, how do we think about operating margins going forward.

Well, we still see fundamentally the same long term operating margin opportunity that we've been describing.

We expect freight and supply chain cost to improve.

We expect to continue to drive faster inventory turns which should.

Lower markdowns, we expect to see occupancy leverage increase accelerated by our new smaller stores and.

And we see opportunities to drive better operational efficiency, creating other expense leverage so yeah, we still see the same path to continued operating margin expansion that we've been talking.

Results.

Got it that was a lot of detail. Thank you I have another one for you John.

It sounds like you're excited about what you're seeing with the new smaller prototype.

Is there any more you can tell us about the new store format any detail on how the unit economics of the stores compare to.

About our larger format.

Thanks, John Yeah, we're really excited about the performance of all of our new stores, but particularly the 16 stores. We opened this spring that are 3000 square feet or smaller most of them are about 25000 square feet.

25000 square feet.

Some of them are actually a bit smaller on average this group of new stores that we opened this spring are running well ahead of our underwriting targets.

And this is it's also true for the group of smaller stores.

The most exciting things about the smaller store format is the potential.

<unk> It has helped us improved leverage on occupancy costs.

As I just mentioned it is a big part of our long term margin opportunity.

The hypothesis is always been that if we can drive similar sales volumes in smaller less expensive boxes, that's going to help us drive operating margin expansion.

So early days, but what we've seen so far with a new batch of smaller stores is really encouraging and it only strengthens our confidence in the potential of the new format.

And now that we have several of these stores open.

Should have enough of a sample to begin to work through the learning curve how to best operate in the smaller size.

<unk>.

The economics of new stores should be a great operating margin tailwind.

And the availability of boxes in this size range should provide plenty of very attractive sites for future new stores. So so yes, we're really pleased with what we've seen so far this year.

Awesome.

Thank you.

Okay.

Thank you.

Our next question comes from the line of Kimberly Greenberger. Your line is now open.

Okay, great. Thanks, so much very nice quarter here I wanted to do.

Just come back to one.

Comments that you've made on the call today that August here is running well ahead of the 10% comp plan here for the third quarter I'm wondering if you can just give us a little more color on trends here for Q3.

What are you seeing in your business and you know as you look out to the balance of Q3, I know youll monitor the business.

One of the clear the risks and opportunities.

Do you see them for the quarter.

So good morning, Kimberly if it's Michael I'll take that question.

It's a good question and I I would can see.

Ordinarily after after such a strong start to the quarter.

Water, we would've taken up the plan for the quarter by now.

But in this particular situation where.

We're being a little cautious I think for two reasons the first time.

Kind of mentioned in the remarks that the surge.

In Covid cases related to the Delta variant so far.

Absolutely no evidence for that.

It's had any impact on our business bumps.

Situation deteriorates, then obviously that could change that.

One reason to be a little bit cautious.

The second reason, we're being a little bit cautious as the third quarter much more so than any other quarter of the year.

Sure.

Ready masses, given I know, we've talked about this before given our legacy of.

Burlington coat factory.

I would say that both are good or bad weather.

Weather affects us in the third quarter, most most most more than it does most of other retailers you know when the weather turns cooler.

You know should help us naturally think of outerwear.

So if the weather turns cooler earlier in the quarter and that really helps us.

It versus other retailers just if on the other hand it remains warm until later in the quarter, they're not that can hurt us.

Right now most of the long range forecast, whether pool kind of the.

The same but October and even November could be unusually warm.

We never really know how much space to place in those forecasts, so that they could be wrong, but it makes sense for us given that outlook to be cautious in Q3, if the forecast wrong, we know that we can chase and actually.

And our reserve inventory, we have a pretty good outerwear.

We're positioned so so if the weather did 10 cooler sooner than we would chase the trend.

Fantastic that's great color Michael Thank you for that.

And John just a follow up on that is.

<unk> is in the third quarter. For example, you were able to deliver them.

15 comp instead of your 10 plan.

How would that change your outlook for the B.

And maybe just take it to the second half of the year, how would that change your outlook for.

The operating margin decline.

Sure Kimberly good question.

I'm Gonna.

To answer the question in two pieces so if.

If we were to perform at a 15 comp obviously.

That would give us an opportunity to get some additional leverage on our fixed cost base.

Component of SG&A on which we were already showing really good luck.

Average.

And it would also help our gross margin performance, we could have we would expect.

