Q2 2024 Burlington Stores Inc Earnings Call

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Operator: Hello and welcome to Burlington Stores Incorporated, 2nd quarter 2024 earnings, webcast and conference call. Please note that everyone is joined on you to avoid any background noise. You will have the opportunity to ask questions to our presenters later on during the Q&A session. If you'd like to ask a question by that time, please press star one on your telephone keypad. Thank you.

Speaker Change: Hello and welcome to Berlin Tinge Stores Incorporated, 2nd Quartar 2024 Irvings, Webcast and Conference Call.

Speaker Change: Please note that everyone is joined on YouTube with any background noise.

Speaker Change: I will have the opportunity to ask questions to our presenters later on during the Q&A session.

Speaker Change: If you'd like to ask a question by that time, please press star 1 on your telephone keypad.

David Glick: I'd now like to turn the call over to David Glick, Group Senior Vice President, Treasurer and Investor Relations. Please go ahead.

Speaker Change: Thank you. I'd now like to turn the call over to David Glick, group senior vice president, treasurer and investor relations. Please go ahead.

David Glick: Thank you, operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2024 2nd quarter operating results. Unless otherwise indicated, our discussion of results for the 2024 2nd quarter excludes the impact of certain expenses associated with the acquisition of Bed, Bath and Beyond leases.

David Glick: Thank you, operator, and good morning everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2024, second quarter operating results.

David Glick: and let's otherwise indicate it, our discussion of results for the 2024 Second Quarter exclude the impact of certain expenses associated with the acquisition of bedbath and beyond least this.

Unknown Executive: Our presenters today are Michael O'Sullivan, our Chief Executive Officer, and Kristin Wolfe, our EVP and Chief Financial Officer.

Speaker Change: Our presenters today are Michael Osvelven, Archbishop Executive Officer, and Kristen Wolfe, our EVP and Chief Financial Officer.

David Glick: 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 September 5th, 2024. We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties. Our remarks and the Q&A that follows are copyrighted today by Burlington Stores.

Speaker Change: Before I turn the call over to Michael, I would like to inform listeners that this call may not be transcribed.

Speaker Change: Report it or broadcast without our express permission.

Speaker Change: A replay of the call will be available until September 5, 2024.

Speaker Change: We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties.

Speaker Change: A remarks and the Q&A that follows are copyrighted today by Berlin Constors.

David Glick: Remarks made on this call concerning future expectations, events, strategies, objectives, trends, or projected financial results are subject to certain risks and uncertainties. Actual results may differ materially from those that are projected in such forward-looking statements. Such risks and uncertainties include those that are described in the company's 10-K for fiscal 2023 and in other filings with the SEC, all of which are expressly incorporated herein by reference.

Speaker Change: Remarks made on this call concerning future expectations, events, strategies, objectives, trends, or projected financial results.

Speaker Change: Our subject is certain risks and uncertainties.

Speaker Change: National Results may differ materialy from those that are projected in such forward-looking statements.

Speaker Change: Such risks and uncertainties include those that are described in the company's 10K for fiscal 2023. And in other filings with the SEC, all of which are expressly incorporated herein by reference.

David Glick: Please note that the financial results and expectations we discussed today are on a continuing operations basis. Reconciliation of the non-GAAP measures we discussed today to GAAP measures are included in today's press release.

Speaker Change: Please note that the financial results and expectations we discussed today are on a continuing operations basis.

Speaker Change: Reconciliation of the non-gap measures we've discussed today to gap measures or included in today's press release.

Michael O'sullivan: Now here's Michael. Thank you, David. Good morning, everyone, and thank you for joining us. On this morning's call, we would like to discuss our second quarter result and our guidance for the rest of the year. Then we will be happy to respond to your questions.

Michael Osvelven: Now here's Michael.

Michael Osvelven: Thank you, David.

Michael Osvelven: Good morning, everyone, and thank you for joining us.

Michael Osvelven: On this morning's call, we would like to discuss our second quarter result and our guidance for the rest of the year.

Michael Osvelven: Then we will be happy to respond to your questions.

Michael O'sullivan: Okay, let's talk about our Q2 results. I'm going to start with total sales growth; our total sales in Q2 grew by 13% compared to the second quarter of 2023. That was on top of 9% total sales growth versus the second quarter of 2022. New stores are a key driver of this growth. In Q2, we added 36 net new stores and ended the quarter with 1,057 locations. The other driver of top line sales is comp sales growth. Comp store sales for the second quarter increased 5% versus our guidance of flat to 2%. This 5% comp sales growth was on top of last year's second quarter, comp increase of up 4%.

Speaker Change: Okay, let's talk about how a Q2 results.

Speaker Change: I'm going to start with total sales growth, our total sales in Q2 grew by 13% compared to the second quarter of 2023.

Speaker Change: Glass was on top of 9% total sales growth, versus the second quarter of 2022.

Speaker Change: [inaudible]

Speaker Change: New stores are a key driver, this girl.

Speaker Change: The other driver of top-line fails is Compt Bales Gross.

Speaker Change: Constall sales for the second quarter increased 5% versus our guidance of flat to 2%.

Speaker Change: This 5% Consale's growth was on top of last year's second quarter content increase of up 4%.

Michael O'sullivan: Let me move on now to profitability. In the second quarter, we expanded our operating margin by 160 basis points versus last year's second quarter. In a moment, Kristin will provide more details, but for now, let me call out the two primary drivers of this expansion. Firstly, our gross margin increased by 110 basis points. This was driven by faster inventory turns and lower mark downs. Secondly, we achieved 60 basis points of leverage in supply chain, driven by faster than expected progress in our supply chain efficiency initiatives.

Speaker Change: Let me move on now to profitability.

Speaker Change: In the second quarter, we've expanded our operating margin by 160 Facebook points, versus last year's second quarter.

Kristin: In a moment, Kristin will provide more details, but for now, let me call out the two primary drivers of this expansion.

Kristin: Firstly, our gross margin increased by 110 basis points.

Kristin: This was driven by Farther Inventory Turns and Lower Markdowns.

Kristin: Secondly, we achieved 60 papers points of leverage in supply chain driven by faster than expected progress in our supply chain efficiency initiatives.

Michael O'sullivan: As Kristin will explain, our well ahead of plan sales growth plus healthy margin expansion grow very strong earnings growth in the second quarter. Now, I would like to take a few moments to editorialize on our second quarter performance. Again, I will start with total sales. Of course, we are very happy with 13% total sales growth on top of 9% total sales growth last year. This means that, on a compound basis, our business is 24% bigger now than it was two years ago. Given the volatility and uncertainty at the last couple of years, we are very pleased with this growth.

Kristin: I'm Kristen Wolfe's plane, our well ahead of plan sales growth plus healthy margin expand.

Speaker Change: and Crosth very strong earnings growth in the second quarter.

Speaker Change: Now, I would like to take a few moments to edit story lies on our second quarter performance.

Speaker Change: Again, I will start with total sales.

Speaker Change: Of course, we are very happy with 13% total sales growth on top of 9% total sales growth last year.

Speaker Change: This means that on a Hong Kong basis, our business is 24% bigger now than it was two years ago.

Speaker Change: Given the volatility and uncertainty of the last couple of years, we're very pleased with this growth.

Michael O'sullivan: In Q2, we opened 36 net new stores, and we also relocated four of our older oversight locations. This means that for the fiscal year to date, we have opened 50 net new stores plus 15 relocations, and for the year as a whole, we are on track to open 100 net new stores plus approximately 30 relocations. As discussed in the past, on average, we expect our new stores to run at about $7 million in sales in their first full year. I am pleased to say that our new stores are running ahead of this benchmark. We were also pleased with our positive 5% comp growth in Q2.

Speaker Change: In Q2 we opened 36 net news stores and we also relocated 4 of our older oversight locations.

Speaker Change: This means that for the fiscal year to date, we've opened 50 net new stores plus 15 relocations.

Speaker Change: and...

Speaker Change: For the year as a whole, we run track to open 100 net new stores plus approximately 30 relocations.

Speaker Change: I've just got in the past on average we expect our new stores to run at about 7 million dollars in sales in their first four year.

Speaker Change: I am pleased to say that our new stores are running ahead of this benchmark.

Speaker Change: We are also pleased with our positive five-to-cent conference in Q2.

Michael O'sullivan: Keep in mind that as we open new stores, there is some cannibalization headwind on Compt stores. Our positive 5% comp sales increase in the second quarter was despite this headwind. Another point to make as I dissect this 5% growth: we continue to see very strong performance in full price selling. Our merchants are focused on offering really sharp value out of the gate at the initial picketed price. This is driving faster turns and lower mouth downs. This means that there is less inventory making it to the clearance rack. Our Compt on clearance sales was down double visits in Q2.

Speaker Change: Keep in mind that as we open new stores, there is some cannibalization headwind on complex stores.

Speaker Change: Our positive 5% compound increase in the second quarter would despise this headwind.

Speaker Change: Another point to make as I dissect this five to seven grows.

Speaker Change: We can continue to see very strong performance in full-friced, dulling.

Speaker Change: Our merchants are focused on offering really sharp value out of the gate at the initial

Speaker Change: This is driving faster turns and lower mount downs.

Speaker Change: This means that there is less inventory making it to the Sharon Swack.

Speaker Change: Our Compt on Cure and Sales was down double digits in Q2, meanwhile our Compt on full-priced selling was positive 7%.

Michael O'sullivan: Meanwhile, our compt on full price selling was positive 7%. This was the driver of our 110 basis points of gross margin expansion in the second quarter. Getting back a little, I was pleased with our execution in Q2. We had made a lot of changes and improvements to our business over the last few years in merchandising and in operations. We are still in the early innings of many of these programs, and to be clear, we have a long way to go in terms of achieving full potential off-price execution. But we are gaining traction and making some good progress.

Speaker Change: This was the driver of our 110 basis points of gross margin expansion in the second quarter.

Speaker Change: that

Speaker Change: i

Speaker Change: Depping back of the hall, I was pleased with our execution in Q2.

Speaker Change: We have made a lot of changes and improvements to our business over the last few years in merchandising and in operations.

Speaker Change: We are still in the early innings of many of these programs and to be clear we have a long way to go in terms of achieving full potential off-priced execution.

Speaker Change: But we are gaining traction and making some good progress.

Michael O'sullivan: The other point for me is that over the past 18 months, the external environment has become more favorable. Two years ago, our core low-income customer was under severe economic pressure from the higher cost of living. This then, it feels as if two things have happened. As inflation has moderated, the situation for lowering some shoppers has somewhat improved. In parallel, economic pressure and uncertainty have spread and broadened well beyond lowering home shoppers. There is now greater focus on value across democratic groups and income bands. This greater focus on value is helping our business. The factors that I have just described provide some grounds for optimism for the back half of the year.

Speaker Change: The other point for me is that over the past 18 months, the external environment has become more favorable.

Speaker Change: Two years ago, our core low-income customer was under severe economic pressure from the higher cost of living.

Speaker Change: This then it feels as if two things have happened.

Speaker Change: As inflation has moderated, the situation for lowering some shoppers has somewhat improved.

Speaker Change: In parallel, economic pressure and uncertainty has spread and groaned, well beyond low-ring home shoppers.

Speaker Change: There is now greater focus on value across demographic groups and income plans.

Speaker Change: This greater focus on value is helping our business.

Speaker Change: The fact is that I have just described provides some grounds for optimism for the back half of the year, but as we've discussed before, our playbook is to manage our business cautiously and be ready to trace.

Michael O'sullivan: But, as we've discussed before, our playbook is to manage our business cautiously and be ready to chase. We are maintaining guidance of 0 to 2% compress the Q3 and the Q4. Let me comment on each quarter separately. For Q3, there are a couple of reasons to be cautious in planning and guiding concepts. Charles. Last year, we ran six percent comp growth in the third quarter. This was our strongest quarter of the year. Another point to me, and we have discussed this before, comp sales in the first half of Q3 are driven by back-to-school friends, but comp sales in the latter part depend critically on the weather.

Speaker Change: We are maintaining guidance of zero to two percent comm grows for Q3 and Q4. Let me comment on each quarter separately.

Speaker Change: For Q3, there are a couple of reasons to be cautious in planning and guiding compounds.

Speaker Change: Last year we ran 6% comm grows in the third quarter. This was our strongest quarter of the year.

Speaker Change: I'm another point to make, and we have discussed this before. Composals in the first half of Q3 are driven by back to school friends.

Speaker Change: But, comes sales in the latter part, depend critically on the weather.

Michael O'sullivan: At the company that used to be known as Burlington Coat Factory, the weather in late September through October can have a huge impact on our Q3 comp growth. If the weather in Q3 is unseasonably warm, it will suppress our comp trend. We hope that our flat to 2% comp guidance in Q3 will turn out to be conservative. If the trend is stronger, then we will shape it. For Q4, we are also maintaining our flat to 2% comp guidance. Over the next couple of months, we will monitor the trend and get an early read on the fall season.

Speaker Change: At the company that used to be known as Burlington Coach Factory, the weather in late September through October can have a huge impact on our Q3 Comprose.

Speaker Change: If the weather in 2-3 is on season of the warm, it will suppress our comrade.

Speaker Change: We hope that our flat to 2% comp guidance in Q3 will turn out to be conservative.

Speaker Change: If the train is stronger, then we will chase it.

Speaker Change: For Q4, we are also maintaining our flat to 2% compliance.

Speaker Change: Over the next couple of months, we will monitor the trend and get an early lead on the full seasons.

Michael O'sullivan: Depending on this read, we may revisit and adjust our Q4 plan. We will talk more about this on our third quarter call in November. Again, as an off-sprice retailer, our playbook is to wait, read the trend, and then chase.

Speaker Change: Depending on this week, we may revisit and adjust our Q4 plan.

Speaker Change: We will talk more about this on our third quarter call in November.

Speaker Change: Again, as an off-strice retailer, our playbook is to wait, read the trend, and then chase.

Kristin Wolfe: Now, I would like to turn the call over to Kristen to share more details on our second quarter results and our outlook for the rest of the year. Kristen?

Speaker Change: Now, I would like to turn the call over to Kristin to send more details on our second quarter results and our outlook for the rest of the year.

