Thanks for Visiting!

Register for free to get the full story.

Sign Up
Already have a account? Log In
Back to The Anchor

Burlington: Like its Peers, 2023 Can't Come Soon Enough for Burlington

Thomas Paulson
Aug 26, 2022
Burlington: Like its Peers, 2023 Can't Come Soon Enough for Burlington

Key Burlington Metrics

Burlington's sales modestly missed plan and its 2H22 outlook was lowered as its less-affluent customers have reduced visits and spending, a similar story that we've heard from Macy’s, Kohl’s, Nordstrom Rack, T.J. Maxx, and Ross Stores. Excess inventory and heightened markdowns are a prevailing theme across the industry, which is resulting in deeper markdowns at Burlington and meaningfully lower profitability. We suspect that the clearance environment described by Nordstrom ("the consumer isn’t easily swayed by markdowns, requiring deeper than normal price cuts") also applies to Burlington. This of course is against a base period where clearance and markdowns were effectively absent and where the consumer showed little price sensitivity, and so prices went up a lot.

  • Comparable-store sales decreased -17%, leaving sales even with 2019 levels. By month, May comps increased +4%, June was flat, and July was -7%, and aligned with visitation data from In addition, Burlington's trend roughly matches the pattern at Ross Stores and Nordstrom Rack, but with T.J. Maxx and Marshalls outperforming in sales and trend in July and August. We suspect that T.J. Maxx’s outperformance stems from its more affluent customer base relative to its peers and better inventory position, which allowed more in-demand products to flow into the stores, which also helped conversion rates. As we wrote last week, TJX is planning to increase its marketing in 2H22, a strategy intended to improve its traffic trend. Rack is doing better is sales because of it pushing is AUR higher through, mixing the assortment to more premium brands as noted above.

  • On its performance, Burlington CEO Michael O’Sullivan stated, “When you look at comp performance in our business, there is no mystery about what drives these numbers. It's about offering the best value in the categories, brands, styles and price points that the customer is looking for. This is how we executed our business in 2Q22. But when you look at our results, especially on a relative basis, it's clear that we did not move far or fast enough...Our customer proposition, the key reason to shop our stores is that we offer better value than other retailers. In 2Q22, this value differentiation was squeezed. Our customers are, as I described earlier, heavily focused on value. They have a lot of options about where to spend their limited funds and they cross shop heavily looking for the best deals. For our customers, the top for shopping destination for apparel and footwear is Walmart, followed by Target. The current level of promotional activity will not last forever. But while it does, it will create a very significant headwind for us…When you look at our results, especially on a relative basis [to TJX and Ross], it's clear that we really didn't move far enough. Our peers did a better job...[F]or the back half of the year, we're really looking at every aspect of value in our assortment...I think that's a muscle we need to develop more." To our ears, this suggests that a decline in Burlington’s conversion rate was also a factor behind the comp decline, as it was during 1Q22.
  • As shown using data in the table below, Burlington has a meaningful amount of its store traffic that comes from lower-income SNAP households (i.e., food assistance) compared to Ross Stores and T.J. Maxx. In the table, we only show California in an attempt to remove geographic mix difference between the three brands. Importantly, this shows traffic and not sales. Higher-income traffic will spend more than lower-income visitors, and as such, be a larger amount of the spend than what is shown in the table.

  • Trailing-twelve-month (TTM) sales per square foot declined $5 to $154. With comparable-sales planned to be down 10%-13% in 2H22, TTM figures will continue to decline through 2H22.
  • TTM EBITDA and free cash flow were $704M and -$161M, respectively, versus $766M and $366M in 2Q19. O’Sullivan noted, “Our plan for the fall assumes significant pressure on merchant margin. We had originally planned for an increase in merchant margin in the back half, but we have now pulled back on this...The most important driver of sales is the value that we put in front of the customer. We need to challenge every hanger in our assortment and make sure we are offering the best value.”

Schedule a Call

Please enter your email

Thanks for reaching out!

I’ll be in touch soon

Go Back
Oops! Something went wrong while submitting the form.

Thomas Paulson

Director of Research and Business Development,

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more. He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

Schedule a Call
Related Articles