Q4 2025 Burlington Stores Inc Earnings Call
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Speaker Change: Hello everyone and welcome to Burlington Stores Inc. 4th quarter, 2024 earnings webcast call.
Speaker Change: Such risks and uncertainties include those that are described in the company's 10-K and in other filings with the SEC all of which are expressly incorporated herein by reference.
Speaker Change: Please note that the financial results and expectations, we discuss today are on a continuing operations basis.
Speaker Change: Conciliations the non-GAAP measures, we discuss today to GAAP measures are included in today's press release.
Speaker Change: As a reminder, as indicated in this mornings press release the financial results. We discussed today are on a 13 week versus 13 week basis for the fiscal fourth quarter.
Speaker Change: On a 52 week versus 52 week basis for the full fiscal year of 2024.
Speaker Change: Additionally, all profitability metrics discussed in this call exclude costs associated with bankruptcy acquired leases.
Speaker Change: These pretax costs amounted to $5 million and $6 million during the fiscal fourth quarters of 2024, and 2023, respectively and $16 million and $18 million for the full fiscal years 2024, and 2023, respectively now here's Michael.
Michael: Thank you David.
Michael: Good morning, everyone and thank you for joining us.
Michael: I would like to cover three topics this morning.
Michael: Firstly, I will discuss our fourth quarter results.
Michael: Secondly, I will comment on our full year 2020 for results and I will use these results to provide an update on the progress that we're making towards our longer range financial goals.
Michael: Finally, I will talk about guidance for the year ahead.
Christian: And then Christian will provide additional financial details.
Christian: Okay, let's start with our Q4 results.
Christian: Comparable store sales for the fourth quarter increased 6%.
Christian: This was well above our guidance of zero to 2%.
Christian: I would like to double click on Q4 comp sales and provide additional color on two key factors that contributed to this strong performance.
Christian: Firstly in early 2024.
Christian: <unk> on our strategy.
Christian: Elevate our assortment.
Christian: In some categories and at some price points. This involved a higher mix of well known national brands.
Christian: For sure this higher mix was important.
Christian: But the strategy was not just about brands.
Christian: In other categories or price points, we elevated the assortment in other ways.
Christian: Perhaps through higher quality or higher wafer fabric or more up to date fashion or more embellishments.
Christian: Depending on the category or price point. These are all characteristics that the customer uses to assess value.
Christian: Another very important aspects of this strategy with you identify items to remove from the assortment.
Christian: One of our senior merchants uses the phrase eliminate to elevate.
This means pruning items from the Assortments.
Christian: To be that big.
Christian: It is the quality of the fashion all the value is just not good enough.
Christian: We want every hang to count.
Christian: It is also very important to make the point.
Christian: This elevation strategy was pursued within the framework of a good better best assortment.
Christian: We went after opportunities to elevate the assortment at all price points.
Christian: Paying close attention to the need of deal as well as to once the deal shopper.
Christian: We grow this elevation strategy throughout last year, but it was most evident and powerful in the fourth quarter.
Christian: I interpret our 6% comp sales growth in Q4, as just the customer telling us that they are proof that this strategy and really loved our assortment.
Christian: The second driver of our strong Q4 performance.
Christian: We were very nimble flexible and responsive to trend in Q4 and throughout the fall season.
Christian: Let me illustrate this by talking about the quarterly trend last year.
Christian: In the summer as we exited Q2, we were flying.
Christian: We reported 5% comp growth for the quarter and the trends continue to accelerate through back to school.
Christian: Then it got dropped significantly Q2, unseasonably warm weather from mid September onwards.
Christian: These warmer temperatures.
Christian: Sales of outerwear and at that particular time of year outerwear is a critical business for us.
Christian: The warm weather and the weak trend persisted until mid November.
Christian: And then our business took off as the customer began to shop for holiday.
Christian: I cannot overstate, how pleased I am with how well we reacted to this volatility and sales.
Christian: We chased the trend in back to school category in the summer.
Christian: And pulled back very hard on cold weather businesses from mid September onwards.
Christian: And then chase holiday business days in late November and December.
Christian: This nimble and rapid execution is the essence of off price.
Christian: It is an excellent illustration of what we are trying to achieve with Burlington to point out.
Christian: We know that we will never be able to predict the future, but what we can do using the processes tools and capabilities that we've built.
Christian: To react quickly and effectively to what ever happened with external traffic and the sales trend.
Christian: I'm going to move on now and talk about our results for 2024 as a whole.
Christian: I would like to discuss these results within the overall context of our longer range financial objectives.
Investors will recall that in November of 2023.
Christian: At high level financial goals for our business through 2028.
Christian: We expect to grow total sales to approximately $16 billion and to increase our operating profit to about one $6 billion. During this period.
Christian: We are only one year into this five year program.
Christian: We are very pleased and encouraged by our initial progress towards these goals.
Christian: The headline is that in 2024, we achieved very strong total sales growth of 11%.
Christian: And we expanded our operating margin by 100 basis points.
Christian: As you will recall there were three major drivers of our long range model.
Christian: New store openings.
Christian: Comp store sales growth.
Christian: And operating margin expansion.
I will now review the progress that we've made on each of these major drivers in 2024.
Christian: Let's start with new store openings.
Christian: Our long range model projects, an average of 100 net new stores each year, plus a couple of dozen relocations of Olga oversized stores.