Kristin Wolfe: Thank you, Michael, and good morning, everyone. Let me start with our second quarter results. Total sales grew 13%, and comp sales grew 5%, both well above the high end of our second quarter guidance. Our adjusted event margin expanded 160 basis points versus last year. The drivers of this margin expansion will hire growth margin, higher than planned supply chain savings, and leverage on above planned comp sales. Let me walk through the details. The growth margin rate for the second quarter was 42.8%, an increase of 110 basis points versus last year. This was driven by a 90 basis point increase in merchandise margin due to strong regular price selling, which generated faster inventory turns and lower markdowns.

Speaker Change: Christmas.

Kristin: Thank you Michael and good morning everyone.

Kristin: Let me start with our second quarter results.

Kristin: Total sales grew 13% and comps sales grew 5%.

Kristin: Both well above the high end of our second quarter guidance.

Speaker Change: Our suggested event margin expanded 160 basis points for us last year.

Speaker Change: The drivers of this margin expansion will hire gross margins.

Speaker Change: Fire the plans the flashing savings.

Speaker Change: and Lugridge on a BuzzFlan Consale.

Speaker Change: Let me walk through the details.

Speaker Change: The gross margin rates for the second quarter was 42.8%.

Speaker Change: An increase of 110 basis points versus last year.

Speaker Change: This was driven by a 90 basis point increase in merchandise margin.

Speaker Change: Due to strong regular price selling, which generated faster inventory turns and lower markdowns.

Kristin Wolfe: Freight expenses leveraged 20 basis points, primarily due to lower freight rates and cost savings initiatives. Product source and cost were $192 million versus $183 billion in the second quarter of 2023, decreasing 60 basis points as a percentage of sales. This was entirely driven by supply chain expense levers. from continued progress on our distribution center productivity initiatives. Adjusted S-GNA costs in the second quarter were 10 basis points higher than last year, driven by plans, higher investments in store payroll. Q2, adjusted evit margin was 4.8%, 160 basis points above last year. We had guided to 30 to 50 basis points of improvement.

Speaker Change: Great expenses, leveraged 20 basis points, primarily due to lower freight rates and cost savings initiatives.

Speaker Change: Product Swirking Costs for $192 million, versus $108 trillion in the second quarter of 2023.

Speaker Change: D-creasing 60 basis points as a percentage of sales.

Speaker Change: This was entirely driven by supply chain expense leverage.

Speaker Change: from continued progress on the distributions in our productivity initiatives.

Speaker Change: A justed SGA cost in the second quarter, or 10 basis points higher than last year, driven by plans, higher investment in store payroll.

Speaker Change: 22, adjusted Eve at Margin was 4.8%.

Speaker Change: 160 basis points above last year.

Speaker Change: We had guided to 30 to 50 basis points of improvement.

Kristin Wolfe: Our adjusted earnings per share in Q2 was $1.24. This was a 98% increase over last year and was well above the high end of our guidance range of 83% to 93%. These results and the guidance that we provided exclude approximately $3 million of pre-staffed expenses associated with the Bed Bath and Beyond leases. At the end of the quarter, our comparable store inventories were up 4% above 2023. Our reserve inventory was 41% of our total inventory. We are very happy with the quality of the merchandise and the values that we have in reserve. During the quarter, we repurchased $61 million in common stock.

Speaker Change: Our Justice earnings for share in Q2 was $1.24.

Speaker Change: This was a 98% increase over last year.

Speaker Change: and was well above the high end of our guidance range of 83 cents to 93 cents.

Speaker Change: These results and the guidance that we provided exclude approximately $3 million of pre-fast expenses associated with the bedbath and beyond leases.

Speaker Change: At the end of the quarter, our comparable store inventories were up 4% of those 2023.

Speaker Change: Our reserve inventory was 41% of our total inventory.

Speaker Change: We are very happy with the quality of the merchandise and the values that we have and reserved.

Speaker Change: During the quarter, we repurchased $61 million in common stock.

Kristin Wolfe: At the end of Q2, we had $380 million remaining on our share repurchase authorizations that expired in August of 2025.

Speaker Change: At the end of Q2, we had $380 million remaining on our share-reported authorizations that expired in August of 2025.

Kristin Wolfe: Now I will turn to our outlook for the full fiscal year, as well as for the third quarter and fourth quarter of fiscal 2024. Based on our strong performance in the second quarter, we are increasing our full year fiscal 2024 guidance for cost sales, total sales, adjusted evit margins, and adjusted earnings per share as follows. Comparable store sales are now expected to increase 2 to 3% with total sales to increase 9 to 10% for the full year 2024. This revised full year guidance factors in our year-to-date comp store sales, as well as our guidance for comparable store sales to increase 0% to 2% for the balance of fiscal 2024.

Speaker Change: Now I will turn to our Atlas for the full fiscal year, as well as for the third quarter and fourth quarter of fiscal 2024.

Speaker Change: Based on our strong performance in the second quarter, we are increasing our full year this full 24-guiness for cocktails.

Speaker Change: Codal fails, adjusted event margins, and adjusted earnings per share, as follows.

Speaker Change: Comparable source sales are now expected to increase choose to 3%.

Speaker Change: with total sales to increase 9 to 10% for the full year 2024.

Speaker Change: This revised full year guidance factors in our year-to-date comp store sales, as well as our guidance for comparable store sales to increase 0% to 2% for the balance of fiscal 2024.

Kristin Wolfe: We now expect our full year adjusted evit margins to increase by 50 to 70 basis points. This is up from our most recent guidance for an increase of 40 to 60 basis points and up from our original guidance for an increase of 10 to 50 basis points. This updated margin outlook now translates to an adjusted earnings per share range of $7.66 to $7.96. Up from our most recent guidance of $7.35 to $7.75. and up from our original guidance of $7 to $7.60. Included in this updated guidance is an expected ocean freight headwind of approximately 10 cents impacting the vast half of the year, which reflects the rapid increase in ocean container rates since we last updated our guidance in late May.

Speaker Change: We now expect our full year adjusted event margins to increase by 50 to 70 base of point.

Speaker Change: This is up from our most recent guidance for an increase of 40 to 60 basis points.

Speaker Change: and up from our original guidance for an increase of 10 to 50 basis points.

Speaker Change: This updated margin outlook now translates to an adjusted earnings per share range of $7.66

Speaker Change: to $7.96.

Speaker Change: Up from our most recent guidance of $7.35 to $7.75.

Speaker Change: and up from our original guidance of $7 to $7.60.

Speaker Change: Included in this updated guidance is an expected ocean freight headwind of approximately 10 cents, impacting the vast half of the year, which reflects the rapid increase in ocean container rates since the last updated our guidance in late May.

Kristin Wolfe: For the third quarter, we are guiding to a cost store sales growth of flats to plus two percent and a total sales increase of 10 to 12 percent. This will result in operating margin expansion of up 60 to up 80 basis points versus Q3 of 2023. This translates to earnings per share guidance for the third quarter of $1.45 to $1.55. We do not expect any incremental expenses associated with the elices we acquired from Bedbass beyond last year. For the fourth quarter of fiscal 2024, this outlook implies cost store sales growth of flats to plus two percent, total sales to increase 5 percent to 7 percent, even margins to range from a decrease of 80 basis points to a decrease of 50 basis points.

Speaker Change: For the third quarter, we are guiding to a contour sales growth of flat to plus 2% and a total sales increase of 10 to 12%.

Speaker Change: This will result in operating margin expansion of up to 60 to up 80 basis points versus Q3 of 2023.

Speaker Change: This translates to earnings per share guidance for the third quarter of $1.45 to $1.55.

Speaker Change: We do not expect any incremental expenses associated with the elicis we acquire from bedbath beyond last year.

Speaker Change: For the fourth quarter of this 2021, this Outlook implies pump store sales growth of flat to plus 2%.

Speaker Change: Toil fail to increase 5% to 7%

Speaker Change: David margins to range from a decrease of 80 basis points to a decrease of 50 basis points.

Kristin Wolfe: An earnings per share in the range of $3.50 to $3.75. Please keep in mind that the 53rd week shift has a significant negative impact on Q4 in terms of total sales adjusted even and adjusted earnings per share.

Speaker Change: and earnings per share in the range of $3.50 to $3.75.

Speaker Change: Please keep in mind that the 50-third week shift has a significant negative impact on Q4 in terms of total sales, adjusted even and adjusted earnings per share.

Michael O'sullivan: I will now turn the call back over to Michael. Thank you, Kristen.

Speaker Change: I will now turn the call back over to Michael.

Michael O'sullivan: Let me recap four key points that we've discussed this morning. Firstly, we are pleased with our sales growth in Q2. 13 percent total sales growth for the quarter. 5 percent cost sales growth for the quarter.

Michael Osvelven: Thank you, Kristin.

Michael Osvelven: Let me recap 4 key points that we've discussed this morning.

Michael Osvelven: Firstly, we are pleased with our sales growth in YouTube.

Michael Osvelven: 13% total sales growth for the quarter.

Michael Osvelven: 5% compounds rose for the quarter.

Michael O'sullivan: Secondly, we are happy with our Q2 margin and earnings results. These were driven by higher merchandise margins from very strong regular price selling, faster turns, and lower market downs, and also driven by faster than expected progress on our supply chain initiatives.

Michael Osvelven: Secondly, we are happy with our Q2 margin and earnings results.

Michael Osvelven: He's was driven by high and much nice margins from very strong regular price selling, fast returns and normal workouts. And also, driven by faster than expected progress on our supply chain initiatives.

Michael O'sullivan: Thirdly, we are maintaining our flat to 2 percent comp guidance for the third and fourth quarters. We recognise that, given our recent trend, there may be upside in the back half. If the underlying trend is stronger, then we will trade this.

Michael Osvelven: Thirdly, we are maintaining our flat to 2% comp guidance for the third and fourth quarters.

Michael Osvelven: We recognize that given our recent trend, then may be upside in the back half.

Michael Osvelven: If the underlying trend is stronger, then we will take it.

Michael O'sullivan: Finally, we are raising and updating our 4-year earnings guidance to reflect our strong ahead of plan that in quarter results.

Michael Osvelven: Finally, we are raising and updating our four-year earnings guidance to reflect our strong ahead of plan and second quarter results.

Michael O'sullivan: With that, I would now like to turn on the call over for your questions.

Speaker Change: With that, I would now like to turn the call over for your questions.

Operator: Hello everyone, we are now opening the floor for question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad.

Speaker Change: Hello everyone, we are now opening the floor for question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. Please limit your questions to one question and one follow up and then be cute to ask additional questions.

Operator: Please limit your questions to one question and one follow-up, and then re-cute to ask additional questions. Thank you.

Matthew Boss: I'd now like to call over Matthew Boss from J.P. Morgan.

Michael O'sullivan: Your line is now open. Thanks and congrats on a really nice quarter. Thanks, Matt.

Speaker Change: Thank you. I'd now like to call over Matthew Bosch from JP Morgan. Your line is now open.

Matthew Bosch: Thanks, and congrats on a really nice quarter.

Michael O'sullivan: So Michael, maybe to kick off near term, could you speak to back to school fails trends, maybe just the overall importance to your business, or how best to think about the impact of back to school, what it maybe had on results as you exited the second quarter and anything you can share on August trends, I think would be great.

Speaker Change: Thanks, Matt.

Speaker Change: So, uh, my girlfriend, maybe the-

Matthew Bosch: Kickoff, near-term, could you speak to back-to-school sales trends, maybe just the overall importance to your business? Or how best to think about the impact of back-to-school, what it may be had on results as you exit at the second quarter, and anything you can share on August trends, I think would be great.

Michael O'sullivan: Well, good morning, Matt. Thank you for the, thank you for the question. Back to school selling is very important to our business at this time of year. In fact, maybe it would be helpful if I define what back to school really means for us at Burlington. Back to school categories, of course, include, it's apparel. Accessories and footwear, but they also include juniors and young men. There are other specific categories within the footwear business, and in addition, there are other areas of the store, especially in accessories and in home, where we go after back to school and back to campus opportunities.

Speaker Change: for Good Morning Matt. Thank you for the thank you for the question.

Speaker Change: Back to school selling is very important to our business at this time of year. In fact, maybe it would be helpful if I define what back to school really means for us.

Speaker Change: Back to school categories, of course, include kids' apparel, accessories and

Speaker Change: But they also include juniors and young men, there are other specific categories within the footwear business and in addition, there are other areas of the store, especially.

Speaker Change: in Accessories and in Home where we go after back to school and in fact campus opportunities. I should also call out that as a company we indexed much higher with younger shoppers and young families than many of our competitors.

Michael O'sullivan: I should also call out there as a company, we index much higher with younger shoppers and young families than many of our competitors. So the businesses that I've just listed represent a relatively high penetration of our store. Anyway, that all adds up to saying the back to school is a very important business driver for us. In terms of timing, back to school as an event really starts in early July and then continues through early September. And of course, the timing depends on the region. Now, as an aside, I would say that as part of merchandising 2.0, we have gotten much better at planning and managing the timing of back to school receipt flows based on the specific timing of back to school in different regions.

Speaker Change: So the businesses that I've just listed represent a relatively high penetration of our store. Anyway, that all adds up to saying the factor school is a very important business of the process.

Speaker Change: in terms of timing.

Speaker Change: Back to school at an event, really starts in.

Speaker Change: Early July and then continues through early September and of course the timing depends on the region.

Speaker Change: Now as an aside I would say that there's part of merchandising 2.0

Speaker Change: We have got much better planning and managing the timing of back to school receipt flows based on the specific timing of back to school in different regions. Anyway, to answer your question, we were...

Michael O'sullivan: Anyway, to answer your question, we were very pleased with our back-to-school trends in July. Comp sales growth, the categories that I described a moment ago, were stronger than for the rest of the chain. And that helped to support our overall sales trend as we closed out the quarter in July. On the last part of your question, how are things going in August? Our back to school categories have continued to perform well. I would say, obviously, we're three and a half weeks in at this point. We're happy with our overall friend. We've made a solid start to Q3.

Speaker Change: Very pleased with our Baptist school friends in July. Comstels Gross.

Speaker Change: for the categories that I described a moment ago were stronger than for the rest of the chain and that helped to support our overall sales brand as we closed out the quarter in July. On the last part of your question, how are things going in August?

Speaker Change: Our back-to-school categories have continued to perform well.

Speaker Change: I would say we're three and a half weeks in at this point. We're happy with our overall friends.

