Burlington Stores, Inc. Q2 FY2025 earnings call

• Second quarter results: Strong sales growth (10% total, 5% comp) and improved earnings with 120 basis points margin expansion. - Burlington 2.0 initiatives:
  • Merchandising 2.0: Enabled buyers to rapidly pivot during tariff disruptions, driving 5% comp growth.
  • Stores 2.0: Improved shopping experience, customer service scores, and operational metrics; 50% of stores retrofitted with new design showing sales lift.
  • New stores: Recent new store cohorts contributed to 5% comp growth, with younger stores in comp base expected to increase impact over time.

Total sales grew 10% in the second quarter, following 13% growth the previous year. Comp store sales increased 5%, same as the prior year's second quarter. Operating margin expanded 120 basis points. EPS was $1.72, $0.42 above the high end of the guidance range. Product sourcing costs were $209 million in Q2 2025 vs. $191 million in Q2 2024. Adjusted SG&A costs decreased 30 basis points. Comparable store inventories were down 8% vs. Q2 2024, with reserve inventory at 50% of total inventory, up 43% year-over-year.

• Raised full-year 2025 guidance: Comp sales 1%-2%, total sales 7%-8%, adjusted EBIT margin up 20-40 basis points, EPS $9.19-$9.59.
• Q3 guidance: Comp sales flat to 2%, total sales 5%-7%, EPS $1.50-$1.60 (excluding ~$10M bankruptcy acquired lease expenses).
• Q4 guidance: Comp sales flat to 2%, total sales 7%-9%, EBIT margins range from down 10 basis points to up 30 basis points, EPS $4.30-$4.60 (excluding ~$7M bankruptcy acquired lease expenses).

• External risks: Weather, macroeconomic factors, and tariffs impacting sales. - Tariff pressure: Markup pressure from tariffs, but offsetting actions taken; potential negative effect on economy and retail prices.

Q: Congrats on a great quarter. So Michael, on your 5% comp in the second quarter, which is a 10% on a 2-year stack, how best to think about your back half guide, which implies a material drop off from there? Should we think of this as your usual playbook to plan conservatively and chase, or are you seeing something that's causing you concern about sales in the back half of the year?

A: Thank you for the question. The direct answer to your question is this is just our standard playbook. We are planning and managing our business cautiously, and we are ready to chase a stronger trend. I should add that we are especially confident in our ability to do this right now because merchandise supply is very strong and we also have some great deals packed away in reserve inventory. And add to that, we've just demonstrated in the second quarter that we are very good at flexing up and chasing a stronger sales trend. So with all that, it makes sense to stick with our standard playbook, and we're very confident in our ability to execute it. With that said though, I want to be careful in answering your question. I don't want to understate the external risks. We've just reported an extraordinarily strong Q2, but as you know, in our business, you can't just extrapolate from that. External headwinds can emerge in individual quarters to throw off the trend. As I mentioned in the remarks, the most obvious risk is weather. Until recently, Coats were literally our middle name. I love this heritage when September and October are colder than last year, but not so much when they are unseasonably warm. Now on a multiyear basis, the weather averages out. But in an individual quarter, in an individual year, it matters. Now of course, the risks in the back half are not just limited to weather. There are plenty of macroeconomic and other external variables that can have an impact on retail sales, higher employment, rising inflation, changes in consumer outlook. For the back half of this year, all of those risks are real. At a high level, I would say there are many experts and analysts who are predicting the tariffs are going to have a significant and potentially negative effect on the economy. Those effects have not really happened yet, and they're highly, highly unpredictable. The good news for us is that as an off-price retailer, we don't have to take a position on these risks. We don't have to predict the future. What we have to do is manage our business to be nimble and flexible so we can react no matter what happens. That is our standard playbook. It's what our standard playbook is designed to do. So at the risk of sounding like a broken record, we will manage our business cautiously and aggressively chase the trend.

Q: Congrats on a great quarter. I'm wondering what trends you're seeing with different demographic groups. The second quarter was very strong, but is there any additional color you can share about lower-income consumers, Hispanic customers or any other segments that stand out in the data?

A: Sure. Thank you for the question. Overall, I would describe our comp performance in Q2 as broad-based. Now as usual, in Q2, we monitored and we analyzed the sales trend of our stores based on the demographics of their local trade area. And between the first quarter and the second quarter, we saw an improvement in trend in all demographic trade areas. Now let me talk specifically about the lower-income customer. The lower-income customer, as you know, is especially important to us. When we look at stores in lower-income trade areas, they continue to perform very well with comp sales growth just above the chain average. Now lower-income stores have performed well for us for the last few years, and that strength is continuing. Let me move on to the Hispanic customer. Hispanic customer also, as you know, very important to us. My answer here is a little more nuanced. When you look at stores in high-Hispanic trade areas, to make the data meaningful, it's important to pull out Puerto Rico. Our Puerto Rico stores have been performing very, very strongly. So they kind of distort the number a little bit. It also makes sense to pull out our stores on the southern border. In contrast, those are high-volume stores. But given the issues at the border, they've been comping below the chain this year. So what you're left with is still a large group of stores that are in high-Hispanic trade areas, but exclude Puerto Rico and the southern border. And the bottom line is, in Q2, the trend in those stores was also slightly above the chain. Now the data I've just described, I think is very encouraging. I know that investors have been concerned understandably about lower- income shoppers and about Hispanic shoppers. Those shoppers are very important to us, and they're very sensitive to economic headwinds such as inflation. But based on our second quarter data, we are not seeing any issues at this point.