Christian: In 2024, we opened 101 net new stores.
Christian: So let me dissect that number further.
Christian: Of course, there is no such thing as a net new store.
Christian: In 2024, we actually opened 147 new stores.
Christian: 31 of these court relocations and we also shattered 15, mostly older and less productive locations.
Matt: Matt domestically this equals 101, net new stores, but my point is that the full impact on the chain is much more significant.
Matt: Our long range goal is to grow and transform our store network.
Matt: 147, gross new stores in 2024 represents strong progress on this transformation program.
Matt: Okay, Let me comment on the performance of our new stores.
Matt: There are a number of important relevant metrics that we track.
Matt: Our new stores. These include the sales volume in the opening year and the comp performance in the first few years once the store joined the comp base.
Matt: Well relocations, we focus on the comp sales and the product lift that we see in the new location.
Matt: We are pleased with how all of these metrics are tracking.
Matt: I should add that when we approve a new location, we analyzed the internal rates of return based on expected sales profitability and Capex.
Matt: The rates of return that we are achieving on new store openings and relocations as very attractive.
Matt: I will finish up on our new store program by talking about the pipeline.
Matt: Of course at this point, our plan and our schedule for new store openings in 2025 is largely set.
Matt: We feel confident in our ability to open 100 net new stores this year.
Matt: For 2026, the pipeline is also shaping up nicely.
Matt: It is early but at this point I feel good about our ability to also open 100 net new stores in 2026.
Matt: I'm going to move on now and talk about the second major driver of our long range model.
Matt: Comp store sales growth.
Matt: Our long range model project that through 2028, we should be able to achieve comp sales growth in the mid single digits.
Matt: In other words between 4% and 6%.
Matt: We are pleased that in 2024, we achieved 4% comp growth.
Matt: And this was on top of 4% comp growth in 2023.
Matt: But we recognize that comp growth is the most difficult variable to project.
Matt: Our internal and external drivers of the comp trend.
Matt: We are confident about the internal drivers and our ability to execute.
Matt: We have made huge improvements across our business and merchandising stores and supply chain.
Matt: I am also very bullish on the longer term external prospects for the off price segment and for our business in particular.
Matt: Across retail shoppers voting for value.
Matt: And we are very well positioned to deliver that value for our customers.
Matt: But with that said, we recognize that the short term outlook is uncertain and it is important to plan and manage our business accordingly.
Matt: We will talk more about this in a moment when I discuss our thinking and our guidance for the year ahead.
Matt: But before I get there.
Matt: Let me finish with the third major driver of our long range model operating margin expansion.
Matt: As a reminder, our long range model calls for approximately 400 basis points of operating margin expansion between 2023 and 2028.
We expect about half of this expansion to come from leverage on our projected double digit topline sales growth.
Matt: And we expect the other half to come from opportunities unrelated to sales.
Matt: These opportunities fall into two buckets.
Matt: Firstly higher merchant margin, driven by better control and allocation of inventory leading to faster turns.
Matt: And secondly, productivity improvements and other expense savings in our supply chain.
Matt: As I said, a moment ago, we achieved 100 basis points of operating margin expansion in 2020 for.
Matt: This was well ahead of our initial guidance of 10 to 50 basis points.
Matt: Christian will provide more details later in the call, but the major drivers of this expansion with stronger merchant margin from faster inventory turns.
Matt: Ahead of plan savings from supply chain productivity initiatives.
And sales leverage on fixed costs.
Matt: Okay.
Matt: Okay.
Matt: <unk> 2024.
I would like to segue now to our 2025 outlook.
Matt: As previewed in our third quarter call last November our 2025 guidance is for total sales growth of 6% to 8% driven by 100 net new store openings.
Matt: Comp store sales growth of zero to 2%.
Matt: Based on this comp sales range, we expect operating margin expansion.
Matt: Zero to 30 basis points.
Matt: This 2025 guidance is consistent with our playbook.
Matt: The outlook for 2025 is very uncertain with significant economic political and geopolitical risks that could affect consumers.
Matt: Rather than trying to predict what is going to happen. Our approach is to manage our business conservatively and then be ready to pull back or to shape. The sales trends if it is stronger.
Matt: This approach served us well in 2024, and we hope to the same in 2025.
Kristin: At this point I would like to turn the call over to Kristin.
Matt: Christine.
Christine: Thank you Michael and good morning, everyone.
Christine: In the fourth quarter total sales grew 10%.
Christine: <unk> sales grew 6% well above the high end of our guidance.
Christine: Our adjusted EBIT margin expanded 10 basis points versus last year.
Christine: This was 60 basis points above the high end of our.
Christine: Got it.
Christine: The gross margin rate for the fourth quarter was 42, 9%.
Christine: An increase of 30 basis points versus last year.
Christine: This was driven by a 10 basis point increase in merchandise margin.
Christine: Due to better than expected storage result, and lower markdowns.
Christine: Partially offset by lower markup.
Christine: Higher better brand penetration.
Christine: Great expenses decreased 20 basis points.
Christine: Product sourcing costs for $217 million.
Christine: Versus $197 million in the fourth quarter of 2023.
Christine: Product sourcing costs were flat as a percentage of sales versus last year.
Christine: As leverage on supply chain expenses and Bangkok.