Michael O'sullivan: But with that said, let me add just one note of caution. Event to school will wind down pretty soon. So although we're happy with how the quarter started out, it would be unwise just to extrapolate off that solid start.

Speaker Change: and we've made a solid start to Q3.

Matthew Boss: That's great color.

Michael O'sullivan: And then maybe just to follow up, Michael, on your mix of better brands initiative. So you called out earlier this year the potential to increase the mix of better brands as a comp driver. Was this a key driver in second quarter comps, or how should we think about this as a potential comp driver in the second half of the year? Well, again, thanks for the question, Matt. Yes, as we described earlier this year, we do see an opportunity to increase our mix of better brands. And actually, we see an opportunity more generally to elevate our assortments.

Speaker Change: That's great color and then maybe just to follow up Michael on your mix of better brands initiative. So you called out earlier this year that potential to increase the mix of better brands as a Comptriver.

Michael Osvelven: Was this a key driver in second quarter comps, or how should we think about this as a potential comp driver in the second half of the year?

Michael Osvelven: Well again, thanks for the question Matt.

Speaker Change: Yes, as we described.

Speaker Change: Earlier this year we do see an opportunity.

Speaker Change: who increased our mix of better brands and actually we see an opportunity more generally to elevate our assortment. We've been shifting in that direction for a while now and we've seen good selling on those better brands and we've seen good selling.

Michael O'sullivan: We've been shifting in that direction for a while now. And we've seen good selling on those better brands, and we've seen good selling at higher price points. We believe that increasing the mix of better brands accomplishes two things. Firstly, those brands themselves drive increased trade-down traffic to our stores. Trade down shoppers are looking for better, more recognizable brands. Secondly, though, those brands also help to validate and reinforce the whole store. Even if a shopper does not buy the specific item, the fact that they see the brand reinforces the off-price value proposition; it provides a halo, if you like, to our business.

Speaker Change: at High Apprise Points.

Speaker Change: You know we believe that increasing the mix of better brands accomplishes two things. Firstly,

Speaker Change: Those brands themselves drive increased trade-down traffic to our stores. A trade-down shop is a looking for better, more recognizable brands. And, secondly though.

Speaker Change: Those brands also helped to validate and reinforce the whole store.

Speaker Change: Even if a shop does not buy the specific items, the fact that they see the brand.

Speaker Change: Reinforces the off-price value proposition. It provides a halo if you like to our business. So in the coming months, you will see a higher mix of better brands in our runs.

Michael O'sullivan: So in the coming months, you will see a higher mix of better brands in our runs. That's that I don't want to. I don't want to overstate this opportunity. I see this as an evolution rather than a revolution. Our brands have always been important to us, but our merchants understand that brands are really just one reference point. The customer uses to assess value, quality, fashion, and price are also important. And depending on the category, their relative importance can vary a lot. For example, brands are very important in sportswear, but much less important in juniors where they disguise in fashion are critical.

Speaker Change: and that that I don't want to overstate this opportunity. I see this as a evolution rather than a revolution. You know, brands have always been important to us, but our merchants understand that brands...

Speaker Change: I really just want reference point that customer users to assess value, quality, fashion and price are also important and depending on the category.

Speaker Change: is a relative importance, can vary a lot, you know, for example.

Speaker Change: Brands are very important in sportswear, but much less important.

Speaker Change: and Tunia where the beta styles and fashion are critical.

Michael O'sullivan: Another point to make is our merchants are very good at building the assortment, who offer great value across price points, and it's critical in doing that. It's critical to manage brands within the context of our good, better, best assortment strategy. One last point to make on this: better brands carry a lower markup, and we increase the mix. It puts pressure on gross margin. Now that impact is built into our guidance, that it haven't changed since our last call. As Chris mentioned earlier, we are making a small adjustment to our gross margin guidance for the back up, but that adjustment is related to higher ocean freight rates rather than the mix of better brands.

Operator: Hello and welcome to Burlington Stores Incorporated, 2nd quarter 2024 earnings, webcast and conference call. Please note that everyone is joined on you to avoid any background noise. You will have the opportunity to ask questions to our presenters later on during the Q&A session. If you'd like to ask a question by that time, please press star one on your telephone keypad. Thank you.

Speaker Change: Um, another point to make is our merchants are very good at building the assortment who offer great value across price points and it's critical.

Speaker Change: In doing that, it's critical to manage brands within the context of our good, better, best, for salt and strategy.

Speaker Change: and one last point to make on this better brands carry a lower markup.

David Glick: I'd now like to turn the call over to David Glick, group senior vice president, Treasurer and investor relations. Please go ahead. Thank you operator and good morning everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2024 2nd quarter operating results. Unless otherwise indicated, our discussion of results for the 2024 2nd quarter exclude the impact of certain expenses associated with the acquisition of bed, bath and beyond leases.

Speaker Change: As we increase the mix, it puts pressure on girls' margin.

Speaker Change: Now that impact is built into our guidance, so it hasn't changed since our last call.

Christian: is a Christian mentioned earlier, we are making a small adjustment to our gross margin guidance for the back half, but that adjustment is related to higher-roach rate rates rather than the mix of better brands.

Matthew Boss: Best of luck and grads again.

Ike Boruchow: Our next question comes from Ike Boruchow from Wells Fargo. Your line is now open.

Speaker Change: Best of luck, congrats again.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Ike Boratrow from Wolfe Fargo, your line is now open.

Kristin Wolfe: Hey, good morning, everyone. Actually, two questions for Kristin. Kristin, first question on the supply chain. It's encouraging to see another quarter of supply and leverage in the P&L. Can you maybe walk us through some of the drivers of that leverage, specifically what kind of operational improvements that can be made? And then I think one of your peers has actually talked about more automation and technology in their DCs. Just kind of areas have these types of initiatives also been part of your program? Would love for some more color there.

David Glick: 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 September 5th, 2024. We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties.

Ike Boratrow: Hey, good morning everyone. Actually, two questions for Kristen.

Ike Boratrow: Chris and first questions on the supply chain.

Ike Boratrow: It's encouraging to see another quarter of supply and leverage in the PL, can you maybe walk us through some of the drivers of that leverage specifically what kind of operational improvements that you made? And then I think one of your peers is actually talked about more automation and technology and their D.C.s.

Speaker Change: and I'm just going to share these types of initiatives that have also been part of your program with love for some more color there.

David Glick: Our remarks and the Q&A that follows are copyrighted today by Burlington Stores. Remarks made on this call concerning future expectations, events, strategies, objectives, trends or projected financial results, are subject to certain risks and uncertainties. Actual results may differ materially from those that are projected in such forward-looking statements. Such risks and uncertainties include those that are described in the company's 10K for fiscal 2023 and in other filings with EFEC, 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. Reconciliation of the non-gap measures we discussed today to gap measures are included in today's press release.

Kristin Wolfe: Hi, I sure good morning. We continue to be pleased by the faster-than-expected progress for making and driving productivity gains and cost saving in supply chain. As we shared in the prepared remarks, supply chain leverage 60 basis points in Q2.

Cherka Mourning: Hi, I'm Cherka Mourning. We continue to be pleased by the faster than expected progress for making and driving productivity gains and cost savings.

Speaker Change: and Supply Chain. As we share it in the prepare remarks, Supply Chain leverage 60 basis points in Q2.

Kristin Wolfe: And this is despite the start up of a new distribution center in the second quarter and the receipt shift that we talked about from Q1 into Q2. We reference this on last quarter's call. We do have a number of productivity initiatives. These are more within the four-wall process improvements that streamline our DC operations, reduce touches, reduce steps, reduce time to process, and ultimately save labor dollars in the DC. And we're harvesting these savings a little bit faster than we'd originally planned on previous calls. We had described supply chain productivity improvement as driving potentially 100 basis points of the 400 basis points of margin improvement.

Speaker Change: and this is despite the start-up of a new distribution center in the second quarter and the receipt shift that we talked about from Q1 into Q2. We referenced this on last quarter's call.

Speaker Change: We do have a number of products of the initiatives. These are more.

Speaker Change: Within the four-wall process improvements that streamline our DC operations, reduced touches, reduced steps.

Speaker Change: Produced time to process an ultimately saved labor dollars in the DC and we're harvesting these savings a little bit faster than we'd originally planned.

Michael O'sullivan: Now here's Michael. Thank you David.

Speaker Change: On previous calls we had described supply chain productivity improvement as driving potentially 100 basis points of the 400 basis points of margin improvement we laid out last year in our long range model.

Michael O'sullivan: Good morning everyone and thank you for joining us. On this morning's call we would like to discuss our second quarter result and our guidance for the rest of the year. Then we will be happy to respond to your questions.

Kristin Wolfe: We laid out last year in our long-range model. And we'll see how the rest of this year plays out, but expect supply chain to continue to drive leverage in the back half.

Speaker Change: and we'll see how the rest of this year plays out, but expect supply chain to continue to drive leverage.

Kristin Wolfe: And engaged is the second part of your question; a longer term, probably beyond the long range model we've laid out. We do have an opportunity to drive incremental leverage as we modernize our supply chain with new, larger, much more automated DCs that we expect to open. As I mentioned, we recently opened a new DC this year, and we have another much larger DC under construction, which we expect to open in 2026. And with these new DCs, we have an opportunity to design these four off price and with much, much more automation. So, as we expand this additional capacity, there also may be an opportunity to go back and look at modernizing some of our existing legacy DC network as well.

Michael O'sullivan: Okay let's talk about our Q2 results. I'm going to start with total sales growth, our total sales in Q2 grew by 13% compared to the second quarter of 2023. That was on top of 9% total sales growth versus the second quarter of 2022. New stores are a key driver of this growth. In Q2, we added 36 net new stores and ended the quarter with 1,057 locations The other driver of top line sales is comp, sales growth. Comp store sales for the second quarter increased 5% versus our guidance of flat to 2%. This 5% comp sales growth was on top of last year's second quarter, comp increase of up 4%.

Speaker Change: in the back half.

Speaker Change: And in getting to the second part of your question, a longer term probably beyond the long-range model we've laid out, we do have an opportunity to drive incremental leverage as we modernize our supply chain with new larger, much more automated DCs that we expect to open.

Speaker Change: As I mentioned, we recently opened a new DC this year and we have another much larger DC under construction which we expect to open in 2026 and with these new DCs.

Speaker Change: We have an opportunity to design these these four off-price.

Speaker Change: and with much, much more automation. So as we expand this additional capacity, there also may be an opportunity to go back and look and modernizing some of our existing legacy DC network as well. But again, the benefits of this.

Kristin Wolfe: But again, the benefits of this are not our longer term, not necessarily baked into the long range model that we shared. So the cafex to support these new DC investments is embedded in our long range model.

Speaker Change: are longer-term, not necessarily baked into the long-range model that we shared. So the capex to support these new DC investments is embedded in our long-range model. And I think you said you had a follow-up for me as well.

Kristin Wolfe: And I think you said you had a follow-up for me as well.

Kristin Wolfe: Yeah, I was going to switch over to freight if that's OK. Just elaborate. The second half ocean freight headwinds, I think you called out in the prepared remarks, what's driving it, how long, how impactful the negative will that be. And I guess how does this impact domestic freight, if at all, because I know you talk about ocean, and can you still kind of lever domestic freight in the third and fourth quarters not changing as well. Great. Thanks for the question. It's a very good question. So, as I mentioned, we factored in about 10 cents of higher ocean freight in our back half guidance.

Speaker Change: Yeah, I was going to switch over to freight if that's okay. Great. Celebrate the second half ocean freight headwinds. I think you called out in the prepared remarks.

Michael O'sullivan: Let me move on now to profitability. In the second quarter, we expanded our operating margin by 160 basis points versus last year's second quarter. In a moment, Kristin will provide more details, but for now, let me call out the two primary drivers of this expansion. Firstly, our gross margin increased by 110 basis points. This was driven by faster inventory turns and lower mark downs. Secondly, we achieved 60 basis points of leverage in supply chain driven by faster than expected progress in our supply chain efficiency initiatives.

Speaker Change: What's driving it, how long, how impactful, the negative will that be? And I guess how this is in fact domestic freight, if at all, it's in a talk about motion. It can still kind of lever domestic freight in the third and fourth quarter, is that changing as well.

Speaker Change: Great. See, I think for the question, it's like this is a very good question. So as I mentioned, we've factored in about 10 cents of higher ocean freight in our back house guidance, and this ocean freight negatively impacts merchandise margin.

Kristin Wolfe: And this ocean freight negatively impacts merchandise margins. And so, on ocean freight, we do have some contracted capacity at favorable ocean freight rates. But the spot market rate, as you know, increased significantly since we reported in Q1 and May. And we do have some exposure to the spot market, even though the majority of our containers are contracted. So, we're hopeful this ocean freight, the spot market is a transitory pressure point. And we're starting to see ocean freight spot rates come down modestly. But of course, there are always risks here. And this is difficult to predict.

Speaker Change: and so on Ocean Freight, we do have some contracted capacity at favorable Ocean Freight rates.

Speaker Change: But the spot market ray, as you know, increased significantly since we reported in Q1 and May. And we do have some exposure to the spot market even though the majority of our containers are contracted.

Speaker Change: So we're hopeful this ocean freight is spot market as a transitory pressure point And we're starting to see ocean freight spot rates come down modestly But of course there are always risks here and this is difficult to predict

Michael O'sullivan: As Kristin will explain, our well ahead of plan sales growth plus healthy margin expansion grow very strong earnings growth in the second quarter.

Kristin Wolfe: And turning to the second part of your question on domestic freight. On the other hand, domestic freight continues to be a source of modest leverage. We saw domestic freight leverage in Q2 as we negotiated favorable rates. Diesel fuel rate has also been slightly favorable here. So, on domestic freight, we expect to continue to see modest leverage in the back half of the year on that. Thanks so much. Thanks, thanks.

Speaker Change: and turning to the second part of your question on domestic freight.

Michael O'sullivan: Now, I would like to take a few moments to editorialize on our second quarter performance. Again, I will start with total sales. Of course, we are very happy with 13% total sales growth on top of 9% total sales growth last year. This means that on a compound basis, our business is 24% bigger now than it was two years ago. Given the volatility and uncertainty at the last couple of years, we are very pleased with this growth.

Speaker Change: On the other hand, domestic great continues to be a source of modest leverage. We saw domestic freight leverage in Q2 as we negotiated favorable rate. Diesel fuel rate has also been slightly favorable here.

