Q4 2024 Burlington Stores Inc Earnings Call
Operator: Good morning. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Burlington Stores fourth quarter 2023 earnings conference call and webcast. All lines have been placed on mute to prevent any background noise.
Good morning, My name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to the Burlington stores fourth quarter 'twenty to 'twenty three earnings conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star followed by the number one on your telephone keypad. And if you would like to withdraw that question, again, press star one. Thank you. I would now like to turn the conference over to David Glick. Group Senior Vice President, David, you may begin your presentation. Thank you, operator, and good morning everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2023 fourth quarter operating results. Unless otherwise indicated, our discussion of results for the 2023 fourth quarter and full year is on a 13 or 52 week adjusted basis and excludes the impact of certain expenses associated with the acquisition of Bed Bath & Beyond.
If you'd like to ask a question during that time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw that question I got and press Star. One. Thank you I would now like to turn the conference over to David Glick Group Senior Vice President David You May begin your conference.
David J. Glick: Thank you operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2023 fourth quarter operating results.
David J. Glick: Unless otherwise indicated our discussion of results for the 2023 fourth quarter and full year ran a 13 or 52 week adjusted basis and exclude the impact of certain expenses associated with the acquisition of bed Bath <unk> beyond leases.
Operator: Our presenters today are Michael O'Sullivan, our Chief Executive Officer, and Kristin Wolfe, our EVP and Chief Financial Officer. Before I turn the call over to Michael, I would like to inform listeners that this call may not be transcribed, recorded, or broadcast without our express permission. A replay of the call will be available until March 14, 2024. However, we take no responsibility for inaccuracies that may appear in transcripts of this call by third parties.
Michael O'sullivan: Our presenters today are Michael O'sullivan, our Chief Executive Officer, and Christian Moore, our EVP and Chief Financial Officer.
Christian Moore: Before I turn the call over to Michael I would like to inform listeners that this call may not be transcribed recorded or broadcast without our expressed permission.
Christian Moore: A replay of the call will be available until March 14th 2024.
Christian Moore: Take no responsibility for in Accuracies that may appear in transcripts of this call by third parties.
David J. Glick: Remarks from 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 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 2022 and in other filings with the SEC, all of which are expressly incorporated herein by REF. Please note that the financial results and expectations we discussed today are on a continuing operations basis. Reconciliations of the non-GAAP measures we discussed today through GAAP measures are included in today's press. Now, here's my...
Speaker Change: <unk> for the Q&A that follows are copyrighted today by Burlington stores.
Speaker Change: Remarks made on this call concerning future expectations events strategies objectives trends or projected financial results are subject to certain risks and uncertainties.
Speaker Change: <unk> results may differ materially from those that are projected in such forward looking statements such risks.
Speaker Change: And uncertainties include those that are described in the company's 10-K for fiscal 2022 and in other filings with the SEC all of which are expressly incorporated herein by reference. Please note that the financial results and expectations. We discussed today are on a continuing operations basis reconciliations.
Speaker Change: <unk> of the non-GAAP measures, we discussed today to GAAP measures are included in today's press release now here with Michael.
Michael O'sullivan: Thank you, David. Good morning, everyone, and thank you for joining us. I would like to cover four topics this morning. First, I will discuss our fourth quarter results. Secondly, I will comment on our full year 2023 results. Thirdly, I will talk about our guidance for the year ahead. And finally, I will offer some longer-term commentary, and then Kristin will provide some additional financial details. Okay, let's talk about our Q4 results. Pomp Store sales for the fourth quarter increased 2% on a 13-week basis.
Michael: Thank you David.
Michael: Morning, everyone and thank you for joining us.
I would like to cover four topics this morning.
Michael: Firstly, I will discuss our fourth quarter results.
Michael: Secondly, I will comment on our full year 2023 results.
Michael: Thirdly, I will talk about our guidance for the year ahead.
Michael: Finally, I will offer a longer term commentary.
Michael: And then Christian will provide some additional financial details.
Michael: Okay, let's talk about our Q4 results.
Michael: Comp store sales for the fourth quarter increased 2% on a 13 week basis.
Michael O'sullivan: This was above our guidance of minus 2% to flat. I would like to peel back the onion a little and describe some important aspects of this fourth quarter comp performance. Firstly, we continue to see strong sales at our opening price. The lower income customer, the Neededale shopper, is responding well to these values. This is a very important customer for us. A year ago, this shopper was really struggling with a higher cost of living and the loss of pandemic-era benefits.
Michael: This was above our guidance of minus 2% to flat.
Speaker Change: I would like to Peel back the onion, a little I described some important aspects of this fourth quarter comp performance.
Firstly, we continue to see strong stelly at our opening price points.
Speaker Change: The lower income customer the need of deal is it.
Speaker Change: Responding well to these values.
Speaker Change: This is a very important customer for us.
A year ago. This was really struggling with a higher cost of living and with the loss of pandemic era benefits.
Michael O'sullivan: This customer is still fragile; the cost of living is not declining; it is just going up less quickly. That said, this represents an improvement versus last year, and it may have helped to underpin our comp in Q4. Secondly, what really drove our incremental growth in Q4 was the success of our strategies and businesses targeting trade downs or slightly higher-income shoppers. These customers responded well to the higher mix of recognizable brands in our apparel and accessories.
Speaker Change: This customer is still fragile the cost of living is not declining it is just going up that quickly.
Speaker Change: That said this represents an improvement versus last year.
Speaker Change: They have helped to underpin our comp in Q4.
Speaker Change: Secondly, what really drove our incremental growth in Q4 with the success of our strategies and businesses targeting trade down or slightly higher income shoppers.
Speaker Change: These customers responded well to the higher mix of recognizable brands in our apparel and accessories businesses.
Michael O'sullivan: These shoppers also drove very strong sales across our key holiday categories in gifting, accessories, and home decor. Frankly, though, looking at the results of our peers, I am disappointed that we didn't drive stronger comp growth with these shoppers. There is clearly a bigger opportunity.
Speaker Change: These shoppers also grow very strong selling across our key holiday categories, and gifting accessories and home decor.
Speaker Change: Frankly, though looking at the results of our peers I am disappointed that we didn't drive stronger comp growth with the shoppers.
There is clearly a bigger opportunity.
Michael O'sullivan: The implication is that we have to offer stronger and even more compelling values on the brands and styles that these trade-down shoppers are looking for. The final point I would like to make about our Q4 results is that we saw strong selling on regular price merchandise much... In Q4, the merchandise in our stores turned fast, and we ended up with less clearance inventory. Our comp spelling on clearance merchandise was down double digits. If I strip this out from our overall Q4 comp growth, in other words, if we just look at comp sales growth on regular price merchandise, it was up 4%. This is very helpful.
Speaker Change: The implication is that we have to walk a stronger and even more compelling values on the brands and styles that these create shoppers are looking for.
Speaker Change: The final point I would like to make about how Q4 results is that we saw strong selling on regular price merchandise.
Speaker Change: In Q4, the merchandise in our stores <unk> Paulista.
Speaker Change: And we ended up with less clearance inventory.
Speaker Change: Our pump selling on clearance merchandise was down double digits.
Speaker Change: If I strip this out from our overall Q4 comp growth in other words, if we just look at comp sales growth on regular priced merchandise it was 4%.
Speaker Change: This is very healthy.
Michael O'sullivan: Later on, Kristin will talk about the impact that this strong regular price selling had on our merchandise margins. Wrapping up my comments on our Q4 comp performance, we are happy that we beat guidance, but more importantly, we see some clear opportunities to drive even stronger performance. I would like to move off Q4 now.
Later, all Christian will talk about the impact that this strong regular price selling pad on our merchandise margin.
Speaker Change: Wrapping up my comments on our Q4 comp performance.
Christian Moore: We are happy that we beat guidance, but more importantly, we see some clear opportunities to drive even stronger performance.
Christian Moore: I would like to move off Q4, now in fact, I would like to step back and provide a report card if you will.
Michael O'sullivan: In fact, I would like to step back and provide a report card, if you will, for our full year 2023 performance. In 2023, our total sales grew by 10%. We believe that total sales are the best proxy indicator of what is happening with market share.
Christian Moore: Our full year 2023 performance.
Christian Moore: In 2023, our total sales grew by 10 per se.
Christian Moore: We believe that total sales is the best proxy indicator of what is happening with market share.
Michael O'sullivan: This total sales growth was driven by 4% comp growth plus 80 net new store openings. As I look back on these numbers, candidly, we would have liked to have done more. Let's start with new stores. In 2023, we opened 80 net new stores. But our goal over the last couple of years has been to ramp up to 100 net new stores a year. We have rigorous standards for the quality of new store locations.
Christian Moore: Total sales growth was driven by 4% comp growth plus 80, net new store openings.
Christian Moore: As I look back on these numbers candidly, we would have liked to have done more.
Christian Moore: Let's start with new stores.
Christian Moore: In 2020 suite, we opened eight net new stores.
Christian Moore: But our goal over the last couple of years has been to ramp up to 100 net new stores a year.
Christian Moore: We have rigorous standards for the quality of new store locations and over the last couple of years. This has made it difficult to hit this 100 store run rate.
Michael O'sullivan: And over the last couple of years, this has made it difficult to hit this 100-store run rate. That said, 2023 was a breakthrough year for our new store program, at the Bed Bath & Beyond Bank of London. We acquired a large number of very attractive new store locations, and we identified and are negotiating on many others with the landlord. These deals have significantly strengthened our new store pipeline, and, as we will discuss later, we are confident that we will hit our goal of 100 net new stores in 2024. Okay, let me turn now to Comp Sales Growth. For the full year 2023, we achieved comp growth of 4%. This was right in the middle of our original guidance range of 3% to 5%. So, frankly, coming into 2023, we had hoped for better. There were external and internal factors that slowed us down in the first half of the year. Externally, our core low-income shoppers continue to struggle with lower government benefits and with the rising cost of living.
Speaker Change: Thanks Ted.
Speaker Change: 2023, with a breakthrough year brand new store program.
Speaker Change: In the bed Bath and beyond bankruptcy process, we acquired a large number of very attractive new store locations.
Speaker Change: And we identify and are negotiating on many others with the landlords.
Speaker Change: These deals have significantly strengthened our new store pipeline.
Speaker Change: As we will discuss later we are.
Confident that we will hit our goal of 100 net new stores in 2024.
Speaker Change: Okay, Let me turn now to comp sales growth.
Speaker Change: For the full year 2023, we achieved comp growth of 4%.
Speaker Change: This was right in the middle of our original guidance range of 3% to 5%.
Speaker Change: Frankly coming into 2023, we had hoped for better.
Speaker Change: There were external and internal factors that slowed us down in the first half of the year.
Speaker Change: Thirdly, our core low income Chaco.
Speaker Change: Continue to struggle with lower government benefits and with the rising cost of living.
