Burlington reported a solid quarter (comparable store-sales of +6%) and said that November was off to a strong start, similar to its peers, Marmaxx (Marshalls and T.J. Maxx) and Ross Stores. Placer also sees that in solid traffic growth (below). Burlington also produced solid profit margins, improved inventory turns, and improvements in its merchandise margin (i.e. sell-throughs) and conversion rate. We suspect that the improving fundamentals reflect solid execution and some relief in spending by Burlington’s less affluent customer base–something that dd's Discounts also demonstrated. Supporting this hypothesis is Burlington “forecasting” a +2% comparable-store sales increase for 2024; had management felt that their core consumer was further tightening their purse strings and that things were becoming more unsettled, we don’t think that management would have offered an outlook for 2024 at this juncture.
On the consumer and the Burlington customer, CEO Michael O’Sullivan shared, “As you know, in 2022, this shopper really struggled with the combination of lower benefits and higher inflation. I would say as the cost of living went up last year, money that those shoppers might have spent at Burlington had to be used instead to pay for higher grocery bills or higher rent or higher gas prices. Now turning to this year. Inflation is obviously lower this year. So I would say the situation has improved. The cost of living hasn't gone down, but at least it stopped going up or at least stop going up by as much. And I think we may be seeing some early evidence that the low-income customer is actually starting to recover from the shock of last year. One point I would make about this customer is that they go shopping when they have a true need. We think that's why our business did so well going back to school. Every year, kids get bigger and they go back to school, there's a true need. You have to buy them clothes and supplies. So this low income customer comes out to shop during back to school and it felt like this year, they had a little more money to spend, certainly versus last year. And I think that's consistent with the point that they may be feeling a little less economic pressure than they were in 2022. Add to that, I do think our teams do a very nice job delivering great value on opening price points going back to school, not just by opening price points, I mean, merchandise that isn't just cheap, but it has great fashion and quality all at a great value.”
Given this foundation, Burlington is accelerating its unit expansion with O’Sullivan stating, “Over the next five years, we now expect to open approximately 500 net new stores on our current base of over 1,000. (A net 80 was added in 2023.) These will be comprised mostly by our 25,000 square foot prototype located in busy strip malls...We also plan to relocate or downsize a substantial number of our older, less productive and oversized locations. We anticipate 24 to 36 of these store relocations and downsizes each year...(i.e, they are planning to open around 130 new locations per year.) As you would expect, our plans for 2024 are well advanced. And our new store pipeline beyond 2024 looks healthy...Looking at the next five years as a whole, we expect that our average annual comp sales growth will be in the mid-single digits...As we look at the outlook for off-price and for our core customer over the next 5 years, we think that this 3% to 4% baseline is a good starting point for our model. But there are strong reasons why we believe we can outperform this baseline over the 5-year period...We expect these strategies and our improved execution of these strategies have a growing and positive impact on our results. In addition, our new store and relocation programs have the potential to provide a helpful comp tailwind over time... As more and more new stores join our comp base, we believe this tailwind to comp growth could increase.”