Speaker Change: So on domestic right we expect to continue to see modest leverage in the back half of the year on that.

Speaker Change: Hello, thanks so much.

Lorraine Hutchinson: Our next question comes from the line of Lorraine Hutchinson, the Bank of America. Your line is open.

Speaker Change: Our next question comes from the line of Lorraine Hutchinson with Bank of America. Your line is open.

Lorraine Hutchinson: Thank you.

Michael O'sullivan: Good morning, Michael. Can you elaborate on what you're seeing in terms of the health of the consumer? You talked previously about the potential for trade-down traffic in your stores. Is that what's driving your comp and any other call-outs in terms of consumer behavior?

Lorraine Hutchinson: Thank you for morning Michael, can you elaborate on what you're seeing in terms of the health of the consumer? Talked previously about the potential for trade-down traffic in your stores. Is that what's driving your comp and any other call-out in terms of consumer behavior?

Michael O'sullivan: In Q2, we opened 36 net new stores and we also relocated four of our older oversight locations. This means that for the fiscal year to date, we have opened 50 net new stores plus 15 relocations and for the year as a whole, we are on track to open 100 net new stores plus approximately 30 relocations. As discussed in the past on average, we expect our new stores to run at about $7 million in sales in their first full year.

Michael O'sullivan: Good morning, Lorraine. Good to hear from you. Thank you for the question. On our last call back in May, I think I described the external situation and the health of the consumer as being hard to read. At the time, it felt like there were conflicting data: some positive, some negative on discretionary spending trends.

Michael Osvelven: Good morning Lorraine, good to hear from you. Thank you for the question.

Speaker Change: On our last call back in May, I think I just described.

Speaker Change: The external situation and the health of the consumer is being hard to read.

Speaker Change: At the time, it felt like there were conflicting data, some positive, some negative on discretionary spending trends. I would say in the last few months.

Michael O'sullivan: I would say in the last few months, it feels to us that the situation has become a lot clearer. In our view, there are really two things going on. Firstly, the economic pressure and uncertainty that was felt by low-income shoppers starting two years ago has spread to other income bands and other demographic groups. It feels like that has driven much greater focus on value across the board. I think that recent earnings reports from other retailers are all pointing in the same direction. Retailers that are offering the best value are winning and driving comp sales. I think a big part of what we're seeing is that value-conscious customer is trading down into our stores.

Speaker Change: You know, it feels to us that situation has become a lot clearer. You know, in our view.

Michael O'sullivan: I am pleased to say that our new stores are running ahead of this benchmark. We were also pleased with our positive 5% Compt Growth in Q2. Keep in mind that as we open new stores, there is some cannibalization headwind on Compt Stores. Our positive 5% Comp sales increase in the second quarter was despite this headwind. Another point to make as I dissect this 5% growth, we continue to see very strong performance in full price selling.

Speaker Change: There were really two things going on. Firstly, the economic pressure and uncertainty that was felt by lowering come shoppers.

Speaker Change: I'm starting two years ago, has spread to other income bands and other demographic groups.

Speaker Change: and it feels like that has driven much greater focus on value across the board and I think that recent earnings reports from other retailers are all pointing in the same direction.

Speaker Change: We tell us that we're offering the best value or winning.

Speaker Change: and Prydinge compounds. So I think a big part of what we're seeing is that value conscious customer is trading down into our stores. The second thing that's going on is that the pressure on the lowering time customer.

Michael O'sullivan: The second thing that's going on is that the pressure on the low-income customer hasn't gone away, but it feels to us like it may have moderated. That low-income shopper is still very fragile, but as inflation has come down, I think that situation has improved somewhat. We see evidence of that in our own data. Two years ago, our comp sales trend for stores for our stores that are in low-income trade areas was below the rest of the chain. Now those stores are; we've watched them very closely. They're very important to us. We have a lot of stores in lower income trade areas, and they tend to be relatively high volume.

Michael O'sullivan: Our merchants are focused on offering really sharp value out of the gate at the initial picketed price. This is driving faster turns and lower mouth downs. This means that there is less inventory making it to the clearance rack. Our Compt on clearance sales was down double visits in Q2. Meanwhile, our Compt on full price selling was positive 7%. This was the driver of our 110 basis points of gross margin expansion in the second quarter.

Speaker Change: hasn't gone away, but it feels to us like it may have moderated. That low income shopper is still very fragile, but as inflation has come down, I think their situation has improved somewhat. We see evidence.

Speaker Change: of that in our own data. So two years ago, our Comps sales trend for stores for our stores that are in lowering some trade areas was below the rest of the chain.

Speaker Change: and those stores are, we watch them very closely. They're very important to us. We have a lot of stores in lower-income current areas and they tend to be relatively high-volume. So when they're not counting well, we pay a lot of attention.

Michael O'sullivan: Getting back a little, I was pleased with our execution in Q2. We had made a lot of changes and improvements to our business over the last few years in merchandising and in operations. We are still in the early innings of many of these programs and to be clear, we have a long way to go in terms of achieving full potential off-price execution. But we are gaining traction and making some good progress.

Michael O'sullivan: So when they're not comping well, you know, we pay a lot of attention. This year, their trends have improved and are actually running in line with the chain. So up, mid single digit comp in Q2. And a data point suggests to us that the lower income customer is at least starting to recover.

Speaker Change: This year, their trend has improved and is actually running in line with the change. So up, mid-Single Digi-Comp, in Q2.

Speaker Change: and at that day the point suggests to us that the lowering come customer is at least starting to recover.

Michael O'sullivan: So let me recap and also add a note of caution to recap with seeing from positive signs throughout business with customers in general, being more focused on value and the lower income shop down in particular starting to recover from the spike of inflation in 2022 and 2023. But my other caution is that there are a lot of factors that could affect consumer behavior in the back half of 2024 and said into next year. So, you know, to sum up, we feel good about our business, but it makes sense to be a little cautious. Thanks.

Speaker Change: Zemia, Zemia Recap and also add a note of caution to Recap.

Speaker Change: We're seeing from positive science for our business. We're consuming in general being more focused on value and the lowering comes shop down in particular.

Michael O'sullivan: The other point for me is that over the past 18 months, the external environment has become more favorable. Two years ago, our core low-income customer was under severe economic pressure from the higher cost of living. This then, it feels as if two things have happened. As inflation has moderated, the situation for lowering some shoppers has somewhat improved. In parallel, economic pressure and uncertainty has spread and broadened well beyond lowering home shoppers. There is now greater focus on value across democratic groups and income bands. This greater focus on value is helping our business.

Speaker Change: Judging to recover from the spike of inflation in 2022 and 2023, but my other caution is that there are a lot of factors at risk that could affect consumer behavior in the back half of 2024 and sit in the next year.

Speaker Change: So, you know, to sum up, you know, we feel good about our business, but it makes sense to be a little cautious.

Michael O'sullivan: And Michael, my follow-up question is about the second quarter. Just curious if there were any unusual tailwinds to the comp trends that might not carry over into the fall. Yeah, it's it's a good question. I think that I think the only thing like that that I would point to was weather in Q2. I know the rule among retailers is that we only mention weather when it's unfavorable, but I'm going to violate that rule and say that I think that whether. Probably helped most of power retailers in Q2 in May and June temperatures across the United States.

Speaker Change: Thanks, and Michael, my follow-up question is about the second quarter. Just curious if there were any unusual tailwinds to the comp trends that might not carry over into the fall.

Speaker Change: Um...

Michael Osvelven: Yeah, it's a good question. I think the only thing is...

Michael Osvelven: Like that, that I would point.

Speaker Change: who was with Weta.

Michael O'sullivan: The factors that I have just described provide some grounds for optimism for the back half of the year. But as we've discussed before, our playbook is to manage our business cautiously and be ready to chase. We are maintaining guidance of 0 to 2% compress the Q3 and the Q4.

Speaker Change: Thank you to. I know the rule among retailers is that we only mention whether where it's unfavorable, but I'm going to violate that rule and say that I think that whether probably helped most of power retailers in Q2.

Speaker Change: in May and June, temperatures across the United States come up in the last year. And I suspect that most apparel retailers benefited from that in their seasonal business, especially in categories like shorts.

Michael O'sullivan: Then last year, and I suspect that most apparel retailers benefited from that in their seasonal businesses, especially in categories like shorts, short sleep tops, bandals, and swimwear. You know, I would estimate that this strong seasonal performance was worth one to two points of comp to us for the quarter. And again, to be clear, that benefit cannot have been unique to us. It must have affected other retailers as well.

Michael O'sullivan: Let me comment on each quarter separately. For Q3, there are a couple of reasons to be cautious in planning and guiding concepts. Charles. Last year, we ran six percent comp growth in the third quarter. This was our strongest quarter of the year. Another point to me, and we have discussed this before, comp sales in the first half of Q3 are driven by back-to-school friends, but comp sales in the latter part depend critically on the weather.

Speaker Change: Chosee tops, bandals, and swimwear, you know, I would estimate.

Speaker Change: This strong seasonal performance was worth 1 to 2 points of comfort to us for the course.

Speaker Change: and again to be clear that that benefit cannot have been you need to ask it must have affected other retailers as well. So your question was about the specific drivers that might not carry over to the full season. Apart from weather, there would no other factors or tailwinds that fit.

Michael O'sullivan: So your question was about specific drivers that might not carry over to the fall season. Apart from weather, there were no other factors or tailwinds that I would describe that way. There were no other factors or tailwinds that were unique to the second quarter. Now, of course, it is possible that the weather will be favorable in the fall if temperatures are unseasonably cold. But, you know, I guess other than the farm is out on that, we have no visibility into that at this point.

Michael O'sullivan: At the company that used to be known as Burlington Coat Factory, the weather in late September through October can have a huge impact on our Q3 comp growth. If the weather in Q3 is unseasonably warm, it will suppress our comp trend. We hope that our flat to 2% comp guidance in Q3 will turn out to be conservative. If the trend is stronger, then we will shape it. For Q4, we are also maintaining our flat to 2% comp guidance. Over the next couple of months, we will monitor the trend and get an early read on the fall season. Depending on this read, we may revisit and adjust our Q4 plan.

Speaker Change: I would describe that way. There were no other factors or tailwinds that were unique to the second quarter. Now of course it is possible so the weather will be favorable in the fall if temperatures are unsusably cold. But you know I guess other than the farm of Almanac we have no visibility into that at this point.

Unknown Executive: Thank you.

Unknown Executive: Next one.

John Pernon: Next question comes from the line of John Pernon with DD Cohen.

Speaker Change: Thank you.

Speaker Change: Thanks for watching!

Kristin Wolfe: Your line is open. Good morning, congratulations on the momentum. A couple of questions here.

Speaker Change: Next question comes from the line of John Kernon with T.D. Cohen, your line is open.

Kristin Wolfe: Kristen. First one on your back half earnings guidance looks like there's margin improvement year over year in Q3 quite a bit of it. I put margin deterioration in Q4 year over year. Can you walk us through the factors that are driving this? I would assume the 53rd week has an impact. But how do we think about. First margin and SGNA profile in Q3 and Q4.

John Kernon: Good morning, congrats on the momentum.

John Kernon: A couple questions here, Kristin.

John Kernon: First one on your back cast, earning skydens, looks like there's margin improvement, you're over your Q3 quite a bit of it, but margin deterioration in Q4 year or year, can you walk us through the factors that are driving this, I would assume the 53rd week has an impact, but how do we think about first margin in SGA profile in Q3 in Q4?

Michael O'sullivan: We will talk more about this on our third quarter call in November. Again, as an off-sprice retailer, our playbook is to wait, read the trend, and then chase.

Kristin Wolfe: Good morning, John. Thanks for the question. It's a very good question. I'm glad you asked. There are really four primary factors that impact our bathhouse margin outlook.

Speaker Change: Good morning John. Thanks for the question. It's a very good question. God you asked her.

Speaker Change: The really four primary factors that impact our BFF margin outlook.

Kristin Wolfe: So I'll kind of dissect each of these first as you alluded to Q3 and Q4 have very different total sales growth plans due to the way the 53rd week calendar impacts, as well as the timing of new store openings this year compared to last year. So let me clarify the 53rd week. I'm not referring to the extra week, but actually how the calendar shifts. So we're about one week ahead of last year; we're in comparing the quarters year over year. Now, for comp store sales, we adjust for this and we line up the week, but for total sales growth, there's an impact on sales and earnings in the quarter.

Kristin Wolfe: Now, I would like to turn the call over to Kristen to share more details on our second quarter results and our outlook for the rest of the year. Kristen? Thank you, Michael, and good morning, everyone. Let me start with our second quarter results. Total sales grew 13%, and comp sales grew 5%, both well above the high end of our second quarter guidance. Our adjusted event margin expanded 160 basis points versus last year.

Speaker Change: So I'll kind of dissect each of these first as you alluded to, Q3 and Q4 have very different total sales growth plans due to the way the 53rd week.

Speaker Change: Calendor Impact, as well as the timing of news to our openings this year as compared to last year. So let me clarify the 53rd week. I'm not referring to the extra week, but actually how the calendar shifts.

Speaker Change: So we're about one week ahead of last year, we're in comparing the quarters year over year.

Speaker Change: Now for crop store sales, we adjust for this and we line up the week. But for total sales growth, there's an intact on sales and earnings in the quarter.

Kristin Wolfe: So the 53rd week shift means that in Q4, we lose a high volume week in November, and we gain or pick up a low volume week in January. So this translates into lower total sales growth in Q4 versus last year, resulting in guidance for the fourth quarter for total sales to grow 5 to 7%. Now, for the third quarter, we're guiding a 10 to 12% total sales increase. Q3 is actually boosted by the 53rd week calendar shift and also benefit from an increase number of new store openings in the third quarter of this year relative to last year.

Kristin Wolfe: The drivers of this margin expansion will hire growth margin, higher than planned supply chain savings, and leverage on above planned comp sales. Let me walk through the details. The growth margin rate for the second quarter was 42.8%, an increase of 110 basis points versus last year. This was driven by a 90 basis point increase in merchandise margin due to strong regular price selling, which generated faster inventory turns and lower markdown. Freight expenses leveraged 20 basis points, primarily due to lower freight rates and cost savings initiatives.

Speaker Change: So the 53rd week shift means that in Q4 we lose a high volume week in November.