Michael O'sullivan: We did see some growth in trade-down traffic from want-to-deal higher-income customers, but in Q1 and Q2, this was not enough to offset weakness with our core low-income shoppers. Internally, we had planned for a stronger trend at the start of the year. This hurt us because when the trend turned out to be weaker, we struggled to reposition ourselves.
Speaker Change: We did see some growth in trade down traffic from Walter deal higher income customers.
Speaker Change: But in Q1 and Q2 this was not enough to offset weakness with our core low income shoppers.
Speaker Change: In totally.
Speaker Change: We had planned for a stronger trend of the start of the year.
Speaker Change: This telecom because when the trend turned out to be weaker we struggled to reposition ourselves.
Michael O'sullivan: In retrospect, it would have been better to have had a lower sales plan and more liquidity. The Q1 trend would still have been soft, but we could have better positioned ourselves for Q2. In any event, by the second half, we were able to get ourselves in shape and build momentum.
Speaker Change: In retrospect, it would have been better to have had a lower sales plan and more liquidity.
Speaker Change: The Q1 trend would still have been solved, but we could have better positioned ourselves for Q2.
Speaker Change: In any event by the second half, we were able to get ourselves in shape and to build momentum.
Michael O'sullivan: Beating our sales plan to the full season. Okay, the final section of the 2023 report card is early, but we were able to drive 130 basis points of operating margin expansion in 2023. This was ahead of our original guidance of 80 to 120, basically. This helped to drive EPS growth of 46 percent, well ahead of... In a few moments, Kristin will dissect these results, but the headline is, this was a high-quality earnings
Speaker Change: Meeting our sales plan for the fall season.
Speaker Change: Okay. The final section of the 2023 report card is earnings.
Speaker Change: We were able to drive 130 basis points of operating margin expansion in 2023.
Speaker Change: This was ahead of our original guidance of 80 to 120 basis points.
Speaker Change: This helped to drive EPS growth of 46% well ahead of guidance.
In a few moments Kristin will dissect these results, but the headline is this was a high quality earnings beat driven.
Michael O'sullivan: This was driven by a stronger merchandise margin and faster than expected progress on our major expense initiatives in freight and supply chains. So, when we wrap up on the 2023 report card, yes, we would have liked to have done more. But overall, we are happy with our double-digit total sales growth, 80 net new stores, 4% comp sales growth, and 130 basis points of operating margin expansion. These results give us confidence in the long-range financial targets that we shared on our November call. Now let's move on to 2024 and talk about our guidance. Of course, we previewed this guidance in November.
Speaker Change: Driven by stronger merchandise margin and faster than expected progress on our major expense initiatives in freight and supply chain.
Speaker Change: So wrapping up on the 2023 report card, yes, we would have liked to have done more.
Speaker Change: But overall, we are happy with our double digit total sales growth.
Speaker Change: Net new stores, 4% comp sales growth.
Speaker Change: 130 basis points of operating margin expansion.
Speaker Change: These results give us confidence in the long range financial targets that we shared on our November call.
Speaker Change: Now, let's move on to 2024 and talk about our guidance.
Speaker Change: Of course, we previewed this guidance in November.
Michael O'sullivan: Back then, we described our forecast as being based on 2% comp growth and 50 basis points of margin expansion. Since then, we have built flexibility into the lower end to give ourselves more room to change. But to be clear, nothing has fundamentally changed in terms of our thinking on the 2024 outlook.
Speaker Change: Back then we described our forecast as being based on Q4 percent comp growth and 50 basis points of margin expansion.
Speaker Change: Since then we.
Speaker Change: <unk> built flexibility into the lower end of the range to give ourselves more room to case, but.
Speaker Change: But to be clear nothing has fundamentally changed in terms of our thinking on the 2020 for outlook.
Michael O'sullivan: I would like to discuss each driver of this, new stores, comp stores, and operating margin expenses. In 2024, we expect to open approximately 140 gross new stores. Stripping out relocations and closures, this should result in 100 net new stores. We anticipate approximately one-third of these will open in the spring and two-thirds in the fall.
Speaker Change: I would like to discuss each driver of this guidance new stores comp stores and operating margin expansion.
Speaker Change: In 2024, we expect to open approximately 140 gross new stores.
Speaker Change: Stripping out relocations and closures.
Speaker Change: Good result, a 100 net new stores.
Speaker Change: We anticipate approximately one third of these will open in the spring and two thirds in the fall.
Michael O'sullivan: As discussed previously, new stores averaged about $7 million in volume in their first full year. These new store openings, together with our comp sales growth, could drive a total sales increase in the range of 9% to 11% this year. Moving on to CompState, for the full year and Q1, we are guiding to 0 to 2% pump growth. As discussed in November, there is plenty of uncertainty in the outlook for 2024, so it makes sense to be cautious. As an off-price retailer, this allows us to manage our business and position ourselves to chase a stronger trend. As I described a moment ago, one of the lessons from the spring of 2023 is that we came into the year with too strong a plan. When the trend turned out to be weaker, in some of our businesses, we were not liquid enough to react. It would have been better if we had had a lower plan and then faith.
Speaker Change: As discussed previously new stores average about $7 million and volume in that first full year.
Speaker Change: These new store openings together with our comp sales growth should drive a total sales increase in the range of 9% to 11% this year.
Speaker Change: Moving on to comp sales.
Speaker Change: For the full year and for Q1, we are guiding to zero to 2% comp growth.
Speaker Change: As discussed in November there is plenty of uncertainty in the outlook for 2024, so it makes sense to be cautious.
Speaker Change: As an off price retailer with allows us to manage our business and position ourselves to chase a stronger trend.
Speaker Change: As I described a moment ago, one of the lessons from the spring of 2023 is that we came into the year with too strong of a plan.
Speaker Change: When the trend turned out to be weaker in some of our businesses, we will not liquid enough to react.
Speaker Change: It would've been better if we had had a lower plan and then chased.
Michael O'sullivan: Moving on to margin, with our comp range of flat to 2%, we expect to be able to drive operating margin expansion of 10 basis points to 50 basis points. There are three drivers of this marginalization: higher merchant margins, lower freight expenses, and lower supply chains, which Kristin will talk more about.
Speaker Change: Moving onto margin with our coat range of flat to 2%.
To be able to drive operating margin expansion of 10 basis points to 50 basis points.
Speaker Change: There are three drivers of this margin expansion.
Speaker Change: Higher merchant margin lower freight expenses and lower supply chain expenses.
Speaker Change: Christian will talk more about these.
Michael O'sullivan: But we feel good about the underlying plans we have in each of these areas. Kristin will also explain that we expect this margin expansion to be slightly higher in Q1. 20 basis points to 60 basis points on a flap to 2% COG.
Christian Moore: So we feel good about the underlying plans we have in each of these areas.
Christian Moore: Kristian will also explain that we expect this margin expansion to be slightly higher in Q1 'twenty.
Christian Moore: 20 basis points to 60 basis points or flat to 2% comp.
Michael O'sullivan: Let me wrap up now with a few comments on our longer-term outlook. In our November call, we discussed our expectations for the growth of our business over the next five years. We believe we can grow total sales to approximately $16 billion and operating income to about $1.6 billion over this period. We see three drivers of this growth. I will comment on each of them, new store openings and relocations. We expect to open about 100 net new stores a year, plus two to three dozen relocations of older, oversized, less productive stores.
Speaker Change: Let me wrap up now with a few comments on our longer term outlook.
Speaker Change: In our November call, we discussed our expectations for the growth of our business over the next five years.
Speaker Change: We believe we can grow total sales to approximately $16 billion and operating income to about one 6 billion.
Speaker Change: Over this period.
Speaker Change: We see three drivers of this growth I will comment on each of these.
Speaker Change: New store openings and relocations.
Speaker Change: We expect to open about 100, net new stores, a year plus two to 3000 relocations of older overtime less productive stores.
Michael O'sullivan: As I described a moment ago, we are well positioned for 2024. Looking further out, we anticipate some lumpiness in the number of openings year-to-year. But overall, we feel good about our longer-term pipeline and the likely availability of attractive new store locations over the next few years. Secondly, comp sales growth. There are good reasons to be cautious in how we plan and manage our businesses in the short term, especially the year ahead.
Speaker Change: As I described a moment ago, we are well positioned for 2024.
Speaker Change: Looking further out we.
Speaker Change: Anticipate some lumpiness in the number of openings year to year.
Speaker Change: But overall, we feel good about our longer term pipeline.
Speaker Change: And the likely availability of attractive new store locations over the next few years.
Speaker Change: <unk> comp sales growth.
Speaker Change: There are good reasons to be cautious and how we plan and manage our business in the short term.
Speaker Change: Especially the year ahead.
Michael O'sullivan: But over the next five years, we believe we can achieve average comp growth in the mid-single digits. We think the external environment over the next few years is likely to be favorable for off-price, and we are excited about the initiatives we have been pursuing to improve our own execution of the model. Thirdly, Marge... We believe we can grow our operating margin to 10% in the next five years from a combination of leverage on higher sales and cost savings opportunities that are unrelated to sales. We made good progress in 2023, and we are confident in our plans for 2024. At this point, I would like to ask Kristin to join me in welcoming the panel.
Speaker Change: But over the next five years, we believe we can achieve average comp growth in the mid single digits.
We think the external environment over the next few years is likely to be favorable for off price.
Speaker Change: And we are excited about the initiatives, we have been pursuing to improve our own execution of the model.
Speaker Change: Thirdly margin.
Speaker Change: We believe we can grow our operating margin to 10% in the next five years from a combination of leverage on higher sales and cost savings opportunities.
Speaker Change: Unrelated to sales.
Speaker Change: We made good progress in 2023, and we are confident in our <unk>.
Speaker Change: Plans for 2024.
Speaker Change: At this point I would like to ask Kristen sure additional financial details on Q4 and on our first quarter 2024 and full year guidance.
Kristin Wolfe: Please share additional financial details on Q4 and on our first quarter 2024 and full year diaries. Thank you, Michael, and good morning, everyone. I will start with some additional details on the fourth quarter. Please note that the following discussion of fourth quarter financial results will be on a 13-week, non-GAAP basis, unless otherwise indicated. Total sales growth in the quarter was 9%.
Kristen: Thank you Michael and good morning, everyone.
I will start with some additional details on the fourth quarter.
Kristen: Please note that the following discussion of fourth quarter financial results will be on a 13 week non-GAAP basis, unless otherwise indicated.
Kristen: Total sales in the quarter was 9% this is higher than our guidance of 5% to 7% driven by higher comp store sales.
Kristin Wolfe: This is higher than our guidance of 5% to 7%, driven by higher cop store sales. Our comp sales growth in Q4 was 2%, which was above our guidance of minus 2% to flat. In addition, the 53rd week added $138 million in total sales to this result, bringing our Q4 total sales increase on a 14-week basis to approximately 14 percent. The gross margin rate for the fourth quarter was 42.6%.
