Burlington Stores, Inc. (BURL) Q1 2026 Earnings Call Transcript

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Overview

The earnings call summary and Q&A reflect strong financial performance and optimistic guidance. Sales growth and EPS projections are robust, with new store openings and strategic initiatives like Store Experience 2.0 and Merchandising 2.0 contributing positively. Despite uncertainties in tariff refunds and higher fuel costs, the company is leveraging cost efficiencies. The sentiment from the Q&A was generally positive, with analysts receptive to management's strategies. Given these factors, the stock price is likely to experience a positive movement in the next two weeks.

Key Financial Performance

Earnings Per Share (EPS) EPS increased 26% year-over-year in Q1 2026. This marks the 14th consecutive quarter of double-digit earnings growth, driven by higher sales converting into margin expansion and strong earnings flow-through.

Total Sales Growth Total sales grew 14% year-over-year in Q1 2026, compared to 6% growth in Q1 2025. This growth was attributed to new store openings and comp store sales growth, with cumulative business growth of 34% over three years.

Comp Store Sales Comp store sales increased 6% year-over-year in Q1 2026, exceeding guidance of 2%-4%. Growth was broad-based across categories and geographies, with particular strength in ladies apparel, beauty, and accessories. Improved allocation and localization capabilities also contributed to this growth.

Operating Margin Operating margin expanded by 20 basis points year-over-year in Q1 2026, significantly outperforming guidance which anticipated a decline of 60-100 basis points. This was driven by higher merchant margin and stronger supply chain productivity.

Gross Margin Rate Gross margin rate increased by 30 basis points year-over-year in Q1 2026 to 44.1%. This was driven by a 20 basis point increase in merchandise margin and a 10 basis point decrease in freight expenses.

Product Sourcing Costs Product sourcing costs were $216 million in Q1 2026, up from $197 million in Q1 2025. However, as a percentage of sales, these costs decreased by 30 basis points due to supply chain productivity and cost-saving initiatives.

Adjusted SG&A Costs Adjusted SG&A costs increased by 20 basis points year-over-year in Q1 2026. This was attributed to disciplined markdown execution and continued supply chain productivity.

Adjusted EBIT Margin Adjusted EBIT margin was 6.3% in Q1 2026, 20 basis points higher than Q1 2025. This exceeded guidance, which anticipated a decline of 60-100 basis points, due to stronger-than-expected sales and supply chain productivity.

Comparable Store Inventories Comparable store inventories increased 11% year-over-year at the end of Q1 2026. Reserve inventory accounted for 41% of total inventory, down from 48% in Q1 2025, reflecting improved inventory quality and values.

Liquidity Total liquidity at the end of Q1 2026 was approximately $1.7 billion, consisting of $747 million in cash and $942 million in availability on the ABL. There were no outstanding borrowings on the ABL.

Share Repurchases $81 million in common stock was repurchased during Q1 2026, with $304 million remaining on the share repurchase authorization, which expires in May 2027.

Convertible Notes $111 million of 2027 convertible notes were repurchased in Q1 2026, reducing the outstanding balance to $186 million.

Store Count 40 new stores were opened, 6 stores relocated, and 4 stores closed in Q1 2026, resulting in a net increase of 30 stores and bringing the total store count to 1,242.

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Operating Highlights

New Store Openings: In Q1, Burlington opened 40 new stores, relocated 6, and closed 4, resulting in a net increase of 30 stores. For the full year, the company anticipates 135 gross new stores, with a net increase of 115 stores, slightly ahead of prior guidance.

Store Relocation and Downsizing: Relocations typically deliver a 5%-10% sales lift by moving to higher traffic centers. Downsizing older stores reduces occupancy costs by about 200 basis points, with plans to ramp up this program in the future.

Sales Productivity: Sales per square foot increased from $220 in 2019 to $350 in 2026, a 55% improvement, driven by new stores, relocations, and downsizing.

Earnings Growth: EPS increased by 26% in Q1, marking the 14th consecutive quarter of double-digit earnings growth.