Christine: Offset by higher incentive cost and higher asset protection.
Christine: Adjusted SG&A for Q4 were 20 basis points higher than last year.
Christine: This excludes the impact of expenses associated with bankruptcy acquired leases.
Christine: These were worth approximately $5 million this year.
Christine: $6 million last year.
Christine: In Q4, we achieved sales leverage on corporate G&A expenses.
Christine: But at this leverage was offset by higher incentive comp and the timing of advertising cost.
Christine: Q4, adjusted EBIT margin was 11, 1%.
Christine: 10 basis points above last year.
Christine: Well above our guidance for a decrease of 50 to 80 basis points.
Christine: Our adjusted earnings per share in Q4 with $4 13.
Christine: Again, well above the high end of our guidance.
Christine: This represents a 12% increase versus the prior year.
Christine: At the end of the quarter comparable store inventories were down 3% versus the end of the fourth quarter and 2023.
Christine: Our reserve inventory was 46% of our total inventory versus 39% of our inventory last year.
Christine: We are pleased with the quality of the merchandise and the value that was happening was there.
Christine: We ended the quarter and very strong liquidity position with approximately one 8 billion.
Christine: Total liquidity.
Christine: Which consisted of $995 million in cash and $827 million and availability on our ABL.
Christine: We had no borrowings outstanding at the end of the quarter on the ABL.
Christine: During the quarter, we repurchased $61 million in common stock, bringing our annual share repurchases to $242 million.
Christine: At the end of Q4, we had $263 million remaining on our share repurchase authorization.
Christine: That expires in.
2025.
Christine: In Q4, we opened.
Christine: Net new stores, bringing our store count at the end of the quarter to 1108 stores.
Christine: This includes eight new store openings, one relocation and two closing.
Christine: As Michael noted for the full year, we opened 147, new stores, while relocating 31 stores and closing 15 stores.
Christine: Adding 101 not me.
Christine: Great.
Christine: I will now move on to discuss our full year 2024 result.
Christine: In fiscal 2024 total sales increased 11% on top of 10% in 2023.
Christine: Comp store sales increased 4% on top of 4% and frame pretty great.
Christine: Our operating margin for the full year expanded by 100 basis points.
Christine: Merchandise margin increased by 60 basis points.
Christine: <unk> by 20 basis points.
Christine: Supply chain costs, Levered by 50 basis points.
Christine: And we achieved 20 basis points of leverage on fixed expenses.
Christine: This operating margin expansion was partially offset by deleverage driven by investments in store payroll.
Christine: Higher incentive cost and higher depreciation in fiscal 'twenty 'twenty four.
Christine: Before I turn to guidance.
Christine: I would like to provide an update on our supply chain strategy and capital expenditures.
Christine: On our November we talked about the strategic rationale Ernie rather than leasing our most productive distribution center.
Christine: Our vision for future DC capacity is one designed to better support our off price operating model.
Christine: And more highly automated.
Christine: As a reminder, historically, we have leased our distribution center.
Christine: Which makes sense that the term when our balance sheet was much more leverage.
Christine: We now have the balance sheet.
Christine: Rather than lease.
Christine: Ownership gives us greater control.
Christine: Over the design of this building.
Christine: It also allows us to leverage this capital investment as we grow the firm and to avoid.
Christine: Significant rent increases at each lease renewal.
Christine: With that said I'm pleased to share that in the fourth quarter, we exercise the purchase option on our 2 million square foot Savannah, Georgia DC that is on target to be opened in 2026.
Christine: Given the progress we have made during the construction process.
Christine: We exercise this purchase option in January a few months earlier than originally planned.
Christine: As a result, capex for FY 'twenty for increased to $844 million.
Above our previous guidance of $750 million.
Christine: Additionally, we have also recently opportunistically negotiated the purchase of our most efficient most automated west coast DC.
Christine: Chocolate facility in Riverside, California.
Christine: This year, we will have capex implications for FY, 'twenty, which I will review.
Christine: Oh first move to our 2025 guidance.
Christine: This guidance excludes approximately $13 million in 2025 versus $16 million in 2024 and expenses associated with bankruptcy acquired leases.
Christine: For 2025, we expect total sales growth in the range of 6% to 8%.
Christine: This assumes 100 net new store opening.
Christine: We anticipate that most of these stores will open in the latter half of the year.
Christine: We are forecasting comp store sales to increase in the range of flat to 2%.
Christine: Our adjusted EBIT margin to be in the range of flat to an increase of 30 basis points versus last year.
Christine: We expect the major drivers of this expansion to be higher merchandise margin.
Christine: And productivity savings from supply chain initiatives.
Christine: All of this results in adjusted earnings per share guidance in the range of $8 70.
Christine: To $9 30.
Christine: And an expected increase of 4% to 11%.
Christine: Capital expenditures net of landlord allowances are expected to be approximately $950 million in fiscal 2025.
Christine: The increase in Capex for FY 'twenty five is driven by the purchase of our currently Lee passive DC in Southern California.
Christine: This purchase is scheduled to close later this month.
Christine: When combining our FY 'twenty for actual in FY 'twenty five guide our total capital expenditures are higher than we previously indicated by about $200 million.
Christine: This variance is entirely driven by the opportunistic purchase of the Texas DC.