Kristen: Our comp sales growth in Q4, with 2%, which was above our guidance of minus 2% to flat in.
Kristen: In addition, the 50 <unk> week added $138 million and total sales to this result.
Our Q4 total sales increase on a 14 week basis to approximately 14%.
Kristen: The gross margin rate for the fourth quarter was 42, 6%.
Kristin Wolfe: An increase of 190 basis points versus last year. This was driven by a 140 basis point increase in merchandise margins, mostly driven by lower markdowns, as well as a 50 basis point decrease in freight expense. Product sourcing costs were 20 basis points lower than last year.
Kristen: An increase of 190 basis points versus last year.
Kristen: This was driven by 140 basis point increase in merchandise margin.
<unk> driven by lower markdowns.
Kristen: As well as a 50 basis point decrease in freight expense.
Kristen: Product sourcing costs were 20 basis points lower than last year.
Kristin Wolfe: This was driven by supply chain leverage of 40 basis points, as we've made progress on our Distribution Center Productivity Initiative. This supply chain leverage was partially offset by higher incentive compensation. Adjusted ST&A costs in Q4 were 100 basis points higher than last year, which included 20 basis points of de-leverage attributable to expenses related to the acquired Fed staff and beyond. Excluding bed, bath, and beyond leases, adjusted SG&AD leverage was 80 basis points, driven primarily by higher incentive comp accruals and investments in store payroll. Q4 adjusted EBIT margin was 11.1%, 110 basis points higher than last year, compared with guidance of 0 to 40 basis points. Again, this excludes fed, back, and beyond costs worth 20 basis points. Our adjusted ETS in Q4 was $3.69, which was well above the high end of our range of $3.10 to $3.25. This result and the guidance range exclude approximately $6 million of pre-tax expenses associated with the Bed Bath & Beyond stores that were acquired last fall.
Kristen: This was driven by supply chain leverage of 40 basis points as we've made progress on our distribution center productivity initiatives.
Kristen: <unk> leverage was partially offset by higher incentive compensation.
Kristen: Adjusted SG&A cost in Q4 were 100 basis points higher than last year.
Kristen: Which included 20 basis points in de leverage attributable to expenses related to the acquired bed Bath and beyond basis.
Kristen: Excluding bed Bath <unk> beyond later, adjusted SG&A deleverage with 80 basis points, driven primarily by higher incentive comp accruals and investments in store payroll.
Kristen: Q4, adjusted EBIT margin was 11, 1% 110 basis points higher than last year compared with guidance of zero to 40 basis points.
Again, this excludes bed Bath <unk> beyond cost worth 20 basis points.
Kristen: Our adjusted EPS in Q4 was $3 69.
Kristen: This was well above the high end of our range of $3 10 to $3 25.
Kristen: This result, and the guidance range excludes approximately $6 million of pre tax expenses associated with the bed Bath and beyond stores that were acquired last fall.
Kristin Wolfe: On a 14-week basis, our adjusted EPS was $3.72, again excluding $6 million of pre-tax expenses associated with the Bed Bath & Beyond stores. At the end of the quarter, our comparable store inventories were 5% below 2022, while our reserve inventory was 39% of our total inventory versus 48% last year. We are very happy with the quality of the merchandise and the values that we have in reserve. We ended the quarter in a very strong liquidity position, with approximately $1.6 billion in total liquidity, which consisted of $925 million in cash and $709 million in availability in our ADL. We had no borrowings outstanding at the end of the quarter on our ADL.
Kristen: On a 14 week basis, our adjusted EPS was $3 70 to extend again, excluding $6 million of pre tax expenses associated with the bed Bath and beyond stores.
Kristen: At the end of the quarter, our comparable store inventory were 5% below 2022.
Kristen: Our reserve inventory was 39% of our total inventory versus 48% last year.
Kristen: We are very happy with the quality of the merchandise and the values that we have in reserve.
Kristen: We ended the quarter and a very strong liquidity position with approximately $1 $6 billion in total liquidity, which consisted of $925 million in cash and $709 million in availability and our ABL we.
Kristen: We had no borrowings outstanding at the end of the quarter on our ABL.
Kristin Wolfe: During the quarter, we repurchased $103 million in common stock, bringing our annual share repurchases to $232 million. At the end of the fourth quarter, we had $500 million remaining on our share repurchase authorization, which expires in 2025. In Q4, we opened 30 net new stores, bringing our store count at the end of the quarter to 1,007 stores. This included 39 new store openings, four relocations, and five closings. For the full year, we opened 104 new stores while relocating 13 stores and closing 11 stores, adding 80 net new stores to our fleet. I will now move on to discuss our full year 2023 results. Please note that the following discussion of Fiscal 23 financial results will be on a 52-week, non-GAAP basis unless otherwise indicated. In addition, the full-year results I will share exclude the impact of approximately $18 million in expenses related to the acquisition of FedValve, and Beyond Lease.
Kristen: During the quarter, we repurchased $103 million in common stock.
Kristen: Our annual share repurchases to $232 million.
Kristen: At the end of the fourth quarter, we had $500 million remaining on our share repurchase authorization that expires in 2025.
Kristen: In Q4, we opened 30 net new stores, bringing our store count at the end of the quarter to 1007 stores.
Kristen: This included 39, new store openings.
Kristen: For relocations and five closings.
Kristen: For the full year, we opened 104, new stores, while relocating 13 stores and closing 11 stores, adding.
Adding 80, net new stores to our fleet.
Speaker Change: I will now move on to discuss our full year 2023 results.
Speaker Change: Please note that the following discussion of fiscal 'twenty three financial results will be on a 52 week non-GAAP basis, unless otherwise indicated.
Speaker Change: In addition, the full year results I will share excludes the impact of approximately $18 million in expenses related to the acquired bed Bath and beyond leases.
Kristin Wolfe: In fiscal 2023, total sales increased 10%, and prompt store sales increased 4%. Our operating margin for the full year expanded by 130 basis points. Merchandise margin increased by 110 basis points, while freight improved by 90 basis points, which more than offset 40 basis points of de-leverage in SG&A and 20 basis points of de-leverage in product sourcing costs. Let's now move to 2024 guidance. I will compare 2024 guidance to 2023 results on a 52-week basis. Also, this 24 guidance excludes and anticipated $9 million in expenses associated with the acquired Bed Bath & Beyond leases. $8 million of these expenses are expected in the first quarter and $1 million in the second quarter.
Speaker Change: In fiscal 2023 total sales increased 10%.
Speaker Change: Comp store sales increased 4%.
Speaker Change: Our operating margin for the full year expanded by 130 basis points.
Speaker Change: Merchandise margin increased by 110 basis points.
Speaker Change: While freight improved by 90 basis points.
Which more than offset 40 basis points of deleverage in SG&A and.
Speaker Change: And 20 basis points of deleverage in product sourcing cost.
Speaker Change: Let's now move to 2020 for guidance.
Speaker Change: I will compare 2024 guidance to 2023 results on a 52 week basis.
Speaker Change: Also this 24 guidance excludes an anticipated $9 million in expenses associated with the acquired bed Bath and beyond leases.
Speaker Change: $8 million of these expenses are expected in the first quarter and $1 million in the second quarter.
Kristin Wolfe: For the 2024 fiscal year, we expect total sales growth in the range of 9% to 11%. We expect comp store sales to increase in the range of 0% to 2% for fiscal 2024, and our adjusted EBIT margin to increase 10 to 50 basis points versus last year. We expect higher merchandise margins, as well as freight and supply chain leverage, to be the primary margin drivers in FYSBOS 2024. Keep in mind that we will be reporting comparable store sales in Fiscal 24 on a shifted basis, lining up the comparable weeks in fiscal 2023. Capital expenditures, net of landlord allowances, are expected to be approximately $750 million in fiscal 2024.
Speaker Change: For the 2020 for fiscal year, we expect total sales growth in the range of 9%.
Speaker Change: 11%.
Speaker Change: We expect comp store sales to increase in the range of zero percent to 2% for fiscal 2024.
Speaker Change: And our adjusted EBIT margin to increase 10 to 50 basis points versus last year.
Speaker Change: We expect higher merchandise margin as well as freight and supply chain leverage to be the primary margin drivers in fiscal 2024.
Speaker Change: Keep in mind that we will be reporting comparable store sales in fiscal 'twenty four on a shifted basis lining up the comparable weeks in fiscal 2023.
Speaker Change: Capital expenditures net of landlord allowances are expected to be approximately $750 million in fiscal 2024.
Kristin Wolfe: This results in adjusted earnings per share guidance in the range of $7 to $7.60, an expected increase of 12% to 22%. For the first quarter of 2024, we expect total sales growth in the range of 9% to 11%, and comp store sales are assumed to increase between 0 and 2%. We are expecting adjusted EBIT margin to increase in the range of 20 to 60 basis points over the first quarter of 2023, which would result in an adjusted ETS outlook in the range of 95 cents to $1.10 in the first quarter. Again, we expect merchandise margin freight and supply chain leverage to be the primary drivers of this anticipated margin improvement. I will now turn the call back to Michael.
Speaker Change: This results in adjusted earnings per share guidance in the range of $7 to $7 60.
Speaker Change: An expected increase of 12% to 22%.
Speaker Change: For the first quarter of 2024, we expect total sales growth in the range of 9% to 11%.
Speaker Change: Comp store sales are assumed to increase between zero and 2%.
Speaker Change: We are expecting adjusted EBIT margin to increase in the range of 20 to 60 basis points over the first quarter of 2023.
Speaker Change: Which result in adjusted EPS outlook in the range of 95.
Speaker Change: <unk> to $1 10 in the first quarter.
Speaker Change: Again, we expect merchandise margin freight and supply chain leverage to be the primary drivers of this anticipated margin improvement.
Speaker Change: I will now turn the call back to Michael.
Michael O'sullivan: Thank you, Kristin. Let me summarize the key points that we discussed. We are happy that we beat our comp guidance for the fourth quarter. But the more important takeaway from the quarter is that we have the opportunity to drive even stronger performance, especially by delivering stronger and more compelling value to trade-down shoppers. Stepping back and looking at 2023 as a whole.
Michael: Thank you Kristen.
Michael: Let me summarize the key points that we have discussed we.
Michael: We are happy that we beat our comp guidance for the fourth quarter.
Michael: But the more important takeaway from the quarter is that we have the opportunity to drive even stronger performance, especially by delivering stronger and more compelling value to trade down shoppers.
Michael: Stepping back and looking at 2023 as a whole.
