Burlington Stores, Inc. Price & Performance (BURL)

Thank you, operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal twenty twenty four fourth quarter operating results. Our presenters today are Michael O'Sullivan, our Chief Executive Officer and Kristen Wolf, our EVP and Chief Financial Officer. Before I turn the call over to Michael, I would like to inform listeners that this call may not be transcribed recorded or broadcast without our expressed permission. A replay of the call will be available until 03/13/2025. We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties. Our remarks and the Q and A that follows are copyrighted today by Burlington Stores. Remarks made on this call concerning future expectations strategies, objectives, trends or projected financial results are subject to certain risks and uncertainties. Actual results may differ materially from those that are projected in forward looking statements. Such risks and uncertainties include those that are described in the company's 10 ks, and in other filings with the SEC. All of which are expressly incorporated herein by reference. Please note that the financial results and next expectations we discuss today run a continuing operations basis. Reconciliations of the non GAAP measures we discuss today to GAAP measures are included in today's press release.

As a reminder, as indicated in this morning's press release, the financial results we discuss today are in a thirteen week thirteen week basis for the fiscal fourth quarter and on a fifty two week versus fifty two week basis for the full fiscal year 2024. Additionally, all profitability metrics discussed in this call with bankruptcy acquired leases. [indiscernible] $18,000,000 for the full fiscal years 2024 and 2023, respectively.

Now here's Michael.

Thank you, David. Good morning, everyone. And thank you for joining us. I would like to cover three topics Firstly, I will discuss our fourth quarter results. Secondly, I will comment on our full year 2024 results and I will use these results to provide an update on the progress that we are making, towards our longer range financial goals. Finally, I will talk about guidance for the year ahead. Then, Kristen will provide additional financial details. [indiscernible] Let's start with our Q4 results. Comparable store sales for the fourth quarter increased 6% This was well above our guidance of 0% to 2%.

I would like to double click on Q4 comp sales and provide additional color on two key factors that contributed to this strong performance. Firstly, in early twenty twenty four, we embarked on a strategy to elevate our assortment.

In some categories and at some price points, this involved a higher mix of well known national brands. For sure, this higher mix was important but this strategy was not just about brands. In other categories, or price points, we elevated the assortment in other ways. Perhaps through higher quality or a higher weight of fabric or more up to date fashion, or more embellishment. Depending on the category or price point, these are all characteristics that the customer uses to assess value. Another very important aspect of this strategy was to identify items to remove from the assortment. One of our senior merchants uses the phrase eliminate to elevate. This means pruning items from the assortment that do not deserve to be there. Because the quality or the fashion or the value, is just not good enough. We want every hangar to count. It is also very important to make the point that this elevation strategy was pursued best our best assortment, We went after opportunities to elevate the assortment at all price points. Paying close attention to the Needadeal as well as the Wantadeal shopper. We but it was most evident and powerful in the fourth quarter. I interpret our 6% comp sales growth in Q4 as just the customer telling us that they approved of this strategy and really loved our assortment.

The second driver of our strong Q4 performance was that we were very nimble flexible and responsive to trend in Q4 and throughout the fall season. Let me illustrate this by talking about the quarterly trend last year. In the summer, as we exited Q2, we were flying We reported 5% comp growth for the quarter and the trend continued to accelerate through back to school. Then it dropped off significantly due to unseasonably warm weather from mid September onwards. These warmer temperatures hurt our sales of outerwear at that particular time of year, outerwear is a critical business for us. The warm weather and the weak trend persisted until mid November.

And then our business took off as the customer began to shop. [indiscernible] I cannot overstate how pleased I am with how well we reacted to this volatility in sales. We chased the trend in back to school cash and call back very hard on cold weather businesses from mid September onwards and then chased holiday businesses in late November and December. This nimble and rapid execution is the essence of Off Price. It is an excellent illustration of what we are trying to achieve with Burlington two point zero. We know that we will never be able to predict the future, but what we can do using the processes, tools, and capabilities that we have built, is to react quickly and effectively to whatever happens with external traffic and the sales trend. I'm going to move on now and talk about our results for 2024 as a whole.