Speaker Change: and we've gained or picked up a low volume weakened January. So this translates into lower total sales growth and Q4 versus last year, resulting in guidance for the fourth quarter for total sales to grow 5 to 7%.

Speaker Change: Now, on the third quarter, we're guiding 10 to 12 percent total fails increase. Two three is actually boosted by the 53rd week calendar shift and also benefits from an increase number of new store openings in the third quarter of this year relative to last year.

Kristin Wolfe: So that difference in total sales growth driven by the calendar shift and new store opening timing really impacts the expansion and the leverage in Q3 favorably and then unfavorably in the fourth quarter.

Speaker Change: So that's different than total sales growth, driven by the calendar shift and new surfing timing.

Speaker Change: really impacts the expansion in the leverage.

Kristin Wolfe: That's really the primary difference between Q3 and Q4, but as I mentioned, I said there were four factors. The other three are headwinds to the fall, so headwinds to the back half. First, our back half comp guidance is a conservative flat to plus 2%. This is below, obviously, our year-to-date come train provides less leverage on six expenses. And then secondly, in the back half on the gross margin side, we do not expect to see the same benefit from lower clearance levels, like we saw in the first half of this year. This means we have a lot less merchandise margin expansion opportunity in the back half relative to the first half of this year.

Speaker Change: and Q3 favorably and an unfavorably in the fourth quarter. That's really the primary difference between the Q3 and Q4. But as I mentioned, I said there were four factors. The other three are headwinds to the fall. So headwinds to the back-ass first.

Kristin Wolfe: Product source and cost were $192 million versus $183 billion in the second quarter of 2023, decreasing 60 basis points as a percentage of sales. This was entirely driven by supply chain expense levers, from continued progress on our distribution center productivity initiatives. Adjusted S-GNA costs in the second quarter were 10 basis points higher than last year, driven by plans, higher investments in store payroll. Q2, adjusted evit margin was 4.8%, 160 basis points above last year.

Speaker Change: Our backup comp guidance is a conservative flat to plus two percent. This is below. Obviously our year-to-date comp training provides less leverage on six expenses.

Speaker Change: and then secondly in the back half on the gross margins side we do not expect to see the same benefit from lower clearance levels like we saw in the first half of this year.

Speaker Change: This means we have a lot less merchandise margin expansion opportunity in the back half relative to the first half of this year.

Kristin Wolfe: And then lastly, the higher ocean freight that we detailed in the prepared remarks in the earlier question, that's about 10 cents or $9 million of pre-tax. That represents about 20 basis points of merge margin headwind in the back half. And I want to add that the only change to our previous back half guidance is that 10 cents negative impact promotion freight. So those are really the key factors impacting Q3 and Q4 margin guidance. Got it.

Kristin Wolfe: We had guided to 30 to 50 basis points of improvement. Our adjusted earnings per share in Q2 was $1.24. This was a 98% increase over last year and was well above the high end of our guidance range of 83% to 93%. These results and the guidance that we provided exclude approximately $3 million of pre-staffed expenses associated with the bed bath and beyond leases. At the end of the quarter, our comparable store inventories were up 4% above 2023.

Speaker Change: and then lastly, the higher ocean freight that we detailed in the prepare remarks in the earlier question. That's about $10 or $9 million of pre-tax. That represents about 20 basis points of merch margin headwind in the back half.

Speaker Change: and I want to add that the only change to our previous back half guidance is that 10 cent negative impact for motion freight. So those are really the key factors in testing two-three and two-four margin guidance.

David Glick: That's very helpful for the model. David or Kristen, just as it relates to the balance sheet, cash flow, and share repurchases, you've given guidance for catbacks to be elevated in the next few years. I'm assuming around the 7% of sales levels you find the unit growth, but how should we think about share repurchases and potential impact on the balance sheet?

Speaker Change: got it, that's very helpful for the model. David or Chris and just as it relates to the balance sheet, cash flow, and share repurchases. You've given guidance for CapEx to be elevated in extra years. I'm assuming around the 7% of sales levels you find the unit growth, but how should we think about it?

Kristin Wolfe: Our reserve inventory was 41% of our total inventory. We are very happy with the quality of the merchandise and the values that we have in reserve. During the quarter, we repurchased $61 million in common stock. At the end of Q2, we had $380 million remaining on our share repurchase authorizations that expired in August of 2025.

David Glick: What's the optimal level of cash in the balance sheet? I'll take that, John. Thanks for the question. We're still working through our budget for next year, so it's a little early to be sharing specifics on that, but philosophically our goal is to return capital to shareholders on a consistent and opportunistic basis through that. I think outside of the pandemic years, we have a pretty consistent track record of doing so. And as we've shared with you all previously, the first few years of the five-year plan that we shared does have elevated capex at about 7% of sales.

Jerry: Jerry purchases and potential impact on the balance sheet, what's the optimal level of cash in the balance sheet?

Speaker Change: I'll take that John. Thanks for the question. We're still working through our budget for next year, so it's a little early to be sharing specifics.

Speaker Change: on that, but you know, philosophically, our goal is to return capital, shareholders on a consistent and opportunistic basis through by that. And I think outside of the pandemic years, we have a pretty consistent track record of doing so.

Kristin Wolfe: Now I will turn to our outlook for the full fiscal year as well as for the third quarter and fourth quarter of fiscal 2024. Based on our strong performance in the second quarter, we are increasing our full year fiscal 2024 guidance for cost sales, total sales, adjusted evit margins and adjusted earnings per share as follows. Comparable store sales are now expected to increase 2 to 3% with total sales to increase 9 to 10% for the full year 2024.

Speaker Change: and as we've shared with you all previously the first few years of the five-year plan that we share does have elevated cap X at about 7% of sales. As you know, this year we're guiding the 750 million in cap X.

David Glick: As you know, this year, we're guiding the 750 million in capex. You know, it's still early, but I think you should probably anticipate, you know, that 7% fall part of sales next year for capex. And then toward, you know, the back half of the last three years of that five year plan, capex, you know, should average in the mid single digit range as a percent of sales. And just kind of as a reminder, why we're stepping up capex this year and next year, we're opening up a lot more source. You know, we're at net 80 in 2023 and this year's net 100.

Speaker Change: You know, it's still early, but I think you should probably anticipate, you know, that's 7% ballpark.

Speaker Change: of Sales next year for CapEx. And then toward, you know, the back half of the last three years of that five year plan, CapEx, you know, should average in the mid-tangle digit range as a percent of sales.

Speaker Change: and just kind of as a reminder why we're stepping up Kaffax this year and next year.

Kristin Wolfe: This revised full year guidance factors in our year-to-date comp store sales as well as our guidance for comparable store sales to increase 0% to 2% for the balance of fiscal 2024. We now expect our full year adjusted evit margins to increase by 50 to 70 basis points. This is up from our most recent guidance for an increase of 40 to 60 basis points and up from our original guidance for an increase of 10 to 50 basis points.

Speaker Change: We're opening a lot more stores, you know, we're at net 80 and 2023 in this year's net 100. Also, you know, we have more closures and reloads, so the gross number of new stores is higher than prior years.

David Glick: Also, you know, we have more closures and reloads, so the gross number of new stores is higher than prior years. In addition, you know, Kristen referenced this in an earlier answer to a question. We, you know, we signed a lease on a 2 million square foot DC in the southeast. That's 2X are our largest existing DC, and the capex required for that building will peak this year and next year. And we have included in that agreement a purchase option next year for the land and the buildings. You know, we view our DCs as strategic infrastructure that we want to have more control relative to leasing, so we've included in that sort of high-level outlook for capex next year.

Speaker Change: in addition, you know, Kristin reference this in an earlier answer to a question. You know, we signed a lease.

Speaker Change: I'm a two million square foot DC in the southeast. That's two X or our largest existing DC. And the CapEx required for that building will peak this year in next year. And we have included in that agreement a purchase option next year for the land and the buildings.

Kristin Wolfe: This updated margin outlook now translates to an adjusted earnings per share range of $7.66 to $7.96. Up from our most recent guidance of $7.35 to $7.75, and up from our original guidance of $7 to $7.60. Included in this updated guidance is an expected ocean freight headwind of approximately 10 cents impacting the vast half of the year, which reflects the rapid increase in ocean container rates since we last updated our guidance in late May.

Speaker Change: You know, we view our DCs as...

Speaker Change: Strategic Infrastructure that we want to have more control relative to leasing. So we've included in that sort of high-level outlook for CapEx next year. We've assumed that we would exercise the option to purchase the land and buildings for that decay in the southeast.

David Glick: We've assumed that we would exercise the option to purchase the land and buildings for that DC in the Southeast. And also, as Kristen mentioned earlier, you know, those are much larger and more automated DCs and therefore require more capital investment. So I know that's a long prelude to actually answering your question. You know, we think our conservative leverage ratios and cash flows and kind of a similar liquidity west about cash, a similar, you know, liquidity levels we've had the ending the last few years. You know, we feel very comfortable with that. We also feel like we have sufficient cash flow to not only invest in our growth, but to return to capital shareholders in the form of buybacks.

Speaker Change: and also as Kristin mentioned earlier, you know, those are much larger and more automated DCs.

Kristin: and therefore require more capital investment. So I do that's a long prelude to actually answering.

Speaker Change: You're a question, you know, we think our conservative levered ratios and cash flows and kind of a similar liquidity, you asked about cash, a similar, you know, liquidity levels we've had, the ending the last few years.

Kristin Wolfe: For the third quarter, we are guiding to a cost store sales growth of flats to plus two percent and a total sales increase of 10 to 12 percent. This will result in operating margin expansion of up 60 to up 80 basis points versus Q3 of 2023. This translates to earnings per share guidance for the third quarter of $1.45 to $1.55. We do not expect any incremental expenses associated with the elices we acquired from bedbass beyond last year.

Speaker Change: You know, we feel very comfortable with that. We also feel like we have sufficient cash flow to not only invest in our growth.

David Glick: And I think you should probably expect kind of a similar pace next year to the pace that you've seen in 2023 and 2024.

Speaker Change: What's your return in capital shareholders in the form of buybacks? And I think you should probably expect kind of a similar pace next year to the pace that you've seen in 2023 and 2024.

Unknown Executive: God, that makes sense.

Unknown Executive: Thank you.

Brooke Roach: Next question comes from the line of Brook Road with Goldman Sachs.

Speaker Change: God, that makes sense, thank you.

Greg: Your line is open. Good morning. And thank you for taking our question.

Speaker Change: Next question comes from the line of Brooke Roach with Goldman Sachs, your line is open.

Michael O'sullivan: Michael, can you speak to the performance trends that you saw by merchandise category in the second quarter?

Brooke Roach: Good morning and thank you for taking our question. Michael can you speak to the performance trends that you saw by merchandise category in the second quarter?

Michael O'sullivan: Sure.

Michael O'sullivan: Well, good morning, Greg. on category performance. The strength, I would say, was fairly broad-based across the quarter. Our compost in both a barrel and in home was in line with the overall chain, so mid-single digit. Other than that, the only other callouts were that we saw strong sales trends in our seasonal classification, so I kind of referenced that earlier when I was talking about the weather. We also saw strong sales trends in our back-to-school business in July, and then against that quarter we saw strong sales trends in beauty and in accessories.

Kristin Wolfe: For the fourth quarter of fiscal 2024, this outlook implies cost store sales growth of flats to plus two percent, total sales to increase 5 percent to 7 percent, even margins to range from a decrease of 80 basis points to a decrease of 50 basis points. An earnings per share in the range of $3.50 to $3.75. Please keep in mind that the 53rd week shift has a significant negative impact on Q4 in terms of total sales adjusted even and adjusted earnings per share.

Brooke Roach: Sure, I will come morning work.

Patrick Reeper: on Patrick Reeper performance. The strength I would say was fairly broad-based across the course. How I've come across in both a parallel and in home.

Speaker Change: with the overall train, so missing of the jet.

Speaker Change: Other than that, the only other callouts, whether we saw strong sales trends in our seasonal classification, I kind of referenced that earlier.

Speaker Change: and I was talking about the weather. We also saw strong sales trends in our back to school business in July and then again throughout the quarter we saw strong sales trends in beauty and in accessories.

Kristin Wolfe: Great, and then as a follow-up, Kristin, can you elaborate on the drivers of the Comgro? How did trends fare by geography, and what trends did you see regarding traffic and basket?

Michael O'sullivan: I will now turn the call back over to Michael. Thank you, Kristen.

Kristin: Great, and then as a followup, Kristin, can you elaborate on the drivers of the Compros, how to transfer bi-geography, and what trends do you see regarding traffic and basket?

Kristin Wolfe: Sure, good morning, Broke. From a geographic or regional perspective, the Com strength was really broad-based; all regions positively. Looking at the top performing regions that was the Southwest and the Northeast in the quarter, and then you asked about the drivers of Comgro's Q2 Comp was entirely driven by higher transactions, as both higher traffic and in conversion, both were higher.

Michael O'sullivan: Let me recap four key points that we've discussed this morning. Firstly, we are pleased with our sales growth in Q2. 13 percent total sales growth for the quarter. 5 percent cost sales growth for the quarter.

Speaker Change: Sure, good morning, bro.

Kristin: From a geographic or regional perspective, the Comstraink was really broad-based, all regions, comparatively, looking at the top-performing regions that was the Southwest and the Northeast.

Speaker Change: in the quarter. And then you asked about the drivers of Compros, Q2 Compros was entirely driven by higher transactions as both higher traffic and in conversion both were higher.

Michael O'sullivan: Secondly, we are happy with our Q2 margin and earnings results. These were driven by higher merchandise margins from very strong regular price selling, faster turns and lower market downs and also driven by faster than expected progress on our supply chain initiatives.

Kristin Wolfe: Our average basket was flatish, slightly higher AUR offset by slightly lower units per transaction. Great, thanks so much. I'll pass it on.

Speaker Change: Our average basket was flat-ish, slightly higher AUR, offset by slightly lower units per transaction.

Alex Trayton: Thanks, Broke. Our next question comes from the line of Alex Trayton with Morgan Stanley.

Speaker Change: Great, thanks so much, I'll pass it on. Thanks, Fred.

Michael O'sullivan: Thirdly, we are maintaining our flat to 2 percent comp guidance for the third and fourth quarters. We recognise that, given our recent trend, there may be upside in the back half. If the underlying trend is stronger, then we will trade this.

Michael O'sullivan: Your lines open. Perfect, thanks so much for taking the question. We've got one for Michael and one for Kristin. So maybe just for Michael, I think other retailers have talked about attracting younger shoppers, and I think in a prior answer where you mentioned that Burlington overindexes to this demo compared to peers. So maybe can you elaborate like what tells you that, and can you talk about this opportunity generally as well as what you guys are doing to successfully attract this shopper?

Speaker Change: Our next question comes from the line of Alex Trayton with Morgan Stanley, your lens open.

Speaker Change: [inaudible]

Michael O'sullivan: Finally, we are raising and updating our 4-year earnings guidance to reflect our strong ahead of plan that in quarter results.

Michael O'sullivan: Good morning, Alex. Thanks for the question. Yes, so Burlington, we've always had a stronger position with younger customers and young families, stronger than most of our competitors, and we see that in our customer resource. We also see it in our mix of businesses, and I would say we regard younger shoppers and young families as a core customer group for us. When you walk into our stores, you can kind of see it, so that we have a stronger presentation, I would say, and certainly a greater penetration of juniors, young men's, kids' powerl, kids' accessories, kids' footwear, again, than most of our competitors.

Operator: With that, I would now like to turn on the call over for your questions. Hello everyone, we are now opening the floor for question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. Please limit your questions to one question and one follow up and then re-cute to ask additional questions. Thank you.

Speaker Change: from Good Morning, Alex. Thanks for the question. Yes, the building can we have always had.

Speaker Change: a stronger position with.

Speaker Change: Younger customers and young families stronger than most of our competitors.

Speaker Change: and we see that in our customer resource research, we also see it in our mix of businesses. And I would say, we regard younger shoppers and young families as a core customer group for us. When you walk into our stores, you can kind of see it. Is it clear we have a...

Matthew Boss: I'd now like to call over Matthew Boss from J.P. Morgan. Your line is now open. Thanks and congrats on a really nice quarter. Thanks Matt.

Michael O'sullivan: So Michael, maybe to kick off near term, could you speak to back to school fails trends, maybe just the overall importance to your business, or how best to think about the impact of back to school, what it maybe had on results as you exited the second quarter and anything you can share on August trends, I think would be great. Well, good morning Matt. Thank you for the, thank you for the question.

Speaker Change: We have a stronger presentation, I would say, and certainly a great appenetration, of Union's young men's kids' peril.

Speaker Change: is a successful kid's footwear. Again, then most about most about competitors. Moving on to the part of your question about what are we doing to attract those customers? Well, even though that customer segment is a strength for us, we absolutely do not take them for granted, we know.

Michael O'sullivan: Moving on to the part of your question about what we are doing to attract those customers? Well, even though that customer segment is a strength for us, we absolutely do not take them for granted. We know that young shoppers and young families are really going to be important to us as we five growth over the next several years, and we also know that they are financially stretched, so they need value. Our merchants are very focused on providing great value for those customers, offering a combination of fashion, quality brands at great prices, within a good bed of best assortment.

Michael O'sullivan: Back to school selling is very important to our business at this time of year. In fact, maybe it would be helpful if I define what back to school really means for us at Burlington, back to school categories, of course, include, it's apparel. Accessories and footwear, but they also include juniors and young men. There are other specific categories within the footwear business and in addition, there are other areas of the store, especially in accessories and in home, where we go after back to school and back to campus opportunities.

Speaker Change: Young Shoppers and Young Families are really going to be important to us as we as we've five growth over the next several years and we're also...

Speaker Change: No, they are financially scratched, so they need value, how merchants are very focused on providing great value for those customers offering a combination of fashion, quality, brands, great prices within a good better best assortment.

Michael O'sullivan: I also, I talk earlier about the strength that we've seen in back-to-school and back-to-campus businesses in the last couple of months, so overall, I feel pretty good about the success we're having and about the strong trends that we're seeing with that customer group.

Speaker Change: I also, I talk earlier about the strength that we've seen in back to school and back to campus businesses in the last couple of months so we're all, I feel pretty good about the success we're having and about the strong friends that we're seeing with that customer group.

Alex Trayton: Great. That's super helpful.

Kristin Wolfe: Maybe for Kristin, super helpful comments are in an earlier question on the puts and takes on the back half broadly by major line items. I'm just wondering how has that changed or has anything changed meaningfully compared to your view three months ago. It seems like sales hasn't, but maybe back half EPS is a little bit lower. So just trying to understand those dynamics and what's driving that.

Michael O'sullivan: I should also call out there as a company, we index much higher with younger shoppers and young families than many of our competitors. So the businesses that I've just listed represent a relatively high penetration of our store. Anyway, that all adds up to saying the back to school is a very important business driver for us. In terms of timing, back to school as an event really starts in early July and then continues through early September.

Speaker Change: Great, that's super helpful. Maybe for Kristen, super helpful comments or in an earlier question on the puts in takes on the back half broadly by major line items. I'm just wondering, how has that change or has anything changed meaningfully compared to your view three months ago? Seems like sales it hasn't, but maybe back half EPS is a little bit lower, so just trying to understand those dynamics and what's driving that. Thanks a lot.

Kristin Wolfe: Thanks a lot.

Kristin Wolfe: Good morning, Alex. Yeah. Thank you. So kind of to answer the last question first, the only thing that's changed in our back half guidance is the additional ocean freight headwind that we spoke to. But it's worth reinforcing that the 53rd week and the higher sales increase in Q3 versus Q4 really drives a lot more leverage on SG-9 6 costs in the third quarter versus the fourth quarter. So there's a big difference there. Growth margin is a more difficult comparison in the fall versus the spring. Again, this is not; this is not changed from three months ago, but we do not have the same opportunity with the lower clearance levels that we saw in spring.

Speaker Change: Good morning, Alex. Thank you.

Speaker Change: is the last question for us. The only thing that's changed in our backup guidance is the additional ocean freight headwins that we spoke to, but um...

Michael O'sullivan: And of course, the timing depends on the region. Now, as an aside, I would say that as part of merchandising 2.0, we have gotten much better planning and managing the timing of back to school receipt flows based on the specific timing of back to school in different regions. Anyway, to answer your question, we were very pleased with our back to school trends in July. Comp sales growth, the categories that I described a moment ago, were stronger than for the rest of the chain. And that helped to support our overall sales trend as we closed out the quarter in July.

Speaker Change: It's worth reinforcing that that 53rd week in the higher sales increase in Q3.

Speaker Change: First is Q4, really drives a lot more leverage on SGNN6 costs in the third quarter versus the fourth quarter, so there's a big difference there.

Speaker Change: Gross Margin is a more difficult comparison in the fall versus the spring. Again, this is not changed from three months ago, but we do not have the same opportunity with the lower clearance levels that we saw in spring.

Kristin Wolfe: And then what has changed is the ocean freight headwind. If I'm just going down the piano, and in the back half, we do expect some modest leverage in supply chain continued in the back half. Probably more in Q3 than in Q4. And given the flat to 2% comp guidance, we'll have some slightly leverage in SG&A and appreciation there from that.

Speaker Change: and then what has changed is the ocean freight headwind.

Speaker Change: If I'm just going down the piano and in the back half, we do expect some modest leverage in supply chain, continued in the back half, probably more in two, three, then in two, four.

Michael O'sullivan: On the last part of your question, how are things going in August? Our back to school categories have continued to perform well. I would say, obviously, we're three and a half weeks in at this point. We're happy with our overall friend. We've made a solid start to Q3.

Speaker Change: and given the flat to 2% comp guidance, we'll have some flight delivery to an SQA and depreciation there from that.

Unknown Executive: Thanks a lot.

Unknown Executive: Good luck, guys.

Adrian Lee: Thanks. Next question comes from the line of Adrian Lee with Barclays. Your line is open. Great. Thank you very much. Really nicely and well done. So congratulations to everybody at the team at the firm.

Michael O'sullivan: But with that said, let me add just one note of caution. Event to school will wind down pretty soon. So although we're happy with how the quarter started out, it would be unwise just to extrapolate off that solid start.

Speaker Change: Next question, comes from the line of Adrian G. with Bartley's, your line is open.

Adrian G.: Great, thank you very much really nicely and well done so congratulations to everybody at the team at the firm.

Kristin Wolfe: Kristen, I guess my question is twofold on inventory. So I'm going to ask comp inventories are up for the first time and say for consecutive quarters. So relative to the forward comp guidance, can you just kind of reconcile the up and up 4% comp inventory against the comp guidance for the third quarter. But on the other hand, the total sales are up 13%, so it looks like you're actually a little light on inventory. So can you just help us kind of think about those two. There's two different pieces of it.

Kristen Wolfe: Kristen, I guess my question is too full on inventory. So I'm going to ask, um, top inventories are up for the first time in, say, four consecutive quarters. So relative to the forward comp guide and can you just kind of reconcile the

Matthew Boss: That's great color.

Michael O'sullivan: And then maybe just to follow up, Michael, on your mix of better brands initiative. So you called out earlier this year the potential to increase the mix of better brands as a comp driver. Was this a key driver in second quarter comps, or how should we think about this as a potential comp driver in the second half of the year? Well, again, thanks for the question, Matt. Yes, as we described earlier this year, we do see an opportunity to increase our mix of better brands.

Speaker Change: Up 4% complementary against the comp guidance for the third quarter.

Speaker Change: on the other hand.

Speaker Change: The total sales are up 13% that looks like you're actually a little light on inventory So can you just help us kind of think about those two different pieces of it? And then secondly, I guess also for Kristen 2025 and 27 corroBLE notes are now in the money.

David Glick: And then secondly, I guess also for Kristen, 2025 and 27 convertible notes are now in the money. Can you help us with the accounting treatment of these and the dilutive impact on EPS. Thank you.

Michael O'sullivan: And actually, we see an opportunity more generally to elevate our assortments. We've been shifting in that direction for a while now. And we've seen good selling on those better brands, and we've seen good selling at higher price points. We believe that increasing the mix of better brands accomplishes two things. Firstly, those brands themselves drive increased trade down traffic to our stores. Trade down shoppers are looking for better, more recognizable brands. Secondly, though, those brands also help to validate and reinforce the whole store, even if a shopper does not buy the specific item, the fact that they see the brand reinforces the off price value proposition, it provides a halo, if you like, to our business.

Speaker Change: Can you help us with the accounting treatment of these and the dilute of impact on EPS? Thank you.

David Glick: Great.

Kristin Wolfe: Good morning, Adrian. I appreciate the question.

Kristin Wolfe: I'll start with inventory. So you kind of in your question tied it to the comp growth. I'm going to muddy the water even a bit more because, at the end of Q2, comp store inventories were up 4% versus last year. Again, that's a point-in-time snapshot that's a little bit deceiving. First, that 50 third week calendar shift changes the comparison point. So, once you adjust for this, it reduces that 4% increase in comp inventory down to a 2% increase. And then secondly, if I look at the quarter Q2 as a whole, on average during the quarter.

Speaker Change #100: Great. Good morning, Adrian. I appreciate the question. I'll start with the inventory.

Speaker Change #100: So...

Speaker Change #101: You kind of in your question tied it to the Compros. I'm going to muddy the water even a bit more, because if the end of Q2, Comprs dormitories were up 4% versus last year. Again, that's a point in time snapshot.

Speaker Change #101: A little bit deceiving. First, that 50-3rd week calendar shift changes the comparison point. So, once you adjust for this, it reduces that 4% increase in complementary down to a 2% increase.

Speaker Change #101: and then secondly, if I look at the quarter of Q2 as a whole on average during the quarter.

Kristin Wolfe: Comster Inventors were down 5 to 6% across stores across the second quarter. So the reason for that point in time different versus the average is that we were really building our July back to school receipts versus last year and really trying to drive back to school readiness. So that was kind of the driver of that increase, as opposed to the sales trend. We're still seeing we saw much faster turn in Q2. So opportunity with leaner inventory levels. And over the medium term, we still think there's opportunity to manage storm and toys lower and to continue to drive a faster turn.

Speaker Change #102: ComSTAR imitators were down 5 to 6% across to us across the second quarter. So the reason for that point in time difference.

Michael O'sullivan: So in the coming months, you will see a higher mix of better brands in our runs. That's that I don't want to I don't want to overstate this opportunity. I see this as a evolution rather than a revolution. Our brands have always been important to us, but our merchants understand that brands are really just one reference point the customer uses to assess value quality, fashion, and price are also important. And depending on the category, their relative importance can vary a lot.

Speaker Change #102: versus the average is that we were really building.

Speaker Change #102: Our July back to school receipts versus last year and really trying to drive back to school readiness.

Speaker Change #102: So that was kind of the driver of that increase as opposed to the sales trend.

Speaker Change #102: We're still seeing we found much faster turn and in Q2 so opportunity with leaner.

Michael O'sullivan: For example, brands are very important in sportswear, but much less important in juniors where they disguise in fashion are critical. Another point to make is our merchants are very good at building the assortment who offer great value across price points, and it's critical in doing that. It's critical to manage brands within the context of our good, better, best assortment strategy. One last point to make on this, better brands carry a lower markup, and we increase the mix.

Speaker Change #102: and Ventura levels. And over the medium term, we still think there's opportunity to manage dormitories lower and to continue to drive a faster turn. But given the progress we've made so far on that front, the pacing is much more modest.

Kristin Wolfe: But given the progress we've made so far on that front, that pacing is much more modest.

Daniel: And then on the convert, I'm going to turn it over to David or Daniel. Daniel, what did you take that one? Yeah, hey Adrienne, it's Daniel. So on the converts, we use the if convert method of accounting. And that means that we assume the principle is paid in cash and that any amount above bars, they'll stop. So from a quarter to quarter share count perspective, if the converts are in the money, which both the 25s and 27s are. And as a reminder, the strike on the 25s is 220, and the strike on our 2027s is 206. This will include any dilution in the share count.

Daniel: and then on the Converk, I'm going to turn it over to David or Daniel. Daniel, do you want to take that one? Yeah, hey, Adrienne, it's Daniel. So on the Converk, we use the If Converk method of accounting. And that means that we assume the principal is paid in cash.

Speaker Change #104: and EML above bars, they'll stop. So, from a quarter to quarter, share count perspective.

Speaker Change #105: The converts are in the money which both of 25 and 27 are and as a reminder the strike on the 25s is 220 and the strike on our 207s is 206, we'll include any dilution in the share count.

Daniel: So, to answer your question, for the second quarter, the converts added about 163,000 shares to our diluted share count. So, you know, just to round out my answer. So, you know, obviously the 2025 mature and April next year, at which point in time will net share settle, meaning that will pay the 100 to 6 million principle in cash. And then we'll issue an additional share. There's to cover the premium if there is one. So, as David mentioned earlier, you know, we've been consistently buying back stock. So, you know, we'd expect to continue to do so and be able to mitigate any potential, you know, dilution at that time.

Speaker Change #105: So to answer your question for the second quarter.

Michael O'sullivan: It puts pressure on gross margin. Now that impact is built into our guidance that it haven't changed since our last call. As Chris mentioned earlier, we are making a small adjustment to our gross margin guidance for the back up, but that adjustment is related to higher ocean freight rates rather than the mix of better brands.

Speaker Change #105: the Converge added about 163,000 shares to our Dulwich share count. So, you know, just around that my answer. So, you know, obviously the 2025's mature and April next year at which point in time will net share settle, meaning that will pay the 106 million principal in cash.

Speaker Change #105: and that will issue any additional shares to cover the premium with there is one.

Matthew Boss: Best of luck and grads again.

Speaker Change #105: mentioned earlier, you know, we've been statistically buying back socks, so, you know, we'd expect to continue to do so and be able to mitigate any potential, you know, delusion at that time. I mean, you'll know, for example, this quarter we were purchased about 270,000 shares, so we more than offset the delusion from the converts.

Ike Boruchow: Our next question comes from Ike Boruchow from Wells Fargo. Your line is now open. Hey, good morning, everyone. Actually, two questions for Kristin. Kristin, first question on the supply chain. It's encouraging to see another quarter of supply and leverage in the PNL. Can you maybe walk us through some of the drivers of that leverage specifically what kind of operational improvements that be made? And then I think one of your peers has actually talked about more automation and technology and their DCs, just kind of areas have these types of initiatives also been part of your program would love for some more color there.

Daniel: I mean, you'll know, for example, this quarter, we purchased about 270,000 shares. So we more than offset the dilution from the converts.

Dana Delci: Thank you very much. Our next question comes from the line of Dana Delci with Delci Group. Your line is open. Hi. Good morning, everyone. Nice to see the results. I've won for Michael and Kristen.

Speaker Change #106: Fantastic, very helpful. Thank you very much.

Speaker Change #107: Our next question comes from the line of Dana Telsey with Telfigur. Your line is open.

Dana Telsey: Hi, good morning everyone, and nice to see the results.

Michael O'sullivan: Michael, how do you think about the potential for international expansion and what the opportunity could look like?

Dana Telsey: I've won for Michael and Kristen Michael, how do you think about the potential for international expansion and what the opportunity could look like?

Kristin Wolfe: And then Kristen, in terms of labor availability and wage rates, what are you seeing there, along with the investment that you've been making and store payroll relative to deleverage? Thank you.

Kristin: and then Kristin in terms of labor availability and wage rates, what are you seeing there along with the investment that you've been making in store payroll relative to due leverage. Thank you.

Kristin Wolfe: Hi, I sure good morning. We continue to be pleased by the faster than expected progress for making and driving productivity gains and cost saving in supply chain. As we shared in the prepared remarks, supply chain leverage 60 basis points in Q2. And this is despite the start up of a new distribution center in the second quarter and the receipt shift that we talked about from Q1 into Q2, we reference this on last quarter's call.

Kristin Wolfe: Good morning, Dana. Thank you for the question. So, on international expansion, I guess let me start by saying that I believe that the off-price retail model has huge potential and application in a number of overseas markets. I'm, you know, my belief is that everyone, everywhere, in every country loves the deal. Love the great deal. So I think it makes a lot of sense where our larger off price is. who expand their international footprint. They have the know-how and the resources to go after those overseas opportunities. And if and when those competitors run out of expansion opportunities in the United States, they can use those overseas investments to drive continued growth and shareholder values.

Speaker Change #109: Good morning, Dana.

Speaker Change #110: and thank you for the question.

Speaker Change #111: So on International Expansion I guess let me start by saying that I believe.

Speaker Change #112: that the off price retail model has huge potential and application.

Kristin Wolfe: We do have a number of productivity initiatives. These are more within the four-wall process improvements that streamline our DC operations, reduce touches, reduce steps, reduce time to process, and ultimately save labor dollars in the DC. And we're harvesting these savings a little bit faster than we'd originally planned on previous calls. We had described supply chain productivity improvement as driving potentially 100 basis points of the 400 basis points of margin improvement. We laid out last year in our long range model.

Speaker Change #113: in a number of the overseas markets, I'm, you know, my belief is that everyone everywhere in every country loves the deal, loves a great deal. So I think it makes a lot of sense for our larger off-premise.

Speaker Change #114: who expand their international footprint. They have the know-how and the resources.

Speaker Change #114: To go after those overseas opportunities, you know, and if and when.

Speaker Change #114: and the United States, they can use those overseas investments to drive continued growth and shareholder value, so that makes sense.

Michael O'sullivan: So that makes sense.

Michael O'sullivan: But the reality is that we, at Burlington, I would say, are in a very, very different boat. We barely have a thousand stores in the United States. Our peers have two to three times that number. So we still have huge potential to expand right here in the USA. So for us, that's job number one, job number two, and job number three. One day, maybe it will make sense for us to divert resources to an international opportunity. But right now, and I would say for the foreseeable future, our complete focus and our resources have to be on the full potential and driving the full potential of our core US business.

Kristin Wolfe: And we'll see how the rest of this year plays out, but expect supply chain to continue to drive leverage in the back half. And engaged is the second part of your question, a longer term, probably beyond the long range model we've laid out, we do have an opportunity to drive incremental leverage as we modernize our supply chain with new larger, much more automated DCs that we expect to open. As I mentioned, we recently opened a new DC this year, and we have another much larger DC under construction, which we expect to open in 2026.

Speaker Change #114: But the reality that we, that Wellington, I would say, are in a very very different boat. You know, we barely have a thousand stores in the United States. You know, our peers have...

Kristin Wolfe: And with these new DCs, we have an opportunity to design these four off price and with much, much more automation. So as we expand this additional capacity, there also may be an opportunity to go back and look in modernizing some of our existing legacy DC network as well. But again, the benefits of this are not our longer term, not necessarily baked into the long range model that we shared. So the cafex to support these new DC investments is embedded in our long range model.

Speaker Change #114: 2 to 3 times that number. So we still have huge potential to expand right here in the USA. So for us that's job number one, job number two and job number three.

Speaker Change #114: One day, maybe it will make sense for us to dug up resources to an international opportunity.

Speaker Change #114: But right now, and I would say for the foreseeable future, our complete focus and our resources have to be on the full potential and driving the potential of our core U.S. business.

Kristin Wolfe: Great. And then Dana, on your second question around sewer labor and wage rates as well as investments in sorporal. So, for some wage rates, we've certainly absorbed meaningful wage rate increases over the last few years, particularly in DCs but also in stores. In terms of distribution centers, we're comfortable with where we are. They're located in very competitive labor markets for DC workers in New Jersey and California. And our wages are appropriate and competitive. And for stores, our philosophy has been and remains to be the approach wages on a market-by-market basis. So we build in incremental dollars, obviously to cover legislative wage increases, but also competitive wage increases in black markets.

Dana Telsey: Great, and then, and Dana, on your second question, around sore labor and wage rates, as well as investments in stroke payroll. So, for some wage rates, we certainly absorb meaningful wage rate increases over the last few years, particularly in DCs, but also in stores.

Kristin Wolfe: And I think you said you had a follow up for me as well. Yeah, I was going to switch over to freight if that's OK, just elaborate. The second half ocean freight headwinds, I think you called out in the prepared remarks, what's what's driving it, how long, how impactful the negative will that be. And I guess how does this impact domestic freight, if at all, because I know you talk about ocean, and can you still kind of lever domestic freight in the third and fourth quarters not changing as well.

Speaker Change #115: In terms of distribution centers, we're comfortable with where we are. They're located in very competitive labor markets for DC workers and New Jersey and California. And our wages are appropriate and competitive.

Speaker Change #115: and for stores our philosophy has been in remains to be to approach wages on a market by market basis so we build in incremental dollars obviously to cover legislative wage increases but also competitive wage increases into black markets and this is how we address this.

Kristin Wolfe: And this is how we address this. And then on the investment in terms of sorporal, you may recall that in the third quarter of 2023, we made a deliberate investment in sorporal to improve service levels and improve store conditions. We're pleased with that investment and those results, as we've seen improvement in customer service scores. So, from the financial impact standpoint, we'll hopefully answer your question and answer session.

Kristin Wolfe: Great. Thanks for the question. It's a very good question. So, as I mentioned, we factored in about 10 cents of higher ocean freight in our back half guidance. And this ocean freight negatively impacts merchandise margins. And so, on ocean freight, we do have some contracted capacity at favorable ocean freight rates. But the spot market rate, as you know, increased significantly since we reported in Q1 and May. And we do have some exposure to the spot market even though the majority of our containers are contracted.

Speaker Change #115: And then on the investment in terms of store payroll, you may recall that in the third quarter of 2023, we made a deliberate investment in store payroll to improve service levels.

Speaker Change #115: and improved start conditions. We're pleased with that investment and those results as we've seen improvement and customer service scores. So from a financial impact standpoint, we'll have fully let this investment in the third quarter.

Dana Telsey: Thank you. Thanks, Dana.

Kristin Wolfe: So, we're hopeful this ocean freight, the spot market is a transitory pressure point. And we're starting to see ocean freight spot rates come down modestly. But of course, there are always risks here. And this is difficult to predict. And turning to the second part of your question on domestic freight. On the other hand, domestic freight continues to be a source of modest leverage. We saw domestic freight leverage in Q2 as we negotiated favorable rates. Diesel fuel rate has also been slightly favorable here. So, on domestic freight, we expect to continue to see modest leverage in the back half of the year on that.

Michael O'sullivan: Mr. O'Sullivan, I turn the call back over to you. Thank you. Let me close by thanking everyone on this call for your interest in bellings and stores.

Dana Telsey: That concludes the question and answer session. Mr. O'Sullivan, I turn the call back over to you.

O'Sullivan: Thank you. Let me close by thanking everyone on this call for your interest in Berlin's and stores. We look forward to talking to you again in November. The discuss our third quarter 2020-4 fiscal results.

Operator: We look forward to talking to you again in November to discuss our third quarter 2024 fiscal results. Thank you for your time today, and please enjoy the holiday weekend.

Speaker Change #117: Thank you for your time today, and please enjoy the holiday weekend.

Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Ike Boruchow: Thanks so much. Thanks, thanks.

Lorraine Hutchinson: Our next question comes from the line of Lorraine Hutchinson, the Bank of America. Your line is open. Thank you. Good morning, Michael. Can you elaborate on what you're seeing in terms of the health of the consumer? You talked previously about the potential for trade-down traffic in your stores. Is that what's driving your comp and any other call-outs in terms of consumer behavior? Good morning, Lorraine. Good to hear from you. Thank you for the question.

Michael O'sullivan: On our last call back in May, I think I described the external situation and the health of the consumer as being hard to read. At the time, it felt like there were conflicting data, some positive, some negative on discretionary spending trends. I would say in the last few months, it feels to us that the situation has become a lot clearer. In our view, there are really two things going on. Firstly, the economic pressure and uncertainty that was felt by low-income shoppers starting two years ago has spread to other income bands and other demographic groups.

Michael O'sullivan: It feels like that has driven much greater focus on value across the board. I think that recent earnings reports from other retailers are all pointing in the same direction. Retailers that are offering the best value are winning and driving comp sales. I think a big part of what we're seeing is that value conscious customer is trading down into our stores. The second thing that's going on is that the pressure on the low-income customer hasn't gone away, but it feels to us like it may have moderated.

Michael O'sullivan: That low-income shopper is still very fragile, but as inflation has come down, I think that situation has improved somewhat. We see evidence of that in our own data. Two years ago, our comp sales trend for stores for our stores that are in low-income trade areas was below the rest of the chain. Now those stores are, we've watched them very closely, they're very important to us. We have a lot of stores in lower income trade areas and they tend to be relatively high volume.

Michael O'sullivan: So when they're not comping well, you know, we pay a lot of attention. This year, their trends has improved and is actually running in line with the chain. So up, mid single digit comp in Q2. And a data point suggests to us that the lower income customer is at least starting to recover.

Michael O'sullivan: So let me recap and also add a note of caution to recap with seeing from positive signs throughout business with customers in general, being more focused on value and the lower income shop down in particular starting to recover from the spike of inflation in 2022 and 2023. But my other caution is that there are a lot of factors that could affect consumer behavior in the back half of 2024 and said into next year. So, you know, to sum up, we feel good about our business, but it makes sense to be a little cautious. Thanks.

Michael O'sullivan: And Michael, my follow up question is about the second quarter. Just curious if there were any unusual tailwinds to the comp trends that might not carry over into the fall. Yeah, it's it's a good question. I think that I think the only thing like that that I would point to was was weather in Q2. I know the rule among retailers is that we only mention weather when it's unfavorable, but I'm going to violate that rule and say that I think that whether.

Michael O'sullivan: Probably helped most of power retailers in Q2 in in May and June temperatures across the United States. Then last year, and I suspect that most apparel retailers benefited from that in their in their seasonal businesses, especially in categories like shorts, short sleep tops, bandals and swimwear, you know, I would estimate that this strong seasonal performance was worth one to two points of comp to us for the quarter. And again, to be clear, that benefit cannot have been unique to us.

Michael O'sullivan: It must have affected other retailers as well. So your question was about specific drivers that might not carry over to the fall season. Apart from weather, there were no other factors or tailwinds that I would describe that way. There were no other factors or tailwinds that were unique to the second quarter. Now, of course, it is possible that the weather will be favorable in the fall if temperatures are unseasonably cold. But, you know, I guess other than the farm is out on that we have no visibility into that at this point. Thank you.

John Pernon: Next one.