Michael O'sullivan: We would have liked to have done more, but overall, we are happy with our double-digit total sales growth, 80 net new stores, 4% comp growth, and 130 basis points of margin expansion. As we look ahead to 2024, there is plenty of uncertainty, and we see good reasons to be cautious. We are guiding 9% to 11% total sales growth driven by 100 net new stores and 0 to 2% comp growth.
Michael: We would've liked to have done more.
Michael: But overall, we are happy with our double digit total sales growth.
Michael: Net new stores.
Michael: Comp growth and 130 basis points of margin expansion.
Michael: As we look ahead to 2024.
Michael: Plenty of uncertainty and we see good reasons to be cautious.
Michael: We are guiding 9% to 11%.
Michael: <unk> sales growth driven by 100, net new stores and zero to 2% comp growth.
Michael O'sullivan: With this sales growth, we anticipate margin expansion of 10 basis points to 50 basis points. Lastly, we are very excited about the long-term prospects for our business. As we discussed in November, we think that over the next five years, we can grow sales to $16 billion and drive our operating earnings to approximately $1.6 billion. With that, I would now like to turn the call over to your questions. Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. We also ask that you limit yourself to one question and one follow-up. Your first question comes from the line of Matthew Boss from JP Morgan. Please go ahead.
Michael: With this sales growth, we anticipate margin expansion of 10 basis points to 50 basis points.
Michael: Lastly, we are very excited about our long term prospects for our business.
Michael: As we discussed in November we think that over the next five years, we can grow sales to $16 billion and drive our operating earnings to approximately $1 $6 billion.
Speaker Change: With that I would now like to turn the call over for your questions.
Speaker Change: Thank you.
Speaker Change: To ask a question. Please press star one on your telephone keypad. We also ask that you limit yourself to one question and one follow up your first question comes from the line of Matthew Boss from Jpmorgan. Please go ahead.
Michael O'sullivan: Great, thanks, and congrats on a really nice presentation. Thanks, Matt. So Michael, maybe to start off, could you elaborate on the rationale behind your 2024 comp sales guidance and just how we should think about this guidance in relation to your long-term target, which calls for mid-single-digit comps on average over the next five years? Well, good morning, Matt.
Matthew Robert Boss: Great Thanks, and congrats on a really nice quarter.
Matthew Robert Boss: Thanks, Matt.
Matthew Robert Boss: So Michael maybe two to start off could you elaborate on the rationale behind your 2024 comp sales guidance and just how we should think about this guidance in relation to your long term target, which calls for mid single digit comps on average over the next five years.
Michael: Well good morning, Matt.
Michael O'sullivan: Thank you for the question. It's a good one. Let me start by putting 2024 into context with the last three years. If I go back to 2021, our trend was extraordinarily strong, stronger than peers, fueled by the impact of the pandemic era benefits on our core Low Income Shoppers. Then in 2022, we came back down to earth with a bump, as those shoppers were crushed by lower benefits and by big increases in their cost of living. Now those issues will continue to bleed into the first half of 2023.
Michael: For the question.
Speaker Change: A good question.
Michael: Yes, let me start by.
Michael: Putting 2024.
Michael: Into context with the last with the last three years.
Michael: If I go back to 2021 hour trend.
Michael: It was extraordinarily strong stronger than peers fueled by the impact of pandemic your benefits on our core.
Michael: Lower income shoppers than in 2022.
We came back down to Earth with a bump as those shoppers were crushed by level of benefits and by big increases in that cost of living.
Michael: Now those issues continue to bleed into the first half of 2023.
Michael O'sullivan: So here we are, what to expect in 2024. I'm going to whisper this, but we think it could be the first full normal year since I joined Burlington in 2019. And that's kind of how we approached guidance for 2020. In normal times, before the pandemic, we would likely have planned low single-digit comps and then be ready to shave.
Michael: So here, we are what to expect in 2024.
There have been a wisp of this but we think it's possible that 2024 could.
Michael: Could be the first full normal year since I joined Burlington in 2019.
Michael: And that's kind of how we approached guidance for 2020.
Michael: In normal times before the pandemic, we would likely have planned low single digit comp.
And then being ready to shape.
Michael O'sullivan: Of course, we don't know if the trend in 2024 will be stronger or weaker. There is plenty of economic uncertainty, interest rates, inflation, gas prices, as well as political and geopolitical risks, even, but by planning 0% to 2% GDP, we're positioning ourselves to react, I think, to an appropriate range of outcomes. If the trend is weaker than 2 percent, we can pull back and absorb it. If it's stronger than 2 percent, then we know we can chase it.
Of course, we don't know if the trend in 2024 will be stronger or weaker there is plenty of economic uncertainty interest rates inflation gas prices as well as political and geopolitical risks Steven.
Michael: But by planning.
Michael: Zero to 2% comp.
Michael: We're positioning ourselves to react I think to an appropriate range of outcomes.
Michael: Trend is weaker than 2%, we can pull back and absorb it if it's stronger than 2% that we know we can chase it.
Michael O'sullivan: I should add, in Q4, as we've just reported, we grew 2 percent versus last year. So, that gives us some confidence that our 2024 guidance is reasonable. Now, the key part of your question was about our longer-term outlook. So, let me try and reconcile.
Michael: I should add in Q4 as we've just reported we grew 2% comp versus last year. So that gives us some confidence that 2024 guidance is reasonable yes.
Michael: The key part of your question was about.
Michael: Our longer term outlook, so let me try and reconcile.
Michael O'sullivan: 2024 guidance to a longer-range target of mid-single-digit comp growth. You know, in the years leading up to the pandemic, although we might have planned low single-digit costs... The intent was always to chase above that, and measured over multiple years, our comp indeed averaged three to four percent. And we think that as the aftereffects of the pandemic continue to recede, that's the right baseline for our longer-term model. We believe all the underlying consumer, competitive, and structural factors that drove that growth still exist.
Michael: 2024 guidance to our longer range target of mid single digit comp growth.
Michael: In the years, leading up to the pandemic, although we might have planned low single digit comp.
<unk> was always to chase above that and measured over multiple years.
Michael: Comp, indeed averaged 3% to 4%.
Michael: So we think that as the after effects of the pandemic continue to recede.
Michael: That's the right baseline for our longer term model.
Michael: We believe all the underlying consumer competitive and structural factors.
Michael: That growth still exist.
Michael O'sullivan: But in addition, we know that we've taken significant actions to improve our own execution of the off-price model, and as those actions gain traction, we expect to outperform that 3% to 4% baseline. So if I pull all this together, for the 12 months ahead, for 2024, our plan is based on low single-digit comp growth with the potential to chase. For future years, I should add, we'll likely take a similar approach, and I expect in some years we'll chase and beat that number. In other years, we won't go.
Michael: But in addition, we know that we've taken significant actions to improve our own execution of the off price model.
Michael: And as those actions gained traction we expect to outperform that 3% to 4% baseline. So if I put all this together for the 12 months ahead for 2024.
Michael: Our plan is based on low single digit comp growth with the potential to chase for future years I should add we will let you take a similar approach and I expect in some years, we will chase and beat that number in other years, we worked.
Michael O'sullivan: But we believe over an extended period, a five-year period, we will be able to achieve average annual comp growth in the mid-single digits. That's great. That's a great color, Michael.
Michael: But we believe over an extended period, a five year period.
Michael: We will be able to achieve average annual comp growth in the mid single digits.
Speaker Change: That's great that's great color Michael.
Kristin Wolfe: Kristin, maybe to follow up on the 2024 margin. Could you just walk us through some of the puts and takes in this year's guidance, and maybe more specifically, could you walk us through the drivers of leverage on a flat... Thanks, Matt. Good morning.
Speaker Change: Maybe to follow up on the 2020 for margin guidance could you just walk us through some of the puts and takes in this year's guidance and maybe more specifically could you walk through the drivers of leverage on a flat to two comp for this year.
Speaker Change: Thanks, Matt good morning.
Kristin Wolfe: Sure, the margin drivers for 24 are consistent with what we shared on the November call. That is, higher merchandise margin and savings in freight and in supply chain. And these three margin drivers are not dependent on sales, which is why we believe we can increase our EBIT margin on a flat 2% comp by 10 to 50 basis points. So let me go through each of these quickly.
Matt: Sure the margin drivers for 24, consistent with what we shared on our November call that higher merchandise margin and savings in freight and in supply chain and these three margin drivers are not dependent on sales, which is why we believe we can increase our EBIT margin on a flat to 2% comp by 10 to 50 basis points.
Speaker Change: So let me go through each of these quickly I'll start with merchandise margin. We continue to make good progress here as evidenced by the 110 basis point increase in merchandise margin in fiscal 'twenty three.
Kristin Wolfe: I'll start with merchandise margin. We continue to make good progress here, as evidenced by the 110 basis point increase in merchandise margin in fiscal 23. We continue to believe we can turn faster and drive lower markdowns.
Speaker Change: We continue to believe we can turn faster and drive lower markdown.
Kristin Wolfe: And as in 24, we're entering with clearance levels down meaningfully versus last year, and our inventory levels and assortments are well transitioned or fresh, and with great values. Secondly, on freight, freight continues to be a tailwind for us. Particularly in the first half of 2024, we're benefiting from lower contracted domestic rates and remain largely covered with our contracts on ocean freight rates.
Speaker Change: And then 'twenty four we're entering with clearance levels down meaningfully versus last year, and our inventory levels and assortments are well transition of fresh and with great values.
Speaker Change: Secondly on freight rate continues to be a tailwind for us, particularly in the first half of 2024, we're benefiting from lower contracted domestic rate and remain largely covered with our contracts on the ocean freight rates and.
Kristin Wolfe: And finally, we're making good progress on supply chain expenses, as evidenced by the 40 basis points of leverage we drove in the fourth quarter. I would say these are the three line items that are the primary drivers of leverage in 2024. There are two offsets that we're planning for in 2024 that I want to mention. One is SG&A.
Speaker Change: And finally, we're making good progress on supply chain expenses as evidenced by the 40 basis points of leverage we drove in the fourth quarter.
I would say these are the three line items that are the primary drivers of leverage in 2024. There are two offsets that we're planning for and 24 I want to mention one is SG&A. We do expect some modest deleverage in SG&A due to continued investment in store payroll, which we really didn't step up into the back half.
Kristin Wolfe: We do expect some modest de-leverage in SG&A due to continued investment in store payroll, which we really didn't step up until the back half of 2023. In addition, we'd expect some de-leverage on a 0 to 2% comp in SG&A, given that range. And the second offset is in depreciation. We're planning for some modesty, leverage, and depreciation given the step-up in CapEx we're planning for this year. That's helpful. A great call.
Speaker Change: 23.
Speaker Change: In addition, we would expect.
Speaker Change: Some deleverage on a zero to 2% comp and SG&A given that range.
Speaker Change: And the second offset isn't depreciation we're planning for some modest deleverage in depreciation given the step up in Capex were planning for this year.
Speaker Change: That's helpful. Great color best of luck. Thanks, Kurt.