I would like to discuss financial objectives. Investors will recall that in November of twenty twenty three, we shared high level financial goals through 2028. We expect to grow total sales to approximately $16,000,000,000 and to increase our operating profit to about $1,600,000,000 during this period.

We are only one year into this five year program but we are very pleased and encouraged by our initial progress towards these goals. The headline is that in 2024, we achieved very strong total sales growth of 11% and we expanded our operating margin by 100 basis points As you will recall, of our long range model. New store openings, comp store sales growth and operating margin expansion.

I will now review the progress that we made on each of these major drivers in 2024.

Let's start with new store openings. Our long range model projects an average of 100 net new stores each year, [indiscernible] a couple of dozen relocations of older oversized stores. In 2024, we opened 101 net new stores but let me dissect that number a little further. Of course, there is no such thing as a net new store. In 2024, we actually opened new stores 31 of these were relocations, and we also shuttered 15 mostly older and less productive locations Mathematically, this equals 101 net new stores. But my point is, that the full impact on the chain is much more significant. Our long range goal is to grow and transform our store network. 147 gross new stores in 2024 represents strong progress on this transformation program. Okay. Let me comment on the performance of our new stores. There are a number of important relevant metrics that we track. For new stores, these include the sales volume in the [indiscernible] the comp performance in the first few years once the store joins the comp base. For relocations, we focus on the comp sales and the productivity lift that we see in the new location. We are pleased with how all of these metrics are tracking I should add that when we approve and location, we analyze the internal rate of return based on expected sales, profitability and CapEx.

The rate of return that we are achieving on New Store Oak openings and on relocations is very attractive. I will finish up on our new store program by talking about the pipeline. Of course, at this point, our plan and our schedule for new store openings in 2025 is largely set We feel confident in our ability to open 100 net new stores this year. For 2026, the pipeline is also shaping up nicely. It is early, but at this point, I feel good about our ability to also open 100 net new stores in 2026.

I'm going to move on now and talk about the second major driver, of our long range model, Comp store sales growth Our long range model projects that through 2028, we should be able to achieve comp sales growth in the mid single digits. In other words, between 46%. We are pleased that in 2024, we achieved 4% comp growth and this was on top of 4% comp growth in 2023. But we recognize that comp growth is the most difficult variable to project. There are internal and external drivers of the comp trend, We are confident about the internal drivers and our ability to execute We have made huge improvements across our business in merchandising, stores and supply chain. I am also very bullish on the longer term external prospects for the Off Price segment, and for our business in particular, Across retail, shoppers are voting for value. And we are very well positioned to deliver that value for our customers. So with that said, we recognize that the short term outlook is uncertain and it is important to plan and manage our business accordingly. We will talk more about this in a moment, when I discuss our thinking and our guidance for the year ahead.

But before I get there, let me finish with the third major driver of our long range model, operating margin expansion.

As a reminder, our long range model calls for approximately 400 basis points of operating margin expansion between 2023 and 2028. We expect about half of this expansion to come from leverage on our projected double digit top line sales growth. And we expect the other half to come from opportunities unrelated to sales. These opportunities fall into two buckets, Firstly, higher merchant margin, pre leading to faster turns and secondly, productivity improvements and other expense savings in our supply chain. As I said a moment ago, we achieved 100 basis points of operating margin expansion in 2024 This was well ahead of our initial guidance of 10 to 50 basis points. Christian will provide more details later in the call, But the major drivers of this expansion was stronger merchant margin, from faster inventory turns, Ahead of planned savings, from supply chain productivity initiatives, and sales leverage on fixed costs. [indiscernible] I would like to segue now to our 2025 outlook. As previewed in our third quarter call last our 2025 guidance is for total sales growth of 6% to 8%, driven by 100 net new store openings [indiscernible] comp store sales growth of zero to 2% Based on this comp sales range, we expect operating margin expansion of zero to 30 basis points.

This 2025 guidance is consistent with our playbook. The outlook for 2025 is very uncertain, with significant economic, political and geopolitical risks that could affect consumers. Rather than trying to predict what is going to happen, our approach is to manage our business conservatively and then be ready to pull back or to chase the sales trends if it is stronger. This approach serves us well in 2024 and we hope for the same in 2025. At this point, I would like to turn the call over Christine?

