Burlington Stores' stock soars as earnings beat expectations. November is off to a 'solid' start.

By Tomi KilgoreCiara Linnane

Burlington Stores' stock was up 21% as the company set targets for the next five years

Shares of Burlington Stores Inc. climbed 21% -- putting them on track for their biggest one-day gain in a year -- after the discount apparel and footwear retailer topped profit and same-store sales expectations for the third quarter while saying the current quarter was off to a "solid" start.

Net income for the quarter to Oct. 28 nearly tripled to $48.6 million, or 75 cents a share, from $16.8 million, or 26 cents a share, in the year-ago period. Excluding nonrecurring items, adjusted earnings per share of 98 cents topped the FactSet consensus of 97 cents.

Total revenue grew 12.2% to $2.29 billion, matching the FactSet consensus, while same-store sales growth of 6.0% beat expectations of a 5.9% rise. Strength in August and September offset the negative impact of unseasonably warm weather in October.

Gross margin improved to 43.2% from 41.2%, while merchandise inventories fell 8% to $1.33 billion.

Chief Executive Michael B. O'Sullivan said the back-to-school season was strong, before October weather derailed the sale of outerwear.

"We are pleased that November is off to a solid start, but the highest volume weeks are still ahead of us," he told analysts, according to a FactSet transcript.

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For the fourth quarter, the company expects adjusted EPS of $3.04 to $3.19, below the current FactSet consensus of $3.21. Total sales are expected to increase 5% to 7% from last year, while the current FactSet consensus of $3.03 billion implies 10.6% growth.

On the call, the company offered its first look at 2024 and offered longer-term targets. In the next five years, Burlington is expecting to grow sales to about $16 billion, or an average growth rate for each year in the low double-digits.

"We expect our operating income over this period to grow to approximately $1.6 billion. In dollar terms, this is almost three times our forecast 2023 operating income, and, as a percentage of sales, we expect our operating margin to be approximately 10% by 2028," said O'Sullivan.

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The company is planning to open about 500 net new stores in that period, comprised mostly of stores of more than 25,000 square feet located in busy malls. It expects annual same-store sales growth in the mid-single-digits, which compares with an average of 3% to 4% before 2020 and the COVID-19 pandemic.

The company has been working to make its business more off-price, at a time when many consumers are struggling to make ends meet.

Burlington is expecting to boost operating margins to about 10% in 2028.

"There're three main sources of these savings; higher merchant margin, mostly lower markdowns; lower freight expenses partially from lower freight rates, but also driven by specific transportation initiatives; and lower supply-chain expenses, again, driven by specific efficiency and labor productivity initiatives," the executive told analysts.

For 2024, the company is adopting a more cautious tone, however, given a lot of economic, political and geopolitical uncertainty.

"It is difficult to predict what this uncertainty might mean for our business," he said. The company is setting guidance for same-store sales growth of 2%, and expects to capture about 50 basis points of operating margin expansion.

Jefferies analysts said the five-year targets promise robust growth for the top and bottom lines.

"Near term, inventory levels are well-positioned, the supply environment remains strong, and the lower-income consumer shows signs of stabilizing," said analysts led by Corey Tarlowe.

"We believe Burlington should benefit in the current environment. and continue to gain share long term," they wrote.

Jefferies has a buy rating on the stock and raised its price target to $195 from $190.

The stock has gained 1.2% in the year to date, while the S&P 500 has gained 18%.

-Tomi Kilgore -Ciara Linnane

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11-22-23 0717ET

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