Kristin Wolfe: Thanks. Your next question comes from the line of Ike Boruchow from Wells Fargo. Please go ahead. Hey, good morning, everyone.
Speaker Change: Your next question comes from the line of Ike <unk> from Wells Fargo. Please go ahead.
Speaker Change: Okay.
Michael O'sullivan: Congratulations on the quarter. Kristin, I guess first for you, you guys ended up with really nice margins in the fourth quarter and in the full year. I guess, how much of the upside do you consider to be one-time in any way? In other words, how much of this upside, you know, would stick on the go forward P&L? And then I have a follow-up. Good morning, Ike.
Ike: Morning, everyone congrats on the quarter.
Ike: Christian I guess first for you.
Ike: You guys ended up with.
Ike: Really nice margins in the fourth quarter and the full year I guess, how much of the upside do you consider to be one time in any way in other words, how much of this upside would stick on the go forward P&L.
Speaker Change: I have a follow up for Michael.
Speaker Change: Okay.
Kristin Wolfe: Thanks for the question. It's a good question, and we didn't provide line item guidance for the fourth quarter, so let me provide some color. The first thing I would say is there were not any what I would consider one-time benefits.
Speaker Change: Good morning. Thanks for the question. It's a good question and we didn't provide line item guidance for the fourth quarter. So let me provide some color there.
Speaker Change: First thing I would say is there were not any what I would consider one time benefits in fact, we faced a margin headwind given the higher accrued incentive comp expense versus the fourth quarter of 2020.
Kristin Wolfe: In fact, we faced a margin headwind given the higher accrued incentive comp expense versus the fourth quarter of 2022. But when I look at our Q4 margin, I feel good about the quality of the upside. Starting with gross margin that increased 190 basis points. Freight came in largely as we had expected, at 50 basis points lower, but the 140 basis point increase in merchandise margin was very healthy and better than we planned. As Michael highlighted in his prepared remarks, strong regular price selling did help drive lower markdowns and, in turn, a higher merchandise margin.
Speaker Change: So when I look at our Q4 margin I feel good about the quality of the upside.
Speaker Change: Starting with gross margin that increased 190 basis points.
Speaker Change: <unk> came in largely as we had expected at 50 basis points lower but the 140 basis point increase in merchandise margin was very healthy and better than we planned.
Speaker Change: Michael highlighted in his prepared remarks strong regular price selling did help drive lower markdowns and in turn a higher merchandise margin.
Kristin Wolfe: Within product sourcing costs, as I just mentioned, supply chain leveraged 40 basis points. That was ahead of our expectations, and that was due to higher productivity and benefits we're starting to realize from our efficiency initiatives in supply chain. SG&A in the fourth quarter did de-lever by 80 basis points.
Speaker Change: Within product sourcing costs.
I just mentioned supply chain leveraged 40 basis points that was ahead of our expectations and that was due to higher productivity and benefits, we're starting to realize from our efficiency initiatives and supply chain.
Speaker Change: SG&A in the fourth quarter did delever by 80 basis points now that excludes the bed Bath <unk> beyond expenses, but that was in line with what we had expected and was driven primarily by higher incentive comp as well as our store payroll investment during the quarter. So overall for the fourth quarter.
Kristin Wolfe: Now, that excludes Bed Bath & Beyond expenses, but that was in line with what we'd expected and was driven primarily by higher incentive comp as well as our store payroll investment during the quarter. So overall, for the fourth quarter, a 110 basis point increase in EBIT margin. That was 70 basis points above the high end of our guidance. We felt like this was a strong outcome.
Speaker Change: Our 110 basis point increase in EBIT margin that was 70 basis points above the high end of our guidance. We felt like this was a strong outcome gives us confidence as we head into 'twenty four continue to expand operating margin.
Kristin Wolfe: Gives us confidence as we head into 24, and continue to expand operating margin. And finally, the strength of Q4 did contribute to the 130 basis point increase in EBIT margin for the full year, fiscal 2023. And that enabled us to ultimately exceed the high end of that original EBIT margin guidance for a 120 basis point increase in fiscal 23. Got it, super helpful.
Speaker Change: And finally, the strength of Q4 did contribute to the 130 basis point increase in EBIT margin for the full year fiscal 2023 and that enabled us to ultimately exceed the high end of that original EBIT margin guidance for 120 basis point increase in fiscal 'twenty three.
Speaker Change: Got it Super helpful. And then just a quick one for Michael just on the real estate.
Michael O'sullivan: And then just a quick one for Michael, just on real estate. You still sound very confident about 100 net new stores for 24. You mentioned some things like lumpiness and openings over the next couple of years. I wonder if you could maybe just elaborate a little bit on that and maybe just update us on the overall real estate environment and what your pipeline looks like. Thanks very much, Sure. Well, good morning, Ike.
Michael: You still sound very confident on 100 net new stores for 24, you mentioned some things like Lumpiness in openings over the next couple of years I Wonder if you could maybe just elaborate a little bit on that and maybe just update us on the overall real estate environment and what your pipeline looks like thanks very much.
Michael: Sure.
Speaker Change: Morning, Mike.
Speaker Change: Okay.
Speaker Change: And my answer on the gross number of new store openings.
Michael O'sullivan: Let me anchor my answer on the gross number of new store openings. We expect to open about 140 new stores on a gross basis this year. That includes relocating a couple of dozen of our older, oversized, less productive stores. As we've described previously, that program of relocations is pretty important. It's going to be important to us in the next few years as we reposition ourselves away from some of our less attractive legacy real estate. Anyway, if you take 140 gross new stores and remove those relocations and remove any closures, then we expect an incremental number of new stores to net down to about 100 this year. As I said in my prepared remarks, we have high standards and tight controls for the quality of the real estate where we open new stores. Each potential location is analyzed carefully based on traffic, trade area, demographics, and co-tenants.
We expect to open about 140, new stores on a gross basis. This year that includes relocating a couple of dozen of our older oversight less productive stores.
Speaker Change: As we've described previously.
Speaker Change: Program relocations is pretty important it's going to be important to us in the next few years as.
Speaker Change: As we repositioned ourselves away from some of our less attractive legacy real estate.
Speaker Change: But anyway, if you take 140 gross new stores and remove those relocations and remove any closures than we expect incremental number of new stores to net down to about 100 this year.
Speaker Change: So as I said in the prepared remarks, we have high standards and tight controls.
Speaker Change: Quality of the real estate, where.
Speaker Change: When we open new stores.
Speaker Change: Each potential location is analyzed carefully based on the traffic trade area demographics and co tenants and.
Michael O'sullivan: And based upon those detailed characteristics, we feel pretty excited about the new stores that we're planning to open this year and beyond. It's a little difficult to get specific, but I'd offer up a couple of comments. You know, we typically manage our new store pipeline two to three years out. So we still have plenty of work to do on our 2025 new store pipeline, but so far, I would say it's shaping up well. It includes a number of additional former Bed Bath & Beyond stores that we didn't pursue directly during the bankruptcy process, but instead have negotiated directly with the underlying landlords, and we're excited about those opportunities. Beyond 2025, the pipeline is going to depend on the availability of attractive real estate. Again, difficult to be specific, but given the weak outlook across bricks and mortar retail, there are reasons to think that that supply could be fairly strong. Thanks so much, guys.
Speaker Change: And based upon those detailed characteristics, we feel pretty excited about the new stores that we're planning to open this year.
Speaker Change: Beyond this year.
Speaker Change: It's a little difficult to get specific.
Speaker Change: But I would offer up a couple of comments, we typically manage.
Our new store pipeline two to three years out. So we still have we still have plenty of work to do on our 2025, new store pipeline, but so far I would say, it's shaping up well.
Speaker Change: It includes a number of additional format bed bath and beyond stores that we didnt pursue directly during the bankruptcy process.
Speaker Change: But instead have negotiated directly with the underlying landlord.
Speaker Change: We're excited about those locations beyond 2025, the pipeline is going to depend on the availability of attractive attractive real estate locations again difficult to be specific.
Speaker Change: But given the weak outlook across bricks and mortar retail.
Speaker Change: Our reasons to think that availability could be could be fairly strong.
Michael O'sullivan: Thank you. Your next question comes from the line of Lorraine Hutchinson from Bank of America. Please go ahead. Thank you. Good morning.
Speaker Change: Thanks, so much guys.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Lorraine Hutchinson from Bank of America. Please go ahead.
Lorraine Corrine Maikis Hutchinson: Good morning, Michael can you give us more color on what you see is the opportunity with the trade down or that slightly higher income customer.
Michael O'sullivan: Michael, can you give us more color on what you see as the opportunity with the trade down or that slightly higher-income customer? I'm interested in how you're thinking about that opportunity and the actions you're taking to address it. Sure. Well, good morning, Lorraine.
Lorraine Corrine Maikis Hutchinson: And then how youre thinking about that opportunity and the actions you're taking to address it.
Speaker Change: Sure well good.
Michael O'sullivan: Thank you for the question. I would say that historically, in off-price, and certainly for us... the lower income shopper has been a, or even the, major driver of growth. But since early 2022, that has not been the case. In fact, I would say that for the last few years, it's been clear that right now, the growth in off-price is being driven by higher income shoppers. That's not a new
Michael: Morning, Lorraine. Thank you for the question.
Michael: I would say that historically in off price and certainly for us.
Michael: The lower income shortfall has been.
Michael: Or even the major driver of growth.
Speaker Change: But since early 2022 that has not been the case in fact.
Speaker Change: I would say that for the last two years, it's been clear that right now the gross price.
Speaker Change: It's being driven by higher income shoppers.
Speaker Change: That's a new revelation, we talked about that last year.
Michael O'sullivan: We talked about that last year, in 2023, especially in the fall. We pursued a number of strategies to go after those shoppers, focused in particular on delivering a higher mix of recognizable brands and on elevating our assortments in specific businesses. Those strategies worked, they worked really well, but looking back, we could see that we could, should, maybe have been even more aggressive.
Speaker Change: In 2023, especially in the pool.
Speaker Change: We pursued a number of strategies to go after those shoppers are focused on.
Speaker Change: In particular focused on delivering a higher mix of recognizable brands and on elevating.
Speaker Change: Our assortments in specific businesses.
Speaker Change: Those strategies, where they worked really well.
Speaker Change: But looking back we could see that we could should maybe have been even more aggressive.
Michael O'sullivan: Many of the areas that I'm talking about require that you make buying commitments well ahead of time. In other words, it's more difficult to chase in some of those businesses, and that means that you have to commit further out.
Speaker Change: Many of the areas that I'm talking about require that you make buying commitments well ahead of time in other words, it's more difficult to chase and some of those businesses.
And that means that you have to commit further out and that means you have to be prepared to take more risk.