Thank you, Michael, and good morning, everyone. In the fourth quarter, and comp sales grew 6%.

Well above the high end of our guidance. Our adjusted EBIT margin [indiscernible] versus last year, This was 60 basis points above the high end of our guidance. The gross margin rate for the fourth quarter was 42.9%, an increase of 30 basis points versus last year. This was driven by a 10 basis point increase in merchandise margin, due to better than expected storage results and lower markdowns, partially offset by lower markup due to higher better brand penetration. Freight expenses decreased 20 basis points. Product sourcing costs were $217,000,000 versus $197,000,000 in the fourth quarter of twenty twenty three.

Product sourcing costs were flat as a percentage of sales versus last year as leverage on supply chain expenses and buying costs were offset by higher incentive costs and higher asset protection costs. Adjusted SG and A cost in Q4 were 20 basis points higher than last year, This excludes the impact of expenses associated with bankruptcy acquired leases These were worth approximately $5,000,000 this year and $6,000,000 last year.

In Q4, we achieved sales leverage on corporate G and A expenses but this leverage was offset by higher incentive comps and the timing of advertising costs.

Q4 adjusted EBIT margin was 11.1%, 10 basis points above last year. Well above our guidance of 50 basis points to 80 basis points. Our adjusted earnings per share in Q4 was $4.13 again well above the high end of our guidance.

This represents a 12% increase versus the prior year. At the end of the quarter, comparable store inventories were down 3% versus the end of the fourth quarter in 2023. Our reserve ending versus 39% of our inventory last year. We are pleased with the quality of the merchandise and the value that we have in reserve We ended the quarter in a very with approximately $1,800,000,000 in total liquidity which consisted of $995,000,000 in cash, and $827,000,000 availability on our ABL. We had no borrowings outstanding at the end of the quarter. On the ABL. During the quarter, we repurchased $61,000,000 in common stock bringing our annual share repurchases to $242,000,000 At the end of Q4, we had $263,000,000 remaining on our share repurchase authorization. That expires in August of twenty twenty five. In Q4, we opened five net new stores bringing our store count at the end of the quarter to eleven oh eight This includes eight new store openings, one relocation and two closings.

As Michael noted, for the full year, we opened 147 new stores, while relocating 31 stores and closing 15 stores. Adding 101 net new stores to our fleet. I will now move on to discuss our full year 2024 results. In fiscal twenty twenty four, total sales increased 11% on top of 10% in 2023, Comp store sales increased 4% on top of 4% in 2023. Our operating margin for the full year Merchandise margin increased by 60 basis points freight improved by 20 basis points, supply chain cost leverage by 50 basis points, and we achieved 20 basis points of leverage on fixed expenses. This operating margin expansion was partially offset by deleverage driven by investments in store payroll, higher incentive costs and higher depreciation in fiscal twenty twenty four Before I turn to guidance, I would like to provide an update on our supply chain strategy and capital expenditures. On our November call, we talked about the strategic rather than leasing our most productive distribution centers. Our vision for future DC capacity is one designed to better support our off price operating model. And more highly automated. As a reminder, historically, we have leased our distribution center. Which made sense at the time when our balance sheet was much more leveraged.

We now have the balance sheet strength to own rather than lease Ownership gives us greater control over the over the design of these buildings. It also allows us to leverage this capital investment as we grow over time.

And to avoid significant rent increases at each lease renewal. With that said, I'm pleased to share that in the fourth quarter, we exercised the purchase option on our 2,000,000 square foot Savannah, Georgia DC that is on target to be opened in 2026. Given the progress we have made during the construction We exercised this purchase option in January a few months earlier than originally planned As a result, CapEx for FY 'twenty four increased to $844,000,000 above our previous guidance of $750,000,000 Additionally, we have also recently opportunistically negotiated the purchase of our most efficient most automated West Coast DC our campus facility in Riverside, California. This deal will have CapEx implications [indiscernible] which I will review. I'll first move to our 2025 guidance. This guidance excludes approximately $13,000,000 in 2025 versus $16,000,000 in 2024 in expenses associated with bankruptcy acquired leases. For 2025, we expect total sales growth in the range of 6% to 8%. This assumes 100 net new store openings. We anticipate that most of these stores will open the latter half of the year. We are forecasting comp store sales [indiscernible] in the range of flat to 2%. And our adjusted EBIT margin to be in the range of flat to an increase of 30 basis points.

