Burlington CEO: Off Price ‘Starting to Pull Away From Traditional Retail’
Like its fellow off-price peers, Burlington Stores Inc. reported a strong second quarter, but CEO Michael O’Sullivan believes it could have done better.
In a Nutshell: “We are a little disappointed with these numbers,” he told investors, addressing comparable store sales.
More from Sourcing Journal
The 4 percent comp growth it posted was at the high end of its 2 percent to 4 percent estimate. But it really amounted to 3 percent on a four-year basis, at the low end of company’s 3 percent to 5 percent projection. Burlington took its guidance down and now expects full-year comps between 3 percent to 4 percent.
Burlington’s low-income customer base is among the hardest hit by today’s headwinds. “Showing value and opening price points is one of the most difficult things to do. It’s not just about price, it’s about offering fashion, quality, and even a great brand at below opening prices,” O’Sullivan said, noting an opportunity to “could get even better, and sharper, in all aspects of opening price point value.”
So far this year, Burlington hasn’t “seen as much trade-down activity in our stores as we would have liked,” the CEO said, though the off-price retailer now has a better mix of recognizable brands due to the “strong availability” of merchandise in the supply channel, he said.
Right now, “off price looks like maybe it’s starting to pull away from traditional retail,” he added, with positive comps versus the mostly negative numbers department and specialty stores are reporting.
“I don’t think that that’s too surprising. It feels like perhaps we’re starting to revert to the longer term structural trends that prevailed before the pandemic,” he said.
O’Sullivan said the company is opening stores in smaller footprints because the economics of its older big boxes lag its off-price peers.
Burlington will open about 72 to 82 stores this year. It acquired 62 locations once occupied by Bed Bath and Beyond. The retailer is looking at another 62 doors when those leases return to landlords.
“As we’ve shifted our new store openings towards a greater mix of the smaller prototype locations, we’ve seen an increase in both sales productivity, as measured by sales per square foot, [and] in operating margin per store,” Kristin Wolfe, chief financial officer, said. “When you segment our overall store base, it’s still the case that approximately 80 percent of our stores are larger than 30,000 square feet and about half of our stores are larger than 45,000 square feet. So we still have a lot of oversized and less productive [doors]. That’s why we’re very excited about the expansion of our new store opening program.”
New stores on average “have sales volumes of about 70 percent of an average store in their first full year,” she added. “This equates to about $7 million in sales.”
A “very favorable” buying environment has helped Burlington fine-tune markup and support its merchandise margin. The company also benefited from lower markdowns, shrink, and freight costs, she said.
Net Sales: For the three months ended July 29, total revenues were up 9.4 percent to $2.17 billion from $1.99 billion, which included a 9.4 percent gain in net sales to $2.17 billion from $1.98 billion.
For the six months, total revenues rose 10.1 percent to $4.31 billion from $3.92 billion, which included a net sales increase of 10.1 percent to $4.30 billion from $3.91 billion.
Earnings: Net income for the quarter more than doubled to $30.9 million, or 47 cents a diluted share, from $12 million, or 18 cents, a year ago. On an adjusted basis, earnings per share (EPS) were 60 cents.
Wall Street was looking for adjusted diluted EPS of 43 cents on revenue of $2.17 billion.
For the third quarter, Burlington adjusted EPS between 86 cents to $1.01, on sales increase of between 13 percent to 15 percent. For full Fiscal Year 2023, adjusted EPS was guided to the range of $5.37 to $5.67, on a sales increase of between 11 percent to 12 percent.
For the six months, net income more than doubled to $63.6 million, or 98 cents a diluted share, from $28.1 million, or 42 cents, in the same year-ago period.
CEO’s Take: “We are happy with our major strategy for coming into the year,” O’Sullivan said. “We had hoped that external factors would be more favorable.”