Michael O'sullivan: And that means you have to be prepared to take more risks. So, you know, although I'm happy with the success of the strategies we pursued, in retrospect, I think we should have leaned in more. We should have taken a little more risk, and we might have ended up with a slightly lower margin, but we could have driven more sales. So as we look at 2024, we see that as an opportunity. Again, the lead times are a little longer for many of those brands and those businesses, so I would say the opportunity is likely to be stronger in the second half versus the first. I guess the last thing I would say is that, you know, we have always had a lower mix of higher-income shoppers than some of our peers. We know this.
Speaker Change: So although I'm happy with the success of the strategies, we pursued in breakfast, but I think we should have leaned in more.
Speaker Change: We should have taken a little more risk we might have ended up actually with a slightly lower margin.
Speaker Change: But we could have driven more sales.
Speaker Change: As we look as we look at 2024.
Speaker Change: We see that as an opportunity.
Speaker Change: Again, the lead times are a little longer so many of those brands and those businesses.
Speaker Change: So I would say the opportunity is likely to be stronger in the second half versus the first.
Speaker Change: Okay, I guess, the last thing I would say.
We have always had a lower mix of higher income shoppers and some of our peers. What we notice it's partly a reflection of where our stores are located.
Michael O'sullivan: It's partly a reflection of where our stores are located. I think we've shared before that about 70% of our stores are in trade areas where the mean household income is less than $80,000. That footprint is not going to change in the short term.
Speaker Change: I think we've said before that about 70% of our stores are in trade areas where.
Speaker Change: Where the mean household income is less than $80000.
Speaker Change: Footprint is not going to change in the short term.
Michael O'sullivan: But what 2023 demonstrated is that we have enough higher-income shoppers coming into our stores. So we can drive incremental sales if we offer great value on the recognizable brands, styles, and items that they are looking for. So we're going to go after that business much more aggressively in 2024. Thank you.
Speaker Change: 2023 demonstrated is that we have enough income shoppers coming into our stores.
Speaker Change: So we can drive incremental sales if we offer great value on the recognizable brands styles and items that they're looking for.
Speaker Change: So we're going to go after that business much more aggressively in 2024.
Kristin Wolfe: And then Kristin, in November you had mentioned that you expected CapEx to be elevated over the next few years. Can you walk us through the uses of capital spend in 24? Sure, Lorraine, good morning.
Speaker Change: Thank you and then Kristen in November you had mentioned that you expect capex to be elevated over the next few years can you walk us through the uses on capital spend in 'twenty four.
Kristen: Sure Lorraine good morning, Thanks for the question our Capex plan for 'twenty, four 750 million, which is about 7% of sales.
Kristin Wolfe: Thanks for the question. Our CapEx plan for 24 is $750 million, which is about 7% of sales. And most of that investment is in our stores and supply chain as we're stepping up investments to support accelerated new store growth, as well as the expansion of our distribution center network to support our larger store base. Let me provide a little bit more color on these two main drivers.
Kristen: And most of that investment is in our stores and supply chain as we're stepping up investments to support accelerated new store growth as well as the expansion of our distribution Center network to support our larger store base, let me provide a little bit more color on these two main driver so starting with stores.
Kristin Wolfe: So starting with stores, as Michael mentioned, we're planning to open 100 net new stores, close or relocate about 40 stores, so that's approximately 140 gross new stores. This is well above the level we've opened in the last few years and actually the highest number of stores we've opened in our history in a year. Our store CapEx represents about 45% of the CapEx spend in 2024. Secondly, on supply chain, supply chain CapEx is about 30% of our CapEx spend. The big driver of our CapEx Venice supply chain is the material handling equipment that will go into our state-of-the-art 2 million square foot DC opening in the southeast in 2026. That's about twice the size of our next largest DC and will be designed and built for our off-price business, be highly automated, and more productive than any DC in our current network.
Kristen: As Michael mentioned, we're planning to under to open 100, net new stores close or relocate about 40 stores. So thats approximately 140 gross new stores. This is well above the level. We've opened in the last few years and actually the highest number of stores.
Kristen: We've opened in our history in a year.
Kristen: Our store Capex represents about 45% of the Capex spend in 2024.
Kristen: Secondly on supply chain supply chain Capex is about 30% of our Capex spend.
Kristen: The big driver of our Capex spend in supply chain as the material handling equipment that will go into our state of the art 2 million square foot DC opening in the southeast in 2026, that's about twice the size of our next largest BC and will be designed and built for our off price business, the highly automated and more productive than our.
Kristen: Then any do you see in our current network.
Kristin Wolfe: These incremental investments in new stores and supply chain capacity are really what's driving the step up in CapEx this year and in the next few years. As a gentle reminder, please limit yourself to one question and one follow-up. Your first question comes from the line of John Kernan from TB Cowan.
Kristen: These incremental investments in new stores and supply chain capacity are really whats driving the step up in Capex This year and in the next few years.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: As a gentle reminder, please limit yourself to one question and one follow up your first question comes from the line of John Kiernan from TV Cowen. Please go ahead.
Kristin Wolfe: Please go ahead. Good morning. Thanks for taking the question. Kristin, it's encouraging that freight and supply chain are now sources of margin improvement. They've been a source of pressure the past few years.
John David Kernan: Good morning, Thanks for taking the questions.
Chris.
John David Kernan: It's encouraging freight and supply chain are now sources of margin improvement.
John David Kernan: <unk> been a source of pressure of the past few years are you, making faster progress here than you expected on those two line items, how do we think about the potential improvement on freight and supply chain and your 2020 for guidance and just what's the long term magnitude of our margin March here.
Kristin Wolfe: Are you making faster progress here than you expected on those two line items? How do we think about the potential improvement in freight and supply chain in your 2024 guidance? And just what's the long-term magnitude of the marginal mark here? Good morning, John.
Speaker Change: Great John Good morning, Thanks for the question I'll take you through these separately, starting with starting with freight and fiscal 2023 freight leveraged 90 basis points.
Kristin Wolfe: Thanks for the question. I'll take each of these separately, starting with freight and fiscal 2023 freight leveraged 90 basis points. This savings was driven by lower freight rates but also specific transportation initiatives we had to optimize our outbound and inbound processes. We still expect freight to be a contributor to our margin expansion in fiscal 24 as we anniversary lower freight rates in the first part of the year and we continue to drive efficiencies across transportation. There has been some limited pressure on ocean freight on certain routes.
John David Kernan: These savings were driven by lower freight rates, but also specific transportation initiatives, we have to optimize our outbound and inbound processes.
John David Kernan: We still expect freight to be a contributor to our margin expansion in fiscal 'twenty four as we anniversary lower freight rates in the first part of the year and we continue to drive efficiencies across transportation.
John David Kernan: There has been some limited pressure on ocean freight on certain routes, but we do not see significant risk of tariffs and freight and thats embedded in our merchandise margin.
Kristin Wolfe: But we do not see significant risk to our ocean freight, and that's embedded in our merchandise margin. Domestic freight represents a significant majority of our freight expense, and we continue to see some opportunity to bring that expense down as we plan. On supply chain, in the fourth quarter, as I think I mentioned, supply chain cost leveraged 40 basis points compared to last year. And the efficiency initiatives that drove that, that we previously discussed to reduce labor hours and processing reserve to more efficiently manage the flow of goods and minimize the number of touches across distribution centers. That's really what's driving this debt recapture.
John David Kernan: Domestic freight represents a significant majority of our freight expense and we continue to see some opportunity to bring that expense lower as we planned.
John David Kernan: On supply chain in the fourth quarter and the thing I mentioned supply chain cost leveraged 40 basis points compared to last year and the efficiency initiatives that drove that.
John David Kernan: We previously discussed to reduce labor hours and processing reserve to more efficiently manage the flow of goods and minimize number of touches across distribution center, that's really what's driving this deleverage recapture.
Kristin Wolfe: In 2024, we are assuming continued modest improvement in supply chain costs as a percentage of sales driven by those initiatives I just mentioned, but also other specific productivity initiatives we're working on. We are planning supply chain leverage as a contributor to the 50 basis points of operating margin expansion at the high end of our margin guidance for 2024. So, those are the shorter-term objectives; longer-term.
John David Kernan: In 2024, we are assuming continued modest improvement on supply chain cost as a percentage of sales driven by those initiatives I just mentioned, but also other specific productivity initiatives, we're working on.
John David Kernan: We are planning supply chain leverage as a contributor to the 50 basis points of operating margin expansion at the high end of our margin guidance for 2024. So those are the shorter term objectives longer term while we.
Kristin Wolfe: While we haven't specifically built this into the five-year model we've laid out, we are building out much larger, more automated, more productive new distribution centers to accommodate our growth. Over time, we'll move an increasing percentage of our merchandise through these more efficient DCs that are designed for off-price. And in the long term, this could drive even more leverage on supply chain expense. Got it, thanks. So maybe a follow-up for David
John David Kernan: Haven't specifically built this into the five year model. We have laid out we are building out much larger more automated more productive new distribution centers to accommodate our growth.
John David Kernan: Over time, we will move an increasing percentage of our merchandise through these more efficient Dcs that are designed for off price and in the long term this could drive even more leverage on supply chain expense.
Speaker Change: Got it thanks, and then maybe a follow up for David.
Kristin Wolfe: You increased the share buyback this quarter by $100 million. I think the business generated nearly $400 million in free cash flow in fiscal 23. How should we model the buyback?
Speaker Change: Increased the share buyback this quarter 100 million, if the business generated nearly $400 million in free cash flow in fiscal 'twenty three how should we model the buyback on.
Speaker Change: On a quarterly basis and annual business going forward.
Kristin Wolfe: on a quarterly basis and annually going forward. Thanks for the question, John. Yeah, we did, in fact, increase our buybacks to a little over $100 million last quarter, which was nearly double the previous quarter. So we were more opportunistic this past quarter, as we will from time to time, depending on valuation and liquidity. And we don't guide to buybacks, but I think you can see, looking at our balance sheet at the end of the quarter, we had over $900 million in cash and over $1.6 billion in liquidity.
Great. Thanks for the question John Yes, we did in fact increase our buybacks to little over $100 million last quarter, which was nearly double the previous quarter. So we were more opportunistic this past quarter as we will from time to time, depending on valuation and liquidity and.
Speaker Change: We don't guide to buybacks.
Speaker Change: I think you can see looking at our balance sheet at the end of the quarter, we had over $900 million in cash and over $1 6 billion in liquidity, so really very strong liquidity position.
Speaker Change: As we've said many times before our first priority is to invest in our growth.
Speaker Change: And Christian just.
Speaker Change: A few questions ago walked through our larger capex investment in 2024. Nevertheless, despite that step up we still expect to generate sufficient cash flow free cash flow to return excess cash to shareholders.