Versus last year, We expect the major drivers of this expansion to be higher merchandise margin, and productivity savings All this results in adjusted earnings per share guidance in the range of $8.7 to $9.3 an expected increase of 4% to 11%. Capital expenditures net of landlord allowances are expected to be approximately $950,000,000 in fiscal twenty twenty five. The increase in CapEx for FY 2025 is driven by the purchase of our currently leased Cactus, DC in Southern California. This purchase is scheduled to close later this month. When combining our FY 'twenty four actual and FY 'twenty five guidance total capital expenditures are higher than we previously indicated by about $200,000,000 This variance is in entirely driven by the opportunistic purchase of the Cactus DC. This purchase had not previously been contemplated in our long range model. I would like to move on to guidance for the first quarter of twenty twenty five. This Q1 guidance excludes approximately $6,000,000 each in 2025 and expenses associated with bankruptcy acquired leases. We expect total sales to increase 5% to 7%. Comp store sales are assumed to be flattish for Q1. We are expecting adjusted EBIT margin This results in an adjusted EPS outlook in the range of $1.3 to $1.45 versus last year's first quarter adjusted EPS of $1.42 I will now turn the call back to Michael.

Thank you, Kristen. Before I turn the call over to questions, I would like to reinforce a few of the key points that we have discussed This morning, Firstly, we are pleased with our Q4 results. These results were well above the high end of guidance. They were driven by: number one, our strategy to elevate value across categories and price points. And number two, our effectiveness in responding to sudden unexpected shifts in the external sales trend throughout the fall season. Secondly, we are pleased and encouraged with the progress that we made in 2024, towards our long range financial goals. 11% total sales growth 4% comp store sales growth 100 basis points of margin expansion. We are just one year into our long range model, but we are tracking well on each of the key drivers of this model. Thirdly, the 2025 outlook is uncertain. And in this environment, we are planning and managing our business conservatively. This is consistent with our playbook. And it should put us in the best possible position to react to whatever happens Externally, I would now like to turn the call over for your questions.

We are now opening the floor for question and answer session. Your first question comes from the line of Matthew Boss JPMorgan. Your line is now open. Congrats on a really great fourth quarter. Thank you. So Michael, could you elaborate on sales trends that you've seen so far in the first quarter? In particular, the comp guidance for the first quarter appears more conservative than the remainder of the year, if you could share what is driving this? Sure. Well, good morning, Matt.

Thank you for the question. In February, our first quarter trend started out weaker than we had planned or expected. Now I think that's consistent with what you've heard from other retailers who've reported But let me offer some some detailed commentary on what the potential drivers of that weakness might be. I think I've said before that the first quarter is typically the most volatile and unpredictable quarter of the year. There are two factors that typically drive that volatility. Firstly, weather. The weather, especially in February and March, can vary a lot. From one year to the next. And secondly, the timing of tax refunds. Our customer as you know, is very sensitive to the timing of tax refunds, specifically Earned Income Tax Credit and Child Tax Credit, Now of course, [indiscernible] we slice and dice the sales data. To identify what might be going on. For the first few weeks of February, we didn't have to look very hard. It was clear from the underlying sales data that the weakness in the trend was concentrated in two specific regions. The Midwest and the Northeast. Those regions are obviously very important to us. And in February, they experienced unfavorable weather.

I should add, as the weather began to normalize later in the month, we saw the sales trend pick up. Now as for the timing of tax refunds, in February, the distribution of tax refund payments fell well behind last year And we think that that delay also contributed to some of the weakness in the sales trend that we saw during the month Again, as refunds caught up later in February, the sales trend strengthened. [indiscernible] we believe that the weak trend in February can largely be attributed to the usual suspects and the timing of tax refunds But in our business, at least in the short term, it pays to be neurotic Could there be something else going on? We have not seen anything in the data to suggest this, at least not yet. But that said, we recognize that there are a lot of things happening externally And at this point, we don't know if or when those things might have an effect on our customer. We haven't seen it yet, but of course, there is risk We're only four weeks into the quarter. We need to get further along. And see how the sales trend develops.