Sales Growth: Total sales grew by 14% in Q1, with comp store sales increasing by 6%, exceeding guidance of 2%-4%.

Profitability: Operating margin expanded by 20 basis points in Q1, driven by higher merchant margins and supply chain productivity.

Inventory Management: Improved allocation and localization capabilities enhanced seasonal transitions, driving sales and merchant margins.

Store Experience 2.0: The program aims to make stores more exciting and easier to shop. Retrofitted stores have shown positive customer feedback and sales lift, with completion expected by the end of 2026.

Long-Term Store Expansion: Burlington plans to exceed 1,500 stores by 2028, with over 80% of stores opened, relocated, or downsized since 2019.

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Risk or Challenges

Seasonal Transitions: Historically, the company has struggled with seasonal transitions due to its legacy as an outerwear retailer. This has led to slower responses to weather variations, particularly in early spring and fall, which could impact sales and inventory management.

Margin Headwinds: The company faced specific margin headwinds in Q1 of 2026, which were expected to result in a decline of 60 to 100 basis points in operating margin. Although these were offset, such headwinds could pose risks in future quarters.

Inventory Management: Comparable store inventories increased by 11% compared to the previous year, which could lead to challenges in managing excess inventory and maintaining liquidity.

Economic Uncertainty: The company’s forward-looking statements acknowledge risks and uncertainties that could materially impact financial results, as outlined in their SEC filings.

Store Relocation and Downsizing: While relocations and downsizing have shown positive results, there is a risk associated with the execution of these programs, including potential disruptions and the financial impact of underperforming relocated or downsized stores.

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Guidance & Outlook

Full Year Guidance: The company has updated its full-year guidance, expecting comp store sales growth of 2% to 4% and EPS growth of 13% to 16%. Total sales are projected to increase by 9% to 11%, with adjusted EBIT margin expanding by 10 to 30 basis points. The company plans to open 115 net new stores in 2026, up from the original outlook of 110.

Second Quarter Guidance: For Q2, the company expects comp store sales growth of 1% to 3% and total sales growth of 10% to 12%. Operating margin expansion is projected to increase by 30 to 60 basis points, with adjusted EPS guidance in the range of $2.05 to $2.20, compared to $1.72 in Q2 2025.

Back Half of Fiscal 2026: The company maintains its outlook for the second half of 2026, expecting comp store sales growth of 1% to 3%, total sales growth of 8% to 10%, adjusted EBIT margin expansion of 10 to 30 basis points, and EPS in the range of $7.30 to $7.50.

New Store Openings and Expansion: The company plans to exceed 1,500 stores by the end of 2028, with over 80% of stores opened, relocated, or downsized since 2019. For 2026, 135 gross new stores are anticipated, resulting in 115 net new stores after relocations and closures. Store relocations and downsizes are expected to continue driving sales productivity and reducing occupancy costs.

Store Experience 2.0 Program: The company aims to complete the Store Experience 2.0 program across its chain by the end of 2026, enhancing customer experience and driving sales growth.

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Shareholder Return Plan

Share Repurchase: During the quarter, we repurchased $81 million in common stock. At the end of Q1, we had $304 million remaining on our share repurchase authorization. This expires in May of 2027.

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Key Q&A

Q:Michael, in March, you said you were bullish about the outlook for 2026. Have the outbreak of war in the Middle East and the subsequent run-up in gas prices caused you to feel less bullish on the outlook today?

A:Michael O'Sullivan stated that despite recent events, they remain bullish about the back half of the year. He cited resilience in customer data, strong Q1 comp growth of 6%, and favorable external factors like less disruptive tariffs. However, he acknowledged being slightly more wary due to higher gas prices and potential inflation impacts. He emphasized the adaptability of the off-price model and potential opportunities if the consumer becomes more value-focused.

Q:Kristin, on your second quarter guidance, even with modest comp growth, you're projecting earnings growth of over 20%. Could you walk through the bottom line drivers and additional details?