Kristin Wolfe: So we're in a really, very strong liquidity position. You know, as we've said many times before, our first priority is to invest in our growth. And Kristin just, you know, a few questions ago, walked through our larger CapEx investment in 2024. Nevertheless, despite that step up, we still expect to generate sufficient cash flow, free cash flow, to return excess cash to shareholders. We're going to continue to be active, but we're not going to guide them to a level.
Speaker Change: To continue to be active, but we're not going to guide to a level I guess, what I would say is if you look at the buyback level in fiscal 2023 for the year as a whole that's probably a reasonable proxy for what you might expect again, depending on on market conditions.
Speaker Change: I would also remind you that we had $500 million remaining at the end of Q4 on our buyback authorization that runs through August 2025. So we'll update you in may on our Q1 buyback opportunities.
Kristin Wolfe: I guess what I would say is, you know, if you look at the buyback level for fiscal 2023 for the year as a whole, that's probably a reasonable proxy for what you might expect, again, depending on market conditions. I would also remind you that we had $500 million remaining at the end of Q4 on our buyback authorizations that run through August 2025. So we'll update you in May on our Q1 buyback. Thank you. Pass the ball.
Speaker Change: Got it. Thank you best of luck. Thanks.
Speaker Change: Thanks, John Thanks.
Speaker Change: Next question comes from the line of Brooke Roach from Goldman Sachs. Please go ahead.
Brooke Siler Roach: Good morning, and thank you for taking our question.
Brooke Siler Roach: Michael as you evaluate the better than expected comp result in <unk> can you share a bit more color on the impact that you may have seen in the fourth quarter from weather or other factors.
Brooke Siler Roach: Sure.
Speaker Change: Good morning Brook.
Kristin Wolfe: Your next question comes from the line of Brooke Roach from Goldman Sachs. Please go ahead.... Share a bit more color on Instagram.
Michael: I'm going to answer your question, but I want to preface my answer by saying.
Michael: With students of our business, so we always analyze.
Michael: Whether we always analyze everything, but we always analyze weber to help us explain.
Michael O'sullivan: Weather or other factors. Sure. Good morning, Brooke. You know, I'm going to answer your question, but I want to preface my answer by saying we're students of our business, so we always analyze the weather. We always analyze everything, but we always analyze the weather to help us explain the context for our trends, but internally, and I want to emphasize this, internally, we're very careful to focus on what we control. We, you know, we don't want our merchants or operators to use weather as an excuse. But with that said, there were, I guess, two main weather call-outs in Q4. I think the one that's been most widely reported elsewhere is January.
Michael: The context for our trends, but internally and I want to underscore this internally.
Michael: We're very careful to focus on what we control.
Michael: We don't want our merchants store operators to use weather as an excuse.
Michael: But with that said.
Michael: So I guess to me.
Michael: We have a call outs in Q4.
Michael: I think the one that's been most widely reported elsewhere as January the weather in January was certainly disruptive.
With winter storms in many of our major markets.
Michael: We came into the month, we were we were running a stronger trend.
Michael: But the disruptive weather dragged down our Cogs for the quarter.
Look it's our view is it's January winter storms happen.
Michael: I assume that those storms also had other retailers in our markets.
Michael: There was another sort of weather impact in Q4 that probably hurt us disproportionately versus other retailers.
Michael O'sullivan: The weather in January was certainly disruptive, with winter storms in many of our major markets. You know, as we came into the month, we were running a stronger trend, but the disruptive weather dragged down our comp for the quarter. But look, it's, you know, our view is it's January. Winter storms happen.
Michael: That was driven by mild temperatures for most of November.
For December versus last year.
Michael: Obviously, the prime the prime selling months for outerwear, which for a company that many people still think of as Burlington coat factory.
Michael O'sullivan: And I assume that those storms also hurt other retailers in our markets. But there was another weather impact in Q4 that probably hurt us disproportionately versus other retailers, that was driven by milder temperatures for most of November and December versus last year. Those are obviously the prime selling months for outerwear, which for a company that many people still think of as Burlington Coat Factory is relatively very important.
Michael: Is relatively very important our outerwear business is not just to drive our sales in its own right.
It also brings traffic to the store and therefore lifts sales across other departments.
Michael: During Q4, our comp sales in outerwear was down in the negative mid single digits lever.
Michael: Leaving aside the broader impact on store traffic.
Michael: Comp sales impacts alone cost us a full point and overall comp sales for the quarter.
Speaker Change: That's really helpful. As you look ahead, how are trends progressing quarter to date are there any specific items, we should keep in mind as we think about the cadence of comp growth opportunity throughout the year.
Speaker Change: Sure.
Speaker Change: Yes, I mean quarter to date.
Michael O'sullivan: Our outerwear business is not just a driver of sales in its own right. It also brings traffic to the store and, therefore, lifts sales across other departments. Now in Q4, our comp sales in Altschwager were down in the negative mid-single digits. Leaving aside the broader impact on store traffic, that comp impact alone cost us a full point in overall comp sales for the quarter. As you look ahead, how are trends progressing quarter to quarter? Are there any specific items?
Speaker Change: We just wrapped up February so.
Speaker Change: We're four weeks into the quarter and.
Speaker Change: Truthfully I would describe the trend in February are softer than we had anticipated.
Speaker Change: Suspect you've probably heard that from some other retailers as well.
Speaker Change: We attribute the softness to maybe some unfavorable weather early in the month and then.
Speaker Change: Slower pace of tax refunds versus last year.
Speaker Change: As we've discussed previously our core customer.
Speaker Change: It's just extremely sensitive to the timing of tax refunds, especially the.
The timing of the earned income tax credit.
Speaker Change: We're expecting that tax refunds will catch up over the next few weeks.
Michael O'sullivan: So. Yeah, I'm in a quarter to date. We've just wrapped up February. You know, we're four weeks into the quarter, and, you know. Truthfully, I would describe the trend in February as softer than we had anticipated. Now, I suspect you've probably heard that from some other retailers as well. We attribute that softness to maybe some unfavorable weather early in the month and then, you know, a slower pace of tax refunds versus last year. You know, as we've discussed previously, our core customer is just extremely sensitive to the timing of tax refunds, especially and the timing of the Earned Income Tax Credit. Now, we're expecting that tax refunds will catch up over the next few weeks.
Speaker Change: But candidly. This is a good example of why it makes sense to plan conservatively and complexity, which is what we've done.
Speaker Change: Thank you so much I'll pass it on.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Alex <unk> from Morgan Stanley. Please go ahead.
Alex: Great. Thanks, so much for taking the question.
Alex: I have two for <unk>. The first being can you just breakdown the drivers of comp growth in the fourth quarter, how did that look across dropback converge and basket size and AUR and then I have a quick follow up.
Speaker Change: Great. Good morning, Alex Thanks for the question.
Speaker Change: The single biggest driver of our comp growth in the fourth quarter with higher traffic.
Michael O'sullivan: But candidly, this is a good example of why it makes sense to plan our compensation conservatively and flexibly, which is what we've done. Thank you. Your next question comes from the line of Alex Straton from Morgan Stanley. Please go ahead.
Speaker Change: We see this as further evidence of the improving health of the off price Chopper and in addition conversion was slightly higher compared to last year.
Speaker Change: Higher units per transaction were actually more than offset by lower AUR.
Speaker Change: The lower AUR through driven by a mix of business and expanded opening price points versus a year ago.
Kristin Wolfe: Great. Thanks so much for taking the questions. I have two for Kristin.
Kristin Wolfe: The first being, can you just break down the drivers of comp growth in the fourth quarter? How did that look across traffic, conversion, basket size, and AUR? And then I have a quick follow-up. Good morning, Alex.
Speaker Change: Yes.
Speaker Change: Perfect and then any color on how the different regions performed in the quarter as well.
Speaker Change: Sure. So all regions were positive in comp performance was relatively broad based geographically.
Speaker Change: In the fourth quarter of the southwest and Midwest regions were the strongest performing regions in fourth quarter, two and three.
Kristin Wolfe: Thanks for the question. The single biggest driver of our comp growth in the fourth quarter was higher traffic. We see this as further evidence of the improving health of the off-price shopper. In addition, conversion was slightly higher compared to last year. Higher units per transaction were actually more than offset by lower AURs. The lower AURs were driven by a mix of business and expanded opening price points versus a year ago. Perfect, and then any color on how the different regions performed in the quarter as well? Sure. So all regions were positive, and comp performance was relatively broad-based geographically. In the fourth quarter, the Southwest and the Midwest regions were the strongest performing regions, and in the fourth quarter, 23.
Speaker Change: Thanks, a lot good luck thanks, Alex.
Speaker Change: Your next question comes from the line of Adrian <unk> from Barclays. Please go ahead.
Adrian: Great. Good morning, Congratulations on a nice end to the year, Michael I was wondering.
Adrian: Can you provide some additional color on the point that you had made reg price selling versus clearance.
Adrian: Two things to dig into there what do you think is the biggest driver of that is the seasoning of the merch team is at the core.
Adrian: Consumer at the margin slightly less price sensitive or is it the sharper price points that Christian just mentioned.
Speaker Change: Thanks, so much.
Speaker Change: Sure Good morning Adrian.
Speaker Change: Thanks for the question.
Speaker Change: Yes.
Christian Moore: One of the metrics that we always look at internally.
Kristin Wolfe: Thanks a lot. Good luck. Thanks, Alex. Your next question comes from the line of Adrienne Yih from Barclays. Please go ahead.
Christian Moore: As our comp sales growth on regular price versus markdown merchandise.
Michael O'sullivan: Great. Good morning. Congratulations on a nice end to the year. Michael, I was wondering if you could provide some additional color on the point that you made about red price selling versus clearance? Kind of two things to dig into there. What do you think is the biggest driver of that? Is it the seasoning of the merchandise team? Is it the, you know, the consumer at the margin, slightly less price sensitive, or is it the sharper price points that Kristin just mentioned? Thanks so much.
Christian Moore: Yes.
Christian Moore: Important for us.
Christian Moore: One of the major elements of that into two point.
Christian Moore: Is to turn our in store inventory faster that means fewer markdowns and that means less clearance inventory.
Christian Moore: That's very healthy from a margin perspective.
Christian Moore: Hello clearance balances also a slight headwind to comp.
Christian Moore: Call that out in the comments because it was quite significant in Q4.
Christian Moore: Our clearance sales were down by about a test versus.
Christian Moore: Versus last year, our regular price comp was up about 4%.
Christian Moore: We would call it that is a very healthy sign in other words, the customer likes what we're putting in front of them.
Michael O'sullivan: So, good morning, Adrienne. Thanks for the question. Yeah, one of the metrics that we always look at internally is our comp sales gross on regular price versus a markdown of merchandise. You know, that's particularly important for us. You know, as you know, one of the major elements of Burlington 2.0 is to turn our in-store inventory faster. That means fewer markdowns, and that means less clearance inventory. You know, that's very healthy from a margin perspective, but lower clearance balances are also a slight headwind to comp.