Christine: This purchase had not previously been contemplated in our long range model.
Speaker Change: I would like to move on to guidance for the first quarter of 2025.
Christine: This Q1 guidance excludes approximately $6 million.
Christine: In 2025 and in 2024.
Christine: Sensors associated with bankruptcy acquired leases.
Christine: We expect total sales to increase 5% to 7%.
Christine: Comp store sales are seems to be flattish for Q1.
Christine: We are expecting adjusted EBIT margin to be in the range is down 50 to down 90 basis points over the first quarter of 2024.
Christine: This results in an adjusted EPS outlook in the range of $1 30.
Christine: To $1 45.
Christine: Versus last year's first quarter, adjusted EPS of $1 42.
Christine: I will now turn the call back to Michael.
Michael: Thank you Christian.
Michael: Before I turn the call over to questions I would like to reinforce a few of the key points that we have discussed this morning.
Michael: Firstly, we are pleased with our Q4 results.
Michael: These results were well above the high end of guidance.
Michael: It was driven by number one our strategy to elevate value across categories and price points.
Michael: And number two our effectiveness and responding to sudden unexpected shifts.
Michael: External sales trend throughout the fall season.
Secondly, we are pleased and encouraged with the progress that we made in 2024 towards our long range financial goals.
Michael: 11% total sales growth.
Michael: 4%.
Michael: Comp store sales growth.
Michael: 100 basis points of margin expansion.
Michael: We're just one year into our long range model, but we are tracking well on each of the key drivers of this molecule.
Michael: Thirdly, the 2025 outlook is uncertain and in this environment, we are planning and managing our business conservatively.
Michael: This is consistent with our playbook.
Michael: And it should put us in the best possible position to react to whatever happens externally.
Michael: I would now like to turn the call over for your questions.
Michael: Sure.
Michael: We are now opening the floor for a question and answer session. If you'd like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: Lee limit your questions to one question and one follow up your first question comes from the line of Matthew Boss from Jpmorgan. Your line is now.
Matthew Boss: Thanks, and congrats on a really great fourth quarter.
Speaker Change: Thanks, Matt.
Speaker Change: Michael could you elaborate on sales trends that <unk> seen so far in the first quarter in particular, the comp guidance for the first quarter appears more conservative than the remainder of the year. If you could share what is driving this.
Speaker Change: Sure well good morning, Matt.
Speaker Change: Thank you for the thank you for the question.
Speaker Change: In February our first.
Speaker Change: First quarter <unk>.
Speaker Change: <unk> started out weaker than we had planned or expected.
Speaker Change: No I think thats consistent with with with what you've heard from other retailers who have reported.
Speaker Change: But let me offer some some detailed commentary on what.
Speaker Change: What the potential drivers of that weakness might be.
Speaker Change: I think I've said before that the first quarter is typically the most volatile and unpredictable quarter of the year.
Speaker Change: There are two factors to that.
Speaker Change: Typically drive volatility.
Speaker Change: Firstly, whether the.
Speaker Change: The weather, especially in February and March.
Speaker Change: Can vary a lot.
Speaker Change: One year to the next and secondly, the timing of tax refunds, our customer as you know is very sensitive to the timing of tax refunds specifically.
Speaker Change: Income tax credits and child tax credits.
Speaker Change: Now of course, whenever we see a weaker than expected trends.
Speaker Change: We slice and dice the sales data to identify what might be going on.
Speaker Change: So the first few weeks of February we didn't have to look very hard at it was it was clear from the underlying sales data at the <unk>.
Speaker Change: <unk> seen the trend was concentrated in two specific regions the.
Speaker Change: The Midwest and the northeast.
Speaker Change: Those regions are obviously very important to us and in February.
Speaker Change: We experienced unfavorable weather.
Speaker Change: I should add as the weather began to normalize later in the month.
Speaker Change: We saw the sales trend pick up.
Speaker Change: Now as for the timing of tax refunds.
Speaker Change: In February the distribution of tax refund payments fell well behind last year.
Speaker Change: And we think that that delay also contributed to some of the weakness in the sales trend that we saw during the month.
Speaker Change: Again, as we funds caught up later in February the.
Speaker Change: Sales trend strengthened so.
Speaker Change: So we believe that the weak trend in February.
Speaker Change: Can largely be attributed to the usual suspects weather and the timing of tax refunds.
But in our business at least in the short term it pays to be neurotic.
Speaker Change: Could that could there be something else going on.
Speaker Change: We have not seen anything in the data to suggest at least not yet.
Speaker Change: But that said we recognize that there are a lot of things happening externally.
Speaker Change: At this point, we don't know if or when those things might have an effect on our customer.
Speaker Change: We haven't seen it yet but of course there is risk.
Speaker Change: Four weeks into the quarter, we need to get further along and see how the sales trend develops.
Speaker Change: So turning to guidance given that weaker than expected start to the quarter, we're paying a little more cautious about our Q1 guidance. That's the reason why we are guiding to a flattish comp for us is zero to 2% for the full year.
Speaker Change: Great color and then maybe just a follow up on your first quarter margin guide it looks a bit lower relative to the year Kristen could you just walk through the drivers of margin contraction in the first quarter and the cadence of margin expansion by quarter through the year.
Kristen: Sure. Good morning, Matt. It's a good question, let me provide a little bit more context.