So turning to guidance, [indiscernible] that weaker than expected start to the quarter, we're being a little more cautious about our Q1 guidance. That's the reason why we're guiding to a flattish comp versus 0% to 2% for the full year?

Great color. And then maybe just a follow-up on your first quarter margin guide. It looks bit lower relative to the year. Kristen, could you just walk through the dry and the cadence of margin expansion by quarter through the year. Sarah, good morning, Matt.

It's a good question. Let me provide a little bit more context In last year in fiscal twenty twenty four, our biggest EBIT margin increase was in the first quarter.

It was up 170 basis points.

Our EBIT margin increases then moderated as the year unfolded largely due to clearance level comparisons and the timing of certain freight and supply chain savings. But for fiscal twenty twenty five, we anticipate the reverse of this this trend will be true with the most challenging margin comparison here in We then expect margin comparison to improve as the year unfolds and we actually expect the biggest year over year improvement in the fourth quarter. So put another way, if you were to look at our margin expansion on a two year basis, generally, it'd be fairly consistent across quarters. But to your question, more specifically on Q1, there are a couple of factors I want to explain more on. First, merchandise margin is expected to be a driver of EBIT margin in But in the first quarter, we're not expecting as much help from merch margin. This is due to some modest mark on pressure from increased better brands and timing of some markdowns. The second factor in Q1 is on supply chain. We will anniversary some DC lease renewal increases in the back half of twenty twenty five.

And the fixed cost deleverage in supply chain is most pronounced in the first quarter And I should add that while we expect to continue to drive cost savings in supply chain, we expect most of these savings come through later in this year. And then the last point on Q1 is that we have deleverage on fixed costs based on our comp sales assumption of flattish or minus 1% to plus one And that deleverage is exacerbated by the fact that Q1 is our lowest sales volume quarter of the fiscal year So all these factors make Q1 our toughest EBIT margin comparison outlook for the fiscal year.

As I look to the balance of the year, we do expect comp store sales to be flat to plus two and about 75% of our new stores are scheduled to open in the second half of the year. So total sales growth is lower in the first half of the year relative to the back half.

So taking all this together, we expect pretty modest EBIT margin expansion in the second quarter And then for the third quarter, EBIT margin improvement should look more like our annual guidance And finally, for the fourth quarter, we expect that will be our most significant EBIT Thanks Matt. Your next question comes from Ike Boruchow from Wells Fargo. Your line is now open. Hi. Good morning. Congrats, Michael, Chris and David.

I guess, Michael, for you, Good strong finish to 24, of course. I guess I'm wondering if you can break down your comp trend for 2024, especially in the fourth quarter in terms of maybe how much you think might be coming from trade down shoppers versus existing customers?

Good morning, Ike.

Ike. It's a good question. As you know, we think of our customers in two major buckets, two major segments. Let me start with the first of those, the Need a Deal customer. That customer is typically lower income and they are very focused on value. This is a very important segment of customers for us. In fact, it's difficult for us to drive comp sales growth without this customer. The Q4 as I look at our stores that we're in that are in, lower income trade areas, these were actually the strongest performing stores in the chain. And that tells me we are doing very well with the needed deal customers [indiscernible] I talked about our strategy to elevate our assortment within a good, better, best framework And that meant elevating the value at all price points. Now of course, it's difficult to offer well known national brands at lower or opening price points. Our merchants had to work very hard to deliver value through other means. As great quality or strong fashion or other attributes that the customer cares about. My assessment is that, they, we did a very good job delivering great value to the Neededale shopper in Q4 and throughout 2024.

And that was a clear driver of our comp growth. But let me turn now to the Want2deal customer, second sort of segment, if you like, As I just said, for Q4, our stores that are in lower income trade areas were the strongest performing stores in the chain But we also saw a very healthy mid single digit comp store sales growth in moderate and higher income trade areas. We believe that that comp growth in those stores was driven by the trade down customer Now in addition to comp performance of stores based upon the income level of the trade area, there are other indicators that sort of further demonstrate that that trