Burlington Stores, Inc. (BURL) Earnings

Management highlights

- Core Financial Performance Highlights: 14% total sales growth, 6% comp store sales growth (well above the 2-4% guidance range), and 26% YoY adjusted EPS growth. This marks the 14th consecutive quarter of double-digit earnings growth, with cumulative business growth of 34% over the past three years. Operating margin expanded 20 bps YoY, 100 bps above the midpoint of prior guidance that had expected a 60-100 bps decline. Outperformance was driven by higher merchant margins, stronger supply chain productivity, and disciplined markdown execution. - Store Network Transformation: Opened 40 gross new stores, relocated 6, and closed 4 in Q1, for a net increase of 30 stores, bringing the total store count to 1,242. New store openings, relocations, and store downsizing programs have driven a 59% increase in sales per selling square foot from ~$220 in 2019 to ~$350 today. Relocations typically deliver a 5-10% sales lift by moving to higher-traffic locations, while downsizing (cutting square footage in half for oversized older stores) delivers an average 200 bps reduction in occupancy costs with attractive financial returns. The company is on track to exceed 1,500 total stores by the end of 2028, with over 80% of the store base having been opened, relocated, or downsized since 2019. - Operational Capability Improvements: Upgraded inventory allocation and localization capabilities enabled faster, more precise seasonal transition decisions for warm weather categories in Q1, overcoming historical slowness to respond to early spring weather variations from the company's outerwear heritage. The Store Experience 2.0 store retrofit program, which improves store layout and customer experience, is on track to be completed across all stores by the end of FY26, with retrofitted stores delivering positive customer feedback and a measurable sales lift. The assortment elevation strategy, focused on adding more recognizable, higher-quality brands, has driven higher comp growth in higher price tiers, higher average basket size, and higher AUR without pressuring merchant margin. - Capital Return and Balance Sheet: Ended Q1 with $1.7 billion in total liquidity ($747 million cash, $942 million available on the ABL facility with no outstanding borrowings). Repurchased $81 million of common stock in Q1, with $304 million remaining on the current repurchase authorization that expires in May 2027. Completed a $111 million repurchase of 2027 convertible notes in Q1, reducing the outstanding balance to $186 million.

Guidance

- Full Year FY26 guidance has been revised upward to reflect the full Q1 outperformance: total sales growth is now expected to be 9% to 11% (up from prior guidance of 8% growth), comp store sales growth of 2% to 4% maintained from prior guidance, 115 net new stores (up 5 from the prior 110 net new store target), adjusted EBIT margin expansion of 10 to 30 bps YoY, and adjusted EPS of $11.45 to $11.80, representing 13% to 16% YoY growth (up from initial full-year guidance). - Q2 FY26 guidance: comp store sales growth of 1% to 3%, total sales growth of 10% to 12%, operating margin expansion of 30 to 60 bps YoY, and adjusted EPS of $2.05 to $2.20, representing 19% to 28% YoY growth over Q2 FY25. May sales to date are tracking at the high end of the Q2 comp guidance range. - Back half (H2) FY26 guidance remains unchanged from the March 2026 call: comp store sales growth of 1% to 3%, total sales growth of 8% to 10%, adjusted EBIT margin expansion of 10 to 30 bps YoY, and adjusted EPS of $7.30 to $7.50. Management continues to see potential upside for comp sales in Q3 and Q4 FY26. - Long-term store expansion guidance: the company expects to open at least 110 net new stores per year in 2027 and 2028, and is on track to exceed 1,500 total stores by the end of 2028. - Full-year capital expenditures (net of landlord allowances) remain projected at approximately $875 million for FY26.

Segment performance

Burlington Stores is an off-price retailer with broad-based category performance in Q1 FY26: overall comp store sales grew 6% versus the prior year. Performance was particularly strong in ladies' apparel, beauty, accessories, and warm weather categories (which make up 25% of Q1 sales and achieved double-digit comp growth). By region, the Northeast and Midwest were top-performing, Southeast and West were in-line with company-wide comps, and the Southwest trailed the chain. By customer demographic, stores in lower median household income trade areas outperformed the chain, while higher income areas delivered mid-single-digit comp growth, and high Hispanic density areas delivered mid-single-digit comp growth in line with the overall chain. Total company revenue grew 14% year-over-year, gross margin came in at 44.1% (up 30 bps YoY), adjusted EBIT margin was 6.3% (up 20 bps YoY), and adjusted EPS was $2.10 (up 26% YoY).

Risks & headwinds

- Sustained high gas and diesel prices could further increase freight costs and squeeze consumer discretionary spending, which would disproportionately impact lower-income shoppers that have been outperforming to date. No measurable impact on consumer behavior has been observed as of Q1, but management is monitoring trends closely. - Uncertainty around the timing and size of potential tariff refunds, so no benefits from these refunds have been included in the FY26 guidance. - Startup costs for the new Savannah, Georgia distribution center create modest pressure on supply chain cost savings in the near term. - Geopolitical instability from the Middle East conflict and related macroeconomic uncertainty could impact consumer confidence and spending.

Analyst Q&A

• Q: Have the Middle East war outbreak and subsequent run-up in gas prices changed management's bullish outlook for 2026 from March? /

  A: Management remains bullish on the 2026 outlook, especially the back half. Customer indicators remain positive across all income bands, even after stripping out a 1.5-2 point comp contribution from higher Q1 tax refunds, leaving mid-single-digit underlying comp growth. Tariffs are less disruptive than expected, and off-price merchandise supply is strong. Management is slightly more wary of macro risks but notes that if consumers become more value-focused, that benefits off-price retail, and the flexible model can adjust to changing trends.

• Q: What is the long-term opportunity for sales per square foot growth from the store transformation programs? /

  A: Management sees huge remaining opportunity to further drive sales productivity. While sales per square foot has grown from ~$220 (2019) to ~$350 today, competitive benchmarks show there is still room for improvement. Natural comp growth, ramping of recently opened smaller-format new stores, and ongoing downsize/relocation programs for older stores will all continue to drive productivity gains. Higher productivity will leverage fixed occupancy costs, creating a sustained tailwind for operating margin.

• Q: Do you believe that your consistent strong EPS growth has come at the cost of missed comp growth opportunities? /

  A: Management acknowledges there is a natural tradeoff between controlling inventory to drive earnings and increasing receipts to drive comp growth. After years of improving inventory discipline that has driven major margin gains, the company may moderately loosen inventory levels to pursue growth in high-potential categories. This is not a major strategic shift, and the company will remain focused on the core off-price discipline of controlling liquidity and managing inventory to deliver sustained long-term earnings growth.

• Q: What factors offset the expected Q1 margin headwinds to deliver the unexpected expansion? /

  A: The main upside drivers were stronger-than-expected merchandise margin (up 20 bps vs. an expected decline) from better-than-planned disciplined markdown execution and high-quality merchandise buys. Freight costs leveraged 10 bps, offsetting fuel price pressures, and supply chain productivity initiatives delivered 30 bps of leverage in product sourcing costs, even after accounting for Savannah DC startup costs. These gains more than offset modest SG&A deleverage from higher incentive compensation and marketing spend, demonstrating the model's ability to deliver meaningful leverage when sales exceed expectations.