Kristen: Last year in fiscal 2024, our biggest EBIT margin increase was in the first quarter. It was up 170 basis points.
Kristen: Our EBIT margin increases then moderated as the year unfolded, largely due to clearance level comparisons and the timing of certain freight and supply chain savings.
Kristen: But for fiscal 'twenty five we anticipate the reverse of this.
Kristen: China will be true with the most challenging margin comparison here in the first quarter. We then expect Martin comparison to improve as the year unfolds and we actually expect the biggest year over year improvement in the fourth quarter. So.
Kristen: Said another way if you were to look at our margin expansion on a two year basis generally it would be fairly consistent across quarters, but to your question more specifically on Q1. There are a couple of factors that went up.
Speaker Change: Clay Moron first.
Speaker Change: Merchandise margin is expected to be a driver of EBIT margin improvement in fiscal 2025, but in the first quarter, we're not expecting as much help from merch margin. This is due to some modest mark on pressure from increased better brands in timing some markdowns.
Speaker Change: The second factor in Q1 is on supply chain, we will anniversary some DC lease renewal increases in the back half of 'twenty five and.
Speaker Change: And the fixed cost deleverage in supply chain is most pronounced in the first quarter.
Speaker Change: And I should add that while we expect to continue to drive cost savings in supply chain. We expect most of these savings will come through later in this year.
Speaker Change: And then the last point on Q1 is that we have deleverage on fixed costs based on our comp sales assumption of flattish or minus one to plus one and that deleverage is exacerbated by the fact that Q1 is our lowest sales volume quarter of the fiscal year. So all these factors make Q1 by <unk> or <unk>.
Speaker Change: Toughest EBIT margin comparison and outlook for the fiscal year as.
Speaker Change: As I look to the balance of the year, we do expect comp store sales to be flat to plus two.
Speaker Change: And about 75% of our new stores are scheduled to open in the second half of the year. So total sales growth is lower than the first half of the year relative to the back half so taking all this together we expect.
Speaker Change: Modest EBIT margin expansion in the second quarter.
Speaker Change: Then for the third quarter EBIT margin improvement should look more like our annual guidance and finally for the fourth quarter, we expect that will be our most significant EBIT margin improvement in 2005.
Speaker Change: Thanks for all the color best of luck. Thanks, Matt.
Mike Riccio: Your next question comes from Mike Riccio Trauma Wells Fargo. Your line is now.
Mike Riccio: Hey, good morning, Congrats Michael Chris and David.
Speaker Change: I guess Michael for you.
Speaker Change: Good strong finish to 'twenty four for US I guess I'm wondering if you can break down your comp trend for 2020 for especially in the fourth quarter in terms of maybe how much you think might be coming from trade down shoppers versus existing customers.
Ike: Good morning Ike.
Speaker Change: It's a good question.
Speaker Change: As you know we think about customers.
Speaker Change: <unk> two major buckets two major segments.
Speaker Change: So let me start with the first of those the need of deal customer.
Speaker Change: That customer is typically lower income and they are very focused on on the value.
Speaker Change: This is a very important segment of customers for us.
Speaker Change: In fact, it's difficult for us to drive comp sales growth without this customer.
Speaker Change: For Q4 as I look at our stores that were in that are in lower income trade areas.
Speaker Change: These were actually the strongest performing stores in the chain.
Speaker Change: And that tells me we are doing very well with the needed to your customer.
Speaker Change: Now in the prepared remarks.
Speaker Change: I talked about our strategy to elevate our assortment within our good better best framework.
Speaker Change: And that meant elevating the value at all price points now of course, it's difficult to offer well known national brands at lower or opening price points. So our merchants had to work very hard to deliver value through other means such as great quality on strong fashion or other attributes.
Speaker Change: But the customer cares about.
Speaker Change: Assessment is that.
Speaker Change: We did a very good job delivering great value to the need of Dell sharper in Q4 and throughout 2024 and that was a clear driver about comp growth.
Speaker Change: But let me turn now.
Speaker Change: The <unk> cost.
The second set of segments if you like.
Speaker Change: As I, just said Q4, our stores that are in lower income trade areas with the strongest performing stores in the chain.
Speaker Change: But we also saw a very healthy mid single digit comp store sales growth.
Speaker Change: In moderate and higher income trade areas.
Speaker Change: We believe that that comp growth in those stores was driven by the trade down customer.
Speaker Change: Now in addition to comp performance of stores based upon the income level or the trade area, they're all robot indicators sort of further demonstrate that trade down trend for.
Speaker Change: For example.
Speaker Change: You can look at the performance of that business by price point.
Speaker Change: As we've disclosed in the past our average unit retail and average ticket was about 10 Bucks.
Speaker Change: In Q4, we saw a mid single digit percentage increase in that average retail posted last year.
Speaker Change: And the strongest comp sales growth rates in Q4, we're in price buckets, we're well above 10 Bucks.
Speaker Change: Again.
The trade down customer so tying all that together I would say that we are very pleased with the strength of our business with our core needed. There was softness and we're also very pleased without success in attracting the once a deal or the trade down sharper.
Speaker Change: To achieve a 6% comp store sales growth in Q4, we had to deliver great value to both of those important segments of customers and Thats, what we did.
Speaker Change: Got it Super helpful. And then Michael if I can do one more just.