Speaker Change: I would attribute it to all three of the things that you called out I think.
Speaker Change: I think darrin.
Speaker Change: Execution on the merchant side in the pool season was very good.
Speaker Change: And actually one of the things I really liked about <unk>.
Speaker Change: How we manage the business in the fall season. There were there was some there was.
Speaker Change: Some merchandise areas.
Speaker Change: That did not perform well.
Speaker Change: Early in the season, we saw that they were not performing well.
Speaker Change: And our merchants and tenant has moved very quickly to take money out of those businesses and push that money into foster trading areas.
Michael O'sullivan: You know, I call that out in the comments because it was quite significant in Q4: our clearance sales were down by about a fifth versus last year; our regular price comp was up about 4%. We regard that as a very healthy sign, in other words, the customer likes what we're putting in front of them. I would attribute it to all three of the things that you called out.
Speaker Change: What you want in an off price business and that worked well for us obviously safe margin dollars because had we not done that we would've taken markdowns in those businesses, but it also helps drive the sales trends in businesses that we could chase. So so I feel good about what assistant seasoning of the buyers and also I feel good about what it says about our values.
Speaker Change: The customer.
Speaker Change: Ultimately, what's driving the customer to make purchase is the value that's sitting in front of them and if they're if they're seeing great value at regular price and we don't need to mark it down so I take that as a very positive sign from.
Michael O'sullivan: I think our execution on the merchant side in the fall season was very good. Actually, one of the things I really liked about how we managed the business in the fall season. There were some merchandise areas that did not perform well, but early in the season, we saw that they were not performing well. And our merchants and planners moved very quickly to take money out of those businesses and push that money into faster-trending areas.
Speaker Change: The last thing I should say I should add.
Speaker Change: We are planning faster inventory turns in 2024, so we.
Dissipate that debt.
Comp headwind from lower clearance, we will continue to have an impact, especially in the first half of the year.
Speaker Change: We factored that into our guidance, but I think it's worth calling out.
Michael O'sullivan: That's exactly what you want in an off-price business, and that worked well for us. It obviously saved margin dollars because had we not done that, we would have taken markdowns in those businesses, but it also helped drive the sales trend in businesses that we could chase. So I feel good about what it says about the seasoning of the buyers, and I also feel good about what it says about our values. Ultimately, what's driving the customer to make a purchase is the value they're seeing in front of them. And if they're seeing great value at the regular price, then we don't need to mark it down.
Speaker Change: Very very helpful. Thank you very much and best of luck.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Mark <unk> from Baird. Please go ahead.
Mark: Good morning, Thank you for taking my question.
Mark: Maybe first for Michael what impact would you expect department store closures to have on your business.
Michael: Hello, Good morning, Mark.
Michael: I would say that in general whenever.
Michael: Bricks and mortar competitor shut down stores.
Michael: That tends to help us.
Michael: We would expect to pick up some traffic.
Michael O'sullivan: So I take that as a very positive sign. The last thing I should say, and I should add, is that we are planning faster inventory turns in 2024, so we anticipate that that comp headwind from lower clearance will continue to have an impact, especially in the first half of the year. We've factored that into our guidance, but I think it's worth calling out. Very, very helpful. Thank you very much and best of luck. Your next question comes from the line of Mark Altschwager from Baird. Please go ahead.
Michael: But of course, the size of the impact depends on which particular retailer, which specific geographies in which specific stores.
Michael: If a retailer closes.
Michael: Stores that it has.
Michael: More urban.
Michael: Low to moderate income areas, where we have a strong preference then we would expect the impact.
Michael: Stepping back.
Michael: In terms of the overall outlook for bricks and mortar retail we think it is likely that theyre going to be a lot of store closures over the next two years.
Michael: So again like I say in general.
Michael: It's hard to be specific but now looking at specific details, but in general we would expect those closures to be a tailwind for us.
Michael O'sullivan: Good morning. Thank you for taking my question. Maybe first for Michael, what impact would you expect departments or closures to have on your business? Well, good morning, Mark.
Speaker Change: That's helpful. Thank you and a follow up for Christian can you remind us how many of the bed Bath leases you acquired last year, how many opened in the fourth quarter and how should we think about the cadence for the remaining openings this year.
Michael O'sullivan: I would say that, in general, whenever a bricks-and-mortar competitor shuts down stores, that tends to help us. You know, we would expect to pick up some of their traffic. But, of course, the size of the impact depends upon which particular retailer, which specific geographies, and which specific stores. You know, if a retailer closes stores that it has in more urban lower to moderate income areas where we have a strong presence, then you know we would expect the impact to be bigger. Stepping back, in terms of the overall outlook for bricks and mortar retail, we think it's likely that there are going to be a lot of store closures over the next few years. So, you know, like I say, in general, it's hard to be specific without looking at specific details, but in general, we would expect those closures to be a tailwind. That's helpful. Thank you. And a follow up question for Kristin.
Christian Moore: Great Mark Good morning. Thanks for the question. So in total we acquired 64 leases from bed Bath beyond in the fall of last year.
Christian Moore: Does the 64 bed Bath locations, we opened 32 in fiscal 'twenty three with the majority opening during the fourth quarter.
Christian Moore: It's still early but we feel very good about how the stores are performing so far pretty much as we had expected.
Christian Moore: At the end of Q4, we had 32 remaining to open we expect to open the majority of these locations in the first quarter with the balance to open in the second quarter of 'twenty, four and that will be at <unk> 64 in.
Christian Moore: In 2023, the costs associated with the bed Bath dark rent. These are the costs that we incur before the stores opened totaled $18 million last year.
Michael O'sullivan: Can you remind us how many of the bed and bath leases you acquired last year? How many opened in the fourth quarter? And how should we think about the cadence for the remaining openings this year?
Christian Moore: In Q1, we expect these costs to be approximately $8 million with about $1 million expected in Q2, and then at that point those cost will be fully recognized.
Kristin Wolfe: Great, Mark, good morning. Thanks for the question. So in total, we acquired 64 leases from Bed Bath & Beyond in the fall of last year. Of those 64 Bed Bath & Beyond locations, we opened 32 in fiscal 23, with the majority opening during the fourth quarter.
Speaker Change: That's helpful. Thank you and best of luck this year. Thanks Mark.
Speaker Change: We have time for one more question and that question comes from Dana Tousley from Kessler Group. Please go ahead.
Dana Tousley: Alright, Thank you everyone and good morning.
Dana Tousley: Do you think about the low income consumer can you expand on the health of the low income consumer what you saw last year and how youre thinking about it for 2024. Thank you.
Kristin Wolfe: It's still early, but we feel very good about how these stores are performing so far, pretty much as we expected. So at the end of Q4, we had 32 remaining to open; we expect to open the majority of these locations in the first quarter, with the balance to open in the second quarter of 24. And that will be all 64. In 2023, the cost associated with the Bed Bath & Beyond rent, these are the costs that we incur before the store is opened, totaled $18 million last year.
Speaker Change: Well good morning, Dana Thank you for the question.
Speaker Change: I think this is a very important question.
Speaker Change: It probably picked this up from the script, but I think.
Speaker Change: I think how this customer performs this year.
Speaker Change: It got to be very important to our business. This customer is critical for us.
Speaker Change: As I said in the prepared comments, we think that the situation has improved versus last year.
Kristin Wolfe: In Q1, we expect these costs to be approximately $8 million, with about $1 million expected in Q2. And then at that point, those costs will be fully recognized. That's helpful. Thank you, and best of luck this year. Thanks. We have time for one more question, and that question comes from Dana Tesley from the Tesley Group. Please go ahead.
Speaker Change: Then they were experiencing double digit increases in the cost of everyday essentials to rent transportation et cetera.
Speaker Change: So we think that that pressure eased in the back half of last year and that that helped to underpin our trend.
Speaker Change: Want to overstate that discretionary.
Speaker Change: Discretionary spending levels for this segment of shoppers have been seriously impacted over the last two years.
Michael O'sullivan: I thank you, everyone, and good morning. As you think about the low-income consumer, can you expand on the health of the low-income consumer, what you saw last year, and how you're thinking about it for 2024? Thank you. Well, good morning, Dana.
Speaker Change: You can see that in the results of most retailers who serve that lower end customer.
Speaker Change: I should also add that although the situation may have eased.
Speaker Change: Those those customers is still highly sensitive to things like timing of tax refunds, which obviously, we just had we just spoke about.
Michael O'sullivan: Thank you for the question. I think this is a very important question, you know. You probably picked this up from the script, but I think that how this customer performs this year is going to be very important to our business. This customer is critical for us. You know, as I said in the prepared comments, we think that their situation has improved compared to last year. Back then, they were experiencing, you know, double-digit increases in the cost of everyday essentials, food, rent, transportation, etc. So we think that that pressure eased in the back half of last year and that that helped to underpin our trend, but I don't want to overstate it. Discretionary spending levels for this segment of shoppers have been seriously impacted over the last two years.
Speaker Change: And although inflation has come down I think it is going to take a bit of time considerable time for that customer to really start to recover so that sort of ties to something else that we talked about in the script.
Speaker Change: We've responded to on some of the questions. So where do you think the incremental growth for our business. This year.
Speaker Change: It's going to have to come from.
Speaker Change: Increased penetration with trade down customers.
Speaker Change: We think thats, where the opportunity is we think thats really what drove our comp in the second half of last year, and we think theres more opportunity for us there.
Speaker Change: Thank you.
Michael O'sullivan: Thank you everyone I will now turn the call back to Michael O'sullivan, Chief Executive Officer for closing remarks.
Michael O'sullivan: Let me close by thanking everyone on this call for your interest in Burlington stores.
Michael O'sullivan: We look forward to talking to you again in May to discuss our first quarter 2020 for fiscal results. Thank you for your time today.
Michael O'sullivan: You can see that in the results of most retailers who serve that lower-end customer. I should also add that although the situation may have eased, those customers are still highly sensitive to things like the timing of tax refunds, which we just spoke about. And although inflation has come down, I think it's going to take quite a bit of time, considerable time, for that customer to really start to recover. So that sort of ties to something else that we talked about in the script and that we've responded to on some of the questions, that we really think the incremental growth for our business this year is going to have to come from increased penetration with trade-down customers. We think that's where the opportunity is. We think that's really what drove our comp in the second half of last year.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.
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Michael O'sullivan: And we think there's more opportunity for us. Thank you. Thank you, everyone. I will now turn the call back to Michael O'Sullivan, Chief Executive Officer, for closing remarks. Let me close by thanking everyone on this call for your interest in Burlington Stores. We look forward to talking to you again in May to discuss our first quarter 2024 fiscal results. Thank you for your time today. This concludes today's conference call. Thank you for your participation, and you may now disconnect.
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Thank you.
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