Kristin Wolfe: Next question comes from the line of John Pernon with DD Cohen. Your line is open. Good morning, congratulations on the momentum. A couple of questions here. Kristen. First one on your back half earnings guidance looks like there's margin improvement year over year in Q3 quite a bit of it. I put margin deterioration in Q4 year over year. Can you walk us through the factors that are driving this? I would assume the 53rd week has an impact. But how do we think about. First margin and SGNA profile in Q3 and Q4. Good morning, John. Thanks for the question. It's a very good question.

Kristin Wolfe: I'm glad you asked there are really four primary factors that impact our bathhouse margin outlook. So I'll kind of dissect each of these first as you alluded to Q3 and Q4 have very different total sales growth plans due to the way the 53rd week calendar impacts as well as the timing of new store openings this year compared to last year. So let me clarify the 53rd week. I'm not referring to the extra week, but actually how the calendar shifts.

Kristin Wolfe: So we're about one week ahead of last year, we're in comparing the quarters year over year. Now, for comp store sales, we adjust for this and we line up the week, but for total sales growth, there's an impact on sales and earning in the quarter. So the 53rd week shift means that in Q4, we lose a high volume week in November, and we gain or pick up a low volume week in January.

Kristin Wolfe: So this translates into lower total sales growth in Q4 versus last year, resulting in guidance for the fourth quarter for total sales to grow 5 to 7%. Now, for the third quarter, we're guiding 10 to 12% total sales increase. Q3 is actually boosted by the 53rd week calendar shift and also benefit from an increase number of new store openings in the third quarter of this year relative to last year. So that difference in total sales growth driven by the calendar shift and new store opening timing really impacts the expansion and the leverage in Q3 favorably and then unfavorably in the fourth quarter.

Kristin Wolfe: That's really the primary difference between between Q3 and Q4, but as I mentioned, I said there were four factors. The other three are headwinds to the fall, so headwinds to the back half. First, our back half comp guidance is a conservative flat to plus 2%. This is below, obviously, our year-to-date come train provides less leverage on six expenses. And then secondly, in the back half on the gross margin side, we do not expect to see the same benefit from lower clearance levels, like we saw in the first half of this year.

Kristin Wolfe: This means we have a lot less merchandise margin expansion opportunity in the back half relative to the first half of this year. And then lastly, the higher ocean freight that we detailed in the prepared remarks in the earlier question, that's about 10 cents or $9 million of pre-tax. That represents about 20 basis points of merge margin headwind in the back half. And I want to add that the only change to our previous back half guidance is that 10 cents negative impact promotion freight.

David Glick: So those are really the key factors impacting Q3 and Q4 margin guidance. Got it. That's very helpful for the model. David or Kristen, just as it relates to the balance sheet cashflow and share repurchases, you've given guidance for catbacks to be elevated in the next few years. I'm assuming around the 7% of sales levels you find the unit growth, but how should we think about share repurchases and potential impact on the balance sheet?

David Glick: What's the optimal level of cash in the balance sheet? I'll take that, John. Thanks for the question. We're still working through our budget for next year, so it's a little early to be sharing specifics on that, but philosophically our goal is to return capital shareholders on a consistent and opportunistic basis through by that. I think outside of the pandemic years we have a pretty consistent track record of doing so. And as we've shared with you all previously, the first few years of the five year plan that we shared does have elevated capex at about 7% of sales.

David Glick: As you know, this year, we're guiding the 750 million in capex, you know, it's still early, but I think you should probably anticipate, you know, that 7% fall part of sales next year for capex. And then toward, you know, the back half of the last three years of that five year plan capex, you know, should average in the mid single digit range as a percent of sales. And just kind of as a reminder, why we're stepping up capex this year and next year, we're opening up a lot more source, you know, we're at net 80 and 2023 and this year's net 100.

David Glick: Also, you know, we have more closures and reloads, so the gross number of new stores is higher than prior years. In addition, you know, Kristen referenced this in an earlier answer to a question, we, you know, we signed a lease on a 2 million square foot DC in the southeast. That's 2X are our largest existing DC and the capex required for that building will peak this year and next year. And we have included in that agreement a purchase option next year for the land and the buildings.

David Glick: You know, we view our DCs as strategic infrastructure that we want to have more control relative to leasing, so we've included in that sort of high level outlook for capex next year. We've assumed that we would exercise the option to purchase the land and buildings for that DC in the southeast. And also, as Kristen mentioned earlier, you know, those are much larger and more automated DCs and therefore require more capital investment.

David Glick: So I know that's a long prelude to actually answering your question. You know, we think our conservative leverage ratios and cash flows and kind of a similar liquidity west about cash, a similar, you know, liquidity levels we've had the ending the last few years. You know, we feel very comfortable with that. We also feel like we have sufficient cash flow to not only invest in our growth, but to return to capital shareholders in the form of buybacks. And I think you should probably expect kind of a similar pace next year to the pace that you've seen in 2023 and 2024. God, that makes sense. Thank you.

Brooke Roach: Next question comes from the line of Brook Road with Goldman Sachs. Your line is open. Good morning. And thank you for taking our question. Michael, can you speak to the performance trends that you saw by merchandise category in the second quarter? Sure. Well, good morning, Greg, on category performance. The strength, I would say, was fairly broad-based across the quarter. Our compost in both a barrel and in home was in line with the overall chain, so mid-single digit.

Brooke Roach: Other than that, the only other callouts were that we saw strong sales trends in our seasonal classification, so I kind of referenced that earlier when I was talking about the weather. We also saw strong sales trends in our back-to-school business in July, and then against that quarter we saw strong sales trends in beauty and in accessories. Great, and then as a follow-up, Kristin, can you elaborate on the drivers of the Comgro, how did trends fare by geography, and what trends did you see regarding traffic and basket?

Brooke Roach: Sure, good morning, Broke. From a geographic or regional perspective, the Com strength was really broad-based, all regions, positively. Looking at the top performing regions that was the Southwest and the Northeast in the quarter, and then you asked about the drivers of Comgro's Q2 Comp was entirely driven by higher transactions, as both higher traffic and in conversion, both were higher. Our average basket was flatish, slightly higher AUR offset by slightly lower units per transaction. Great, thanks so much, I'll pass it on. Thanks, Broke.

Alex Trayton: Our next question comes from the line of Alex Trayton with Morgan Stanley. Your lines open. Perfect, thanks so much for taking the question. We've got one for Michael and one for Kristin. So maybe just for Michael, I think other retailers have talked about attracting younger shoppers, and I think in a prior answer where you mentioned that, Burlington overindexes to this demo compared to peers. So maybe can you elaborate like what tells you that, and can you talk about this opportunity generally as well as what you guys are doing to successfully attract this shopper?

Alex Trayton: Good morning, Alex. Thanks for the question. Yes, so Burlington, we've always had a stronger position with younger customers and young families, stronger than most of our competitors, and we see that in our customer resource. We also see it in our mix of businesses, and I would say we regard younger shoppers and young families as a core customer group for us. When you walk into our stores, you can kind of see it, so that we have a stronger presentation, I would say, and certainly a greater penetration of juniors, young men's, kids' powerl, kids' accessories, kids' footwear, again, than most of our competitors.

Alex Trayton: Moving on to the part of your question about what are we doing to attract those customers? Well, even though that customer segment is a strength for us, we absolutely do not take them for granted. We know that young shoppers and young families are really going to be important to us as we five growth over the next several years, and we also know that they are financially stretched, so they need value. Our merchants are very focused on providing great value for those customers, offering a combination of fashion, quality brands at great prices, within a good bed of best assortment.

Michael O'sullivan: I also, I talk earlier about the strength that we've seen in back-to-school and back-to-campus businesses in the last couple of months, so overall, I feel pretty good about- about the success we're having and about the strong trends that we're seeing with that customer group. Great. That's super helpful.

Kristin Wolfe: Maybe for Kristin, super helpful comments are in an earlier question on the puts and takes on the back half broadly by major line items. I'm just wondering how has that change or has anything changed meaningfully compared to your view three months ago. It seems like sales has hasn't, but maybe back half EPS is a little bit lower. So just trying to understand those dynamics and what's driving that. Thanks a lot. Good morning, Alex.

Kristin Wolfe: Yeah. Thank you. So kind of to answer the last question first, the only thing that's changed in our back half guidance is the additional ocean freight headwind that we spoke to, but it's worth reinforcing the that 53rd week and the higher sales increase in Q3 versus Q4 really drives a lot more leverage on SG-9 6 costs and the third quarter versus the fourth quarter. So there's a big difference there. Growth margin is a more difficult comparison in the fall versus the spring.

Kristin Wolfe: Again, this is not, this is not changed from three months ago, but we do not have the same opportunity with the lower clearance levels that we saw in spring. And then what has changed is the ocean freight headwind. If I'm just going down the piano and in the back half, we do expect some modest leverage in supply chain continued in the back half. Probably more in Q3 than in Q4. And given the flat to 2% comp guidance, we'll have some slightly leverage in SG&A and appreciation there from that. Thanks a lot. Good luck guys. Thanks.

Adrian Lee: Next question comes from the line of Adrian Lee with Barclays. Your line is open. Great. Thank you very much. Really nicely and well done. So congratulations to everybody at the team at the firm. Kristen, I guess my question is twofold on inventory. So I'm going to ask comp inventories are up for the first time and say for consecutive quarters. So relative to the forward comp guidance, can you just kind of reconcile the up and up 4% comp inventory against the comp guidance for the third quarter.

Adrian Lee: But on the other hand, the total sales are up 13% so it looks like you're actually a little light on inventory. So can you just help us kind of think about those two, there's two different pieces of it. And then secondly, I guess also for Kristen 2025 and 27 convertible notes are now in the money. Can you help us with the accounting treatment of these and the dilutive impact on EPS. Thank you. Great.

Kristin Wolfe: Good morning, Adrian. I appreciate the question. I'll start with inventory. So you kind of in your question tied it to the comp growth. I'm going to muddy the water even a bit more because at the end of Q2, comp store inventories were up 4% versus last year. Again, that's a point in time snapshot that's a little bit deceiving. First that 50 third week calendar shift changes the comparison point. So once you adjust for this, it reduces that 4% increase in comp inventory down to a 2% increase.

Kristin Wolfe: And then secondly, if I look at the quarter Q2 as a whole on average during the quarter. Comster Inventors were down 5 to 6% across stores across the second quarter. So the reason for that point in time different versus the average is that we were really building our July back to school receipts versus last year and really trying to drive back to school readiness. So that was kind of the driver of that increase as opposed to the sales trend.

Kristin Wolfe: We're still seeing we saw much faster turn in Q2. So opportunity with with leaner inventory levels. And over the medium term, we still think there's opportunity to manage storm and toys lower and to continue to drive a faster turn. But given the progress we've made so far on that front that pacing is much more modest. And then on the convert, I'm going to turn it over to David or Daniel, Daniel, what did you take that one?

Daniel: Yeah, hey Adrienne, it's Daniel. So on the converts, we use the if convert method of accounting. And that means that we assume the principle is paid in cash and that any amount above bars, they'll stop. So from a quarter to quarter share count perspective, if the converts are in the money, which both the 25s and 27s are. And as a reminder, the strike on the 25s is 220 and the strike on our 2027s is 206 will include any dilution in the share count.

Daniel: So to answer your question, for the second quarter, the converts added about 163,000 shares to our diluted share count. So, you know, just to round out my answer. So, you know, obviously the 2025 mature and April next year, at which point in time will net share settle, meaning that will pay the 100 to 6 million principle in cash. And then we'll issue an additional share. There's to cover the premium if there is one.

Daniel: So as David mentioned earlier, you know, we've been consistently buying back stock. So, you know, we'd expect to continue to do so and be able to mitigate any potential, you know, dilution at that time. I mean, you'll know, for example, this quarter, we were purchased about 270,000 shares. So we more than offset the dilution from the converts. Fantastic. Very helpful.

Adrian Lee: Thank you very much.

Dana Delci: Our next question comes from the line of Dana Delci with Delci Group. Your line is open. Hi. Good morning, everyone. Nice to see the results. I've won for Michael and Kristen.

Michael O'sullivan: Michael, how do you think about the potential for international expansion and what the opportunity could look like? And then Kristen, in terms of labor availability and wage rates, what are you seeing there along with the investment that you've been making and store payroll relative to deleverage? Thank you.

Michael O'sullivan: Good morning, Dana. Thank you for the question. So on international expansion, I guess let me start by saying that I believe that the off price retail model has huge potential and application in a number of overseas markets. I'm, you know, my belief is that everyone everywhere in every country loves the deal. Love the great deal. So I think it makes a lot of sense where our larger off price is, who expand their international footprint.

Michael O'sullivan: They have the know-how and the resources to go after those overseas opportunities. And if and when those competitors run out of expansion opportunities in the United States, they can use those overseas investments to drive continued growth and shareholder values. So that makes sense.

Michael O'sullivan: But the reality is that we, at Burlington, I would say are in a very, very different boat. We barely have a thousand stores in the United States. Our peers have two to three times that number. So we still have huge potential to expand right here in the USA. So for us, that's job number one, job number two, and job number three.

Michael O'sullivan: One day, maybe it will make sense for us to divert resources to an international opportunity. But right now, and I would say for the foreseeable future, our complete focus and our resources have to be on the full potential and driving the full potential of our core US business. Great.

Kristin Wolfe: And then Dana, on your second question around sewer labor and wage rates as well as investments in sorporal. So for some wage rates, we've certainly absorbed meaningful wage rate increases over the last few years, particularly in DCs but also in stores. In terms of distribution centers, we're comfortable with where we are. They're located in very competitive labor markets for DC workers in New Jersey and California. And our wages are appropriate and competitive.

Kristin Wolfe: And for stores, our philosophy has been and remains to be the approach wages on a market by market basis. So we build in incremental dollars, obviously to cover legislative wage increases but also competitive wage increases in black markets. And this is how we address this.

Kristin Wolfe: And then on the investment in terms of sorporal, you may recall that in the third quarter of 2023, we made a deliberate investment in sorporal to improve service levels and improve store conditions. We're pleased with that investment and those results as we've seen improvement in customer service scores. So from the financial impact standpoint, we'll hopefully answer your question and answer session.

Michael O'sullivan: Mr. O'Sullivan, I turn the call back over to you. Thank you.

Michael O'sullivan: Let me close by thanking everyone on this call for your interest in bellings and stores. We look forward to talking to you again in November to discuss our third quarter 2024 fiscal results. Thank you for your time today and please enjoy the holiday weekend.

Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.