Speaker Change: We've tried this as some of our companies in this space, but I guess on the topic of broader policy changes that are likely to happen in 2025.
Speaker Change: Things like terror tighter immigration controls I mean can you comment on how do you see these policy changes affecting your customer.
Speaker Change: Maybe what are the biggest risks as you kind of look out in that regard.
Speaker Change: Sure sure Yes, good question Mike.
Speaker Change: Question, we've thought a lot about.
Speaker Change:
Speaker Change: Okay.
Speaker Change: Let me share some of our thinking.
Speaker Change: And let me preface my answer by saying, we are very optimistic about our business over the next two to three years, but we recognize that in the short term there are risks and frankly the sales trend.
Speaker Change: It could be choppy.
Speaker Change: There are a lot of things going on in terms of potential policy changes, including the things you mentioned.
Speaker Change: But at this point I don't think any one can confidently or accurately forecast.
Speaker Change: What it all means.
Speaker Change: With that said, let me make a couple of points firstly.
Speaker Change: My experience has been that generally.
Speaker Change: Uncertainty and disruption tend to be good for off price.
Speaker Change: But the key thing for us as an off price retailer.
Speaker Change: Is to remain nimble and flexible so we can react more effectively to whatever happens.
That is what we are doing well.
Speaker Change: We're being cautious and we are tightly controlling our open to buy.
Speaker Change: Secondly, if I think about specific policy changes.
Speaker Change: For example, tighter immigration control higher import tariffs both of which you mentioned, but also changes in the tax code changes in federal benefits.
Speaker Change: It's true some of these things could have a negative impact on our customers, but some of them could be very positive I think it all depends on the scale and the specifics.
Speaker Change: And we just don't know those yet and our pulp from <unk>.
Speaker Change: Individual policy changes themselves I think a lot depends on what happens in the overall economy.
Speaker Change: What happens to inflation will happens to hourly wages, what happens to trade down shoppers and what happens to our regular priced competitors and frankly, the rest of retail.
Speaker Change: So look I'm a I.
Speaker Change: Like myself as a rational optimist I could easily paint a scenario aircraft business Thats very positive over the next couple of years lower taxes on hourly workers lower energy prices lower corporate taxes, and strong availability of off price merchandise due to disruption from tariffs.
Speaker Change: Just reported 6% comp store sales growth for Q4, and we see a lot of reasons to be excited and optimistic about our business in the years ahead.
Speaker Change: Yes.
Speaker Change: Scott said, we realize it may not be a straight upward sloping line we anticipate.
Speaker Change: But in the short term things could be volatile.
Speaker Change: All external risks.
Speaker Change: For example.
Speaker Change: Higher tariffs, which you mentioned could drive up inflation and that could hurt discretionary spending.
Speaker Change: This is a it's a complex issue there are a lot of variables that means that that might or might not happen, which brings me back to my earlier point.
As a business we need to focus on what we can control and that means planning our business cautiously being nimble flexible and ready to react and that's the approach that we are that we're taking.
Speaker Change: Okay got it. Thanks, so much good luck thanks, Mike.
Speaker Change: Your next question comes from the line of Lorraine Hutchinson from Bank of America. Your line is now.
Speaker Change: Yes.
Lorraine Hutchinson: Thank you. Good morning, My first question for Chris on your 2025 full year guidance, which will be almost 30 basis points of operating margin expansion on that here the C com.
Lorraine Hutchinson: Before you guided 10 to 50 basis points on a similar comp range.
Lorraine Hutchinson: Remind us of why you are guiding to lower expense in this year.
Mike Riccio: Good morning, Lorraine Yeah. Thanks for the question.
Mike Riccio: We did initially guide 2020 for EBIT margins, originally 10 to 50 basis points.
Mike Riccio: However, as we talked about in our prepared remarks, we ended.
Mike Riccio: 2024, with EBIT margins up 100 basis points and this upside was due to exceeding our sales plan and driving expense leverage, but also higher than planned merch margin improvement and faster than planned supply chain expense savings.
Mike Riccio: And in our in our long range model, we discussed 200 basis points of margin opportunities that were unrelated to sales.
Mike Riccio: Driven by higher merch margin and freight and supply chain savings.
Mike Riccio: In fiscal 2020 for merch margin increased 60 basis points supply chain efficiencies and productivity gains drove 50 basis points of leverage and freight levered 20 basis points.
Mike Riccio: Essentially we made faster progress than we expected in fiscal 2024, and we still expect to harvest that 200 basis points of savings although for this year.
Mike Riccio: Fiscal 'twenty five we factored in a more measured pace of progress.
Mike Riccio: We are expecting the 30 basis points of margin improvement on the <unk> on a 2% comp to be driven by merch margin improvement and additional leverage from supply chain efficiencies, we're being a bit more cautious on freight as we want to plan conservatively based on the uncertainty.
Mike Riccio: But those are the two key drivers of the 30 basis points in 2025 again at a more measured pace than we saw in 'twenty four and finally, it's worth calling out last point I'll make here is that for every 100 basis point of comp above 2% comp, we would expect 10% to 15 basis points of incremental EBIT margin.
Mike Riccio: Expansion.
Mike Riccio: Thank you and then my second question is about the purchase of the DC is what are the implications of higher capex for debt levels and stock buybacks.
