Release Date: May 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total sales in Q1 grew by 11% compared to the first quarter of 2023, indicating strong market share gains.
- Comp store sales for the first quarter increased by 2%, surpassing the guidance of flat to 2%.
- EBIT margin increased by 170 basis points, and adjusted EPS was up 68% over last year.
- The company opened 14 net new stores in Q1 and is on track to open 100 net new stores this year.
- Supply chain efficiency initiatives showed faster-than-expected progress, contributing to strong margin expansion.
Negative Points
- February sales trend was softer than anticipated due to disruptive winter weather and slower tax refunds.
- The company remains cautious about Q2 guidance, projecting flat to 2% comp growth despite recent positive trends.
- Adjusted SG&A costs in Q1 were 60 basis points higher than last year, partly driven by expenses related to Bed Bath & Beyond leases.
- The company expects some modest deleverage in supply chain in Q2 due to the start-up and training costs of the new distribution center.
- There is a potential risk of needing to introduce markdowns later in the year to maintain competitive value.
Q & A Highlights
Q: Could you elaborate on the progression of your comp sales trend through the first quarter and comment on what you're seeing so far in May?
A: February was at -2% comp, March was +1%, and April was up 8%. The major driver of this month-by-month trajectory was the timing of tax refunds. We are happy with how sales have been trending in May; Q2 is off to a good start. (Michael O'Sullivan, CEO)
Q: Could you provide additional color on the expenses that shifted out of the first quarter and why?
A: There were three drivers: $3 million in supply chain expenses due to timing of receipts and start-up costs for the New Jersey distribution center, $2 million in freight expenses, and $4 million in SG&A items including marketing spend and benefit expenses. (Kristin Wolfe, CFO)
Q: What exactly are you seeing with the lower-income consumer base today, and what did you do to outperform there?
A: Discretionary income for lower-income demographics appears to have stabilized. The catch-up in tax refunds meant lower-income shoppers had extra money, and we also benefited from more trade-down traffic in our stores. (Michael O'Sullivan, CEO)
Q: Can you unpack the supply chain efficiencies that benefited you in the first quarter?
A: We made faster-than-expected progress on distribution center productivity initiatives, which streamline operations and reduce labor costs. We believe there is more to come, with about 200 basis points of margin opportunity expected from continued supply chain leverage. (Kristin Wolfe, CFO)
Q: Do you see an opportunity to increase your mix of brands, and are there any risks to this strategy?
A: Yes, we see an opportunity to elevate our assortments, especially in businesses like sportswear. However, the most critical thing is value, and brands are just one component of that. We will pursue this selectively while continuing to deliver for our core need-a-deal shoppers. (Michael O'Sullivan, CEO)
Q: Will freight continue to be a margin tailwind for the rest of the year?
A: Yes, we expect to continue receiving freight leverage throughout 2024. We recently finalized our latest round of domestic freight contracts and are pleased with the results. (Kristin Wolfe, CFO)
Q: What impacts could lower prices from other retailers have on Burlington, and what is your strategy or reaction?
A: We have not raised prices and are starting from a strong value position. Our merchants monitor competitors closely, and we have room in our guidance to introduce markdowns if needed to maintain our value proposition. (Michael O'Sullivan, CEO)
Q: Are you attracting new customers with new store openings, and who are you taking these customers from?
A: Yes, we are attracting new customers, including those who may have shopped Burlington many years ago. We believe we are picking up market share from a range of retail competitors, including department stores and specialty stores. (Michael O'Sullivan, CEO)
Q: Can you provide more color on store closures and relocations?
A: We plan to close or relocate approximately 40 stores this year, moving out of older, oversized stores and into higher-traffic centers. Over the next five years, we expect to close or relocate about 150 to 200 stores. (Kristin Wolfe, CFO)
Q: Any update on the Bed Bath & Beyond stores and the 99 Cents Only leases?
A: We feel very good about the Bed Bath & Beyond stores, with most expected to achieve or beat our sales expectations. We are likely to secure just a handful of 99 Cents Only locations, which will join our pipeline in 2025 or 2026. (Kristin Wolfe, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