To drive even lower markdowns on a higher sales demand.

So that part of the way that we would typically think about our flow through on incremental sales is very much in place.

And there you know if you look at the temp comp, even though it's a flat margin.

We're getting 450 basis points.

Leverage on a full year performance.

On our SG&A and on our gross margin is just all been eaten up by the product sourcing cost supply chain cost and some incentive comp.

We're very comfortable with that part of our algorithm.

But the freight and supply chain costs are very difficult to predict so.

I don't want to give you an exact.

Flow through because we just don't know.

We think we have some pretty conservative assumptions.

And here realistic.

But.

So yes, it's just not clear.

How that situation is going to play out and that's why we stayed away from giving specific guidance.

Yes.

Understood. Thank you so much.

Thank you Mike.

Thank you.

Our last question will come from the line of Michael Binetti.

But is now open.

Hey, guys I'll add my congrats on a nice quarter and thanks for all the detail here today.

So the merch margins were.

200 basis points lower into Q.

I'm, sorry up into Cuba, but where I'm sorry, they're up they were up less.

Your line on Q I'm curious, Michael if you could just maybe give us some comment on what drove that moderation and then I think you said three Q would.

It would be 200 basis points from both merchandise margin and SG&A leverage so it seems like you're baking in further moderation of the merch margin in the third quarter in the second half, but you know given how tight supply chain.

Then we're in inventories that you spoken to getting backed up into the market I'm trying to think what what would be some of the incremental headwinds to merch margin. As you look ahead to the plan in second half.

Sure.

So good morning, Michael.

Yeah.

Everything you said is correct in.

<unk> got a comparison of the quarters. So we saw a nice margin improvement in Q2, but it wasn't as big as the improvement in Q1.

It's really driven by the point that film was making earlier that you know Q1 was with you normally Q1, and we were much cleaner coming into Q1 than we've been historically and as a result, we took.

In terms of fewer markdowns in Q1.

So that was really that was really what drove that difference between Q1 and Q2 looking forward to the back half.

Obviously, outback huh baseline comp assumption is a 10% comp.

We do a 20% comp in the back half of the year I would be hoping for.

Pumpkin expecting much.

Much stronger inventory turns much stronger mark downs that have been tried.

A stronger much much much margin performance and then we have indicated.

Linking this though to the point you were making about availability of merchandise I would say that so far this year availability has been pretty good I guess.

I would like no problem, Okay Crosstie business, we've had no problem overall.

Chasing.

Receipts, we've gone from a we started the year with a flat comp has a plan and we've obviously run a 20 <unk>. So we've been able to find the goods.

When I think about the backlog and supply chains I think.

I think the availability is going to get better much better even than the pretty good availability, we have seen but I think that improvement in availability may not happen for a few months, we're going to get to a point probably in October or something like that when you know goods that have been ordered to haven't arrived in the United States All I'm gonna make it for holiday.

And I think at that point it could be a good a good buying opportunity for off price, but we will see and a lot of that merchandise, we would end up putting in reserve anyway, but yeah. We.

We do think that there's going to be some opportunities.

In the months ahead.

Is it safe thanks for that Michael is it safe to say that the <unk> on the pack.

The inventory in the channels you spoke about it I think earlier in the remarks, you mentioned the reserves your intake of reserved inventory was up I think 86%.

Would that suggest that in August you are seeing the ability to continue bringing in reserve flows.

A bit of a slower pace and then but you have confidence that it picks up through the quarter or what are you what.

<unk> way at a pace relative to that 86 did you assume as you thought about the 10 comps.

Yeah, It's a it's a good question we.

We're kind of assuming that that reserve inventory over the next month or two it's going to kind of come in at a similar rate to what we've been experiencing.

But we do think that says.

What kind of pet.

As a buying opportunity down the road probably voted for merchandise that we wouldn't necessarily flow to stores. So it wouldn't necessarily hit the 10 comp some of it might but most of it might be packed away for next year, because it'll be seasonal merchandise.

Okay. Thanks, a lot again guys.

Excellent.

Thank you Sir.

<unk>.

This concludes our question and answer session I will now turn the call over to Michael Sullivan for closing remarks.

Thank you everyone for joining us on the call today, we appreciate your.

Jim and your interest in Burlington stores.

We look forward to talking to you again in November to discuss our third quarter results. Thanks again.

Yeah.

Okay.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.