Mike Riccio: Thanks, Lorraine, it's David I'll take that question and fair question.
Mike Riccio: You've heard us talk about the strategic importance of owning and controlling really our most modern technologically advanced distribution centers as we transform our supply chain over the next several years.
Mike Riccio: Buying the Savannah, and the California, Dcs are really two important steps in that transformation.
Speaker Change: And as Christian indicated earlier those purchases did increase our level of Capex in 2024, and 2025, we just invested $844 million in 2024, and as you know, we're now planning to invest $950 million and our growth in fiscal 2025.
Speaker Change: Also Kristen commented in her prepared remarks that those DC purchases.
Speaker Change: We did increase our capex levels over those two years I just cited 2024 and 2025 by about $200 million versus our original plan and that increase is really attributable to the purchase of the California DC. We had planned all along to buy the Savannah DC.
Speaker Change: And if you think back to September we did increase our term loan by about 300 million to fund the Savannah, DC purchase and we will evaluate whether or not we want to raise debt to fund the California, DC investment, but it is important to put all of this into the overall context of the debt levels are.
Speaker Change: On our balance sheet, what do I mean by that first we are retiring the $156 million outstanding in 2025 converts which will be paid down with cash in April.
Speaker Change: And secondly, capitalized operating leases attributable to lease Dcs are already captured on the balance sheet.
Speaker Change: So if we if we do choose to add some additional debt to finance the California DC purchase we think the resulting increase in our leverage ratios would be very modest.
Speaker Change: And finally, probably to the crux of your question as far as share repurchases. We believe it is important to return excess cash to our shareholders on a consistent basis. So we would expect that practice to continue this year in fiscal 2025 with repurchases similar to the levels we executed.
Speaker Change: In each of fiscal 2023 and fiscal 2024.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of John Kernan from TD Cowen. Your line is now open.
John Kernan: Hey, good morning, Michael Chris and David Thanks for taking the question good morning.
Speaker Change: Chris any additional color of our category in regional performance in Q4, as well as how traffic and ticket drove the 6% comp increase in the quarter I think Michael talked earlier about trade down shoppers and needed deal shoppers, both demonstrating strength it seems like traffic and ticket would've been positive drivers is that a fair statement.
Yes, John Thanks. Thanks for the question, Yes to your last point comp was driven by both an increase in transaction as well as higher average transaction values. The strongest metrics implied were higher traffic and we did see higher AUR, while conversion and units per transaction.
Speaker Change: We're flattish so it was really traffic and AUR in the quarter in terms of category performance, there was relative strength in accessories and beauty and home.
Speaker Change: That said all major categories, really comped, well, including apparel in the mid single digits in Q4.
Speaker Change: And then you also asked about regional performance regional trends, the southeast and southwest where about the chain that regional strength was really broad based with every region comping up at least mid single digits.
Speaker Change: That's helpful and maybe Christian one and one follow up Michael talks about weather and regional dynamics.
Speaker Change: Q1 is there any detail on how weather.
Speaker Change: They have driven the business in Q4, obviously, the 6% comp on a better holiday comps we've seen in a while.
Speaker Change: Yeah, Thanks, Dan you're right Michael touched on this a little bit in the other parts of the call.
Speaker Change: But in terms of Q4, if I put it altogether weather did have a negative impact on our sales trends, particularly at the beginning of the quarter as we saw that unseasonably warm weather continue from October into November.
Speaker Change: And then the other weather impact in the quarter was in January with disruptive winter storms, and then add to that the California wildfires also contributed so there was some disruption in January if.
Speaker Change: If I step back and look at Q4 overall.
Speaker Change: Overall, our cold weather businesses underperformed the chain most of that underperformance was was driven by that warmer weather in November and that's a really important part of our mix in November and we quantify the negative impact of this was worth about a point of comp in the quarter overall.
Speaker Change: Okay got it. Thank you thanks John.
Speaker Change: Your next question comes from the line of Alex <unk> from Morgan Stanley. Your line is now open.
Alex: Thanks, So much for taking the question two for me one for Chris and I was just wondering if you could give us some more color on the components of that 15% inventory increase it was nice to see that our comp store inventories were down 3%, but can you talk about the discrepancy there and then any key.
Speaker Change: <unk>.
Speaker Change: Yes, Alex good morning, it's a good question. So overall inventory was up 15% at the end of Q4.
Speaker Change: This was driven really by adding 181 net new stores, but also higher levels of reserve inventory.
Speaker Change: And the store on a comparable store basis inventory and stores were down 3%. As you noted this compared pretty favorably to our 6% comp increase and we continue to drive faster turns which is a very healthy sign of our business.
Speaker Change: And while it can vary from quarter to quarter. So it may not always be this way, we generally expect to manage our comp store inventory levels below last year's level as we still see opportunity to turn our inventory faster.
Speaker Change: And then last point I'll make is important point here is.
Speaker Change: A driver of that 15% increase was our reserve inventory, we saw higher reserve penetration at 46% of total inventory versus 39% last year and the buying environment has been strong and our merchants took advantage of great reserve buying opportunities and we feel really good about the value.
Speaker Change: And the content of our reserve inventory.
Speaker Change: Great and maybe a follow up just for Michael Theres, obviously, a lot going on with store closings across retail could you just update us on how many store leases Burlington has acquired from retailers going through a bankruptcy process.