A:Kristin Wolfe explained that Q2 guidance includes 30 to 60 basis points of operating margin expansion on comps of 1% to 3%, translating to EPS growth of 19% to 28%. Drivers include higher merchandise margin due to markdown favorability, faster turns, and favorable shortage accrual rates. Freight expenses are expected to see modest pressure due to higher fuel rates. Product sourcing costs are leveraging due to supply chain productivity initiatives, despite start-up costs for a new distribution center in Savannah, Georgia. SG&A is expected to provide slight leverage.

Q:Michael, what do you see happening in terms of major competitive trends across retail, and what are the ramifications for Burlington specifically?

A:Michael O'Sullivan highlighted a major restructuring in retail driven by consumers' desire for value, with off-price retailers like Burlington experiencing strong growth. He noted that Burlington has opportunities to improve execution in areas like localization and supply chain automation. He emphasized focusing on the basics of the off-price model, which has driven consistent earnings growth, and stated that Burlington does not need to pursue radical changes like its more developed peers.

Q:Kristin, what were the factors that were supposed to create headwinds in Q1 for margin contraction, and what offset those to drive margin expansion?

A:Kristin Wolfe noted that Q1 operating margin expanded by 20 basis points, 100 basis points above guidance. Factors included strong merchandise margin performance due to better markdown execution and quality buys, freight leverage despite fuel pressures, and better-than-expected progress on supply chain productivity initiatives. These gains offset slight SG&A deleverage caused by higher incentive compensation and marketing spend.

Q:Michael, over the last 3 years, your EPS growth has typically exceeded 20%. Do you think that by driving earnings, you may have missed some comp growth?

A:Michael O'Sullivan acknowledged that focusing on earnings growth through disciplined inventory and receipt management may have limited comp growth. However, he emphasized the importance of the off-price model's discipline and noted potential opportunities to slightly increase inventory in high-potential categories. He reassured investors that there would be no major shift in strategy.

Q:Kristin, your comp guidance for the full year of 2% to 4% is below some of your off-price peers, but your EPS growth guidance of 13% to 16% is in line. Can you talk about what's driving this leverage?

A:Kristin Wolfe explained that leverage is driven by higher merchandise margin, efficient markdown execution, faster turns, better buying, and supply chain cost leverage despite new distribution center costs. Occupancy costs are also expected to leverage due to increased sales productivity and store downsizing.

Q:Michael, how much more opportunity do you see to drive sales productivity ahead?

A:Michael O'Sullivan stated that there is significant opportunity to increase sales productivity, currently at $350 per square foot compared to $200-$220 in 2019. He attributed future growth to comp growth, ramping up of new smaller-format stores, and relocation programs. Increased sales productivity is expected to leverage occupancy expenses and improve operating margins.

Q:Michael, can you talk about the strength of the warm weather businesses in Q1 and how your new allocation systems helped drive the comp trend in those businesses?

A:Michael O'Sullivan noted that warm weather categories, accounting for 25% of Q1 sales, achieved double-digit comp growth. Improved localization tools allowed for more granular planning and allocation, driving sales and merchandise margin. He emphasized the importance of responding to weather variations and improving seasonal transitions.

Q:Michael, can you talk about some of the demographic trends you're seeing by segment?

A:Michael O'Sullivan observed that stores in lower-income trade areas outperformed, with comp growth above the chain average, while higher-income areas achieved mid-single-digit growth. Hispanic shopper trends were in line with the chain. He noted resilience among lower-income shoppers despite inflation and higher gas prices.

Q:Kristin, can you talk about how you are treating tariff refunds throughout the rest of the year's guidance?

A:Kristin Wolfe stated that while Burlington has filed for tariff refunds, the timing and amount are uncertain, so they are not factored into the guidance. Current guidance assumes the incremental 10% tariff.

Q:Kristin, can you expand on the new store pipeline, the smaller size of the box, regional growth, and new store performance?

A:Kristin Wolfe stated that Burlington expects 135 gross new stores and 115 net new stores in 2026, slightly ahead of prior guidance. The 2027 and 2028 pipelines are robust, with plans for at least 110 net new stores annually. New stores are performing well, opening at $7 million in sales in their first year with a payback period under two years, and outcomping the chain after entering the comp base.

