Burlington CEO Talks 5-Year Plan and $16 Billion in Sales
Burlington Stores CEO Michael O’Sullivan feels “very good about how we are set up for holiday.”
The off-price retailer said it’s having a solid November but maintained fourth-quarter guidance because of “uncertainty” affecting consumer spending.
More from Sourcing Journal
A strong August and September drove 6 percent comparable store sales growth for the third quarter. Unseasonably warm weather in October left a “negative impact” for the end of the quarter, but cooler temperatures in early November set the stage for what could be a good holiday season.
“During the quarter, we were very pleased with our back to school trend,” O’Sullivan said during a conference call to investors.
“Over the next five years, we expect to grow our total sales to approximately $16 billion,” he said. “This represents about 60% aggregate growth versus 2023.”
O’Sullivan said Burlington can reach these financial projections with new store sales, comparable store sales and operating margin. It expects to add to its 1,000-plus stores by opening 500 net new stores over the next five years. These mostly 25,00-square-foot doors will open in busy strip malls. “We anticipate that this new store opening program will be the most significant driver of our annual double digit, total sales growth,” he said.
Average annual comp sales growth are projected in the mid-single digits over the next five years, which O’Sullivan said was the average before Covid. “As we look at the outlook for off-price, and for our core customer over the next five years, we think that this 3 percent to 4 percent baseline is a good starting point for our model,” he said.
Burlington has been working to pursue a more traditional off-price model. Opening new stores and relocating others should create a “helpful comp tailwind over time,” the CEO said.
Operating margins have suffered under higher supply chain costs, labor rates and freight costs.
“In the next five years, we expect to offset all three major points and more, taking the operating margin to approximately 10 percent in 2028,” O’Sullivan said. Burlington should see healthier merchandise margins from lower markdown and freight and supply chain expenses, as well as efforts to enhance labor productivity. “In addition, if we grow wholesale mid single digit rates, and we should be able to leverage store related fixed costs, such as occupancy,” he noted.
O’Sullivan said Burlington is planning 2024 more cautiously. “There is a lot of economic, political and geopolitical uncertainty. It is difficult to predict what uncertainty might mean for our business,” he said. “In addition, over the past couple of years, we have implemented a lot of changes in our business. And we think that it makes sense to be cautious about how quickly these changes may have an impact.”
O’Sullivan also noted that the “last few years have been extraordinarily volatile and unpredictable, but that volatility has started to wane.” And he noted that improvements made over the past few years, particularly the new tools and processes rolled out in merchandising will take time to gain momentum. “They are going to have a significant impact but that impact is likely to build over time,” he said.
The struggling lower-income customer is starting to showing signs of stabilizing but a slowing economy could force many people to trade down.
“Let’s supposing that the economy does slow down next year, I think we’re likely to see more of that trade down customer,” he said.
For the three months ended Oct. 28, net income nearly tripled to $48.5 million, or 75 cents a diluted share, from $16.8 million, or 26 cents, in the year-ago quarter. On an adjusted basis, net income was $64 million, or 98 cents a diluted share. Total revenues rose 12.2 percent to $2.29 billion from $2.04 billion, which also included a 12.2 percent increase in net sales to $2.28 billion from $2.04 billion. Wall Street was expecting adjusted diluted earnings per share of 99 cents on total revenues of $2.31 billion.
For the nine months, net income more than doubled to $112.2 million, or $1.73 a diluted share, on a net revenue increase of 10.8 percent to $6.60 billion that also included a 10.8 percent gain in net sales to $6.59 billion.
For the fourth quarter, the company guided adjusted EPS in the range of $3.04 to $3.19, on a sales increase in the range of 5 percent to 7 percent. Comparable store sales are projected to be flat to down 2 percent for the period. Fourth quarter guidance is for the 12 weeks ending Jan. 27, 2024, and do not include the extra 53rd week in the retail calendar. For the Fiscal Year 2023 ending Feb. 3, 2024, which does include the extra week, the company forecasted adjusted EPS at between $5.52 to $5.67, on a projected sales increase of 11 percent. The extra week is estimated to contribute 2 percent to the sales total. Comparable store sales are presumed to rise 3 percent. The year also includes a projection that the off-pricer will about 80 net new stores in the year. The company opened 38 net new stores in the third quarter.
Estimates for the fourth quarter and full year include incremental expenses, such as rent, connected with the acquisition of 64 former Bed Bath & Beyond leases. Burlington expects to open half of those locations this year, and the balance in 2024.