Michael: Okay, well good morning, Alex it's a good question.
Michael: As Youll recall in 2023, we acquired.
Michael: Leases for 64 bed Bath and beyond stores.
Michael: Through the bankruptcy process.
Michael: We opened about half of those stores in 2023 and the balance in 2024. So they were an important source of some of our new store openings last year.
Michael: And then late last year, we were able to secure an additional 39 stores.
Michael: <unk>.
Michael: A handful of other retailers that are going through a bankruptcy process.
Michael: We're very pleased about these new store locations.
Michael: Overall.
Michael: Retail bankruptcies have given us access to new locations and strip malls.
Michael: We might not otherwise have been able to get into.
Michael: The 39 locations that I referenced a moment ago.
Michael: <unk> and our new.
Michael: New store opening plan of 100 net new stores for 2025, So we're excited about those locations.
Michael: Yes.
Michael: Thanks, Good luck.
Michael: Thank you.
Your final question comes from the line of Brook Roche from Goldman Sachs. Your line is now live.
Brook Roche: Good morning, and thank you for taking our question.
Brook Roche: Michael I'm curious about your view of the potential changes that might be made to the de minimis exception for small package imports.
Brook Roche: These proposed changes go through are they likely to slow the growth of companies like <unk> and others and would this be positive for Burlington.
Speaker Change: Good morning, Thank you for the question.
I guess the way I would answer that I would say stepping back.
Speaker Change: Our World view is that we operate.
Speaker Change: And a very large and fragmented competitive space there are many companies and retail format formats.
Speaker Change: Compete in the categories that we sell department stores specialty stores fast fashion online retailers.
Now some of those companies are growing in some of the Mt.
Speaker Change: But we know that we are building to need to earn a living every day, we need to be able to compete successfully with this broad competitive set by offering great value to shoppers.
Speaker Change: Now the data shows that we've achieved very strong growth over the last couple of years. In 2024. We grew total sales by 11% that was on top of 10% in 2023. The overall market is not growing at anything like those kinds of rates.
Speaker Change: So empirically, it's clear that we intend on taking significant market share. So all along way of coming back to your question on <unk>.
Speaker Change: Based on the growth numbers that I've just cited it certainly doesn't look like the growth of <unk> over the last few years has had much impact on us.
Speaker Change: So Conversely.
Speaker Change: We'll be elimination of the diminished de minimus exception.
The impacts of <unk> and if it does will that be a benefit to us I guess my answer is.
Speaker Change: I guess conceptually, yes, but I wouldn't expect the impact to be very material.
Speaker Change: I suspect this is a much bigger issue for other ecommerce store for fast fashion or for specialty retailers kind of this for us.
Speaker Change: Great and then my second question and you hinted at this earlier in another response to another question could you update us on your view on off price merchandise availability today.
Speaker Change: Sure Yes.
Speaker Change: Good question of our important question.
Speaker Change: There's not much new to call out here I would say and as you've heard.
Speaker Change: Ed.
From other off price retailers availability.
Speaker Change: In the channel I would say, it's very strong.
Speaker Change: Of course, there are always category brands and styles.
Speaker Change: But our easiest to get hold off or more difficult to get hold El pen is just the nature of off price supply.
Speaker Change: But overall our merchant team has gotten really good at finding terrific off price deals.
Speaker Change: Q4 was it was a good illustration of that we came into the quarter.
Speaker Change: With with actually a weaker than expected trends in early November driven by weather.
With our comp guidance of flat to 2% for the quarter. We then from mid November onwards, we chased our.
Speaker Change: Merchants worked with our vendor partners and we were able to chase to 6% home growth again from a from a slow start.
Speaker Change: Stepping back I would say I feel very good about our vendor partnerships.
Speaker Change: Our partnerships with vendors are mutually respectful and mutually beneficial.
Speaker Change: We help our vendors build their businesses and we're happy to do that and they help us to build hours.
Speaker Change: There aren't many retailers that are consistently growing top line sales at double digit rates every year I've been does note that.
And so our growth and our growth potential I think have really helped us to expand develop and deepen our vendor network over the last few yes. There is one final point.
Speaker Change: I think I should touch on and Thats around tariffs and.
Speaker Change: And the potential impact of <unk>.
Speaker Change: Tariffs on off price merchandise supply.
Speaker Change: Right now things are very dynamic it feels like there's new renewable developments every day literally every day on tariffs.
Speaker Change: A lot of uncertainty, it's likely that that uncertainty is going to drive disruption in supply chains across retail as merchandise that was ordered months ago starts to arrive and is hit with tariffs.
Speaker Change: And that disruption I would say is likely to create a buying opportunity for off price. So off price available to use good right now and I think the chances are it's going to get back to you in the months ahead.
Speaker Change: Great. Thanks, so much best of luck going forward.
Speaker Change: Thank you.
Michael O'sullivan: Thank you I'd now like to hand back the call over to Michael O'sullivan.
Speaker Change: Please go ahead.
Speaker Change: Let me close by thanking everyone on this call for your interest in Burlington stores.
Speaker Change: We look forward to talking to you again in may to discuss our first quarter 2025 results.
Speaker Change: Thank you for your time today.
Speaker Change: Thank you for attending today's call you may now disconnect.
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Yes.
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