Q:Kristin, what are you seeing in terms of higher freight and fuel costs, and how are you planning for them?

A:Kristin Wolfe noted higher fuel costs and surcharges but stated that transportation cost savings initiatives offset these pressures in Q1. Full-year guidance includes modest freight deleverage due to fuel costs. Favorable ocean and domestic contract rates should help control freight costs, though further diesel price increases could pose a risk.

Q:Michael, could you give an update on the elevation strategy and what's working?

A:Michael O'Sullivan highlighted the success of the elevation strategy, which focuses on offering better brands, higher quality, and more fashion at great values. This has driven higher customer perception scores, stronger comp growth in higher price buckets, and higher average basket sizes. He emphasized that the strategy has been executed without hurting margins, showcasing the strength of the merchant teams.

Q:Michael, have you seen any correlation between gas prices and comp trends on a week-to-week or month-to-month basis?

A:Michael O'Sullivan stated that analyses show no correlation between gas prices and comp trends. However, sustained high gas prices could squeeze discretionary spending, particularly for lower-income shoppers. He emphasized monitoring trends closely but noted no changes in consumer behavior so far.

Q:Kristin, could you expand on the category performance metrics and regional call-outs for Q1?

A:Kristin Wolfe noted that the Northeast and Midwest were the top-performing regions, while the Southwest trailed. Strong category performance was seen in ladies' apparel, beauty, accessories, and warm weather categories. Q1 comp growth was driven equally by increased transactions and higher basket sizes due to higher AUR.

Q:Michael, could you provide an update on the Store Experience 2.0 initiative?

A:Michael O'Sullivan stated that Store Experience 2.0 aims to create a more exciting and shopper-friendly environment. The initiative has been rolled out to new stores and retrofitted 470 existing stores, with plans to complete the chain rollout by the end of 2026. Retrofits have shown a sales lift, and the updated store environment has improved customer perception of Burlington.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the potential timing and amount of tariff refunds, stating that these are highly uncertain and not factored into the guidance.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

BURL Transcript

Burlington Stores, Inc. (BURL) Q1 2026 Earnings Call Transcript

Positive5-28

Burlington Stores, Inc. (BURL) Q4 2025 Earnings Call Transcript

Positive3-5

The earnings call indicates strong financial performance with a 4% comp growth in Q4, surpassing guidance. The company is expanding with 104 new stores and plans for 110 more in 2026. Positive factors include a $251 million share repurchase and improved EBIT margins. Despite some Q&A uncertainties, like lower Q1 margins, the overall outlook is optimistic with sustained sales growth and effective localization strategies. The guidance for 2026 and beyond remains strong, suggesting a positive stock price movement in the short term.

Burlington Stores, Inc. (BURL) Q3 2025 Earnings Call Transcript

Positive1-8

The earnings call indicates solid financial performance with optimistic guidance for 2025 and beyond. The company plans significant store expansion, maintaining strong margins despite tariff pressures. New store productivity and the robust off-price merchandise environment are positive signs. Concerns about market share loss and economic uncertainties exist, but management's strategic focus and resilience among lower-income customers are reassuring. Overall, the sentiment is positive, suggesting a potential stock price increase of 2% to 8%.

Burlington Stores, Inc. (BURL) Q3 2026 Earnings Call Transcript

Positive11-25

The earnings call reveals a positive outlook with strong financial metrics, optimistic guidance, and strategic growth initiatives. Despite some risks like tariff pressures and weather sensitivity, the company demonstrates resilience through strategic inventory management and successful pricing strategies. The Q&A section highlights management's confidence in market positioning and new store performance. Overall, the positive guidance, strong new store pipeline, and effective cost management suggest a likely stock price increase in the short term.

BURL Report

Burlington Stores, Inc. 10-Q

10-Q

2024-08-29

Burlington Stores, Inc. 10-Q

10-Q

2024-05-30

Burlington Stores, Inc. 10-K

10-K

2024-03-15

Burlington Stores, Inc. 10-K

10-K

2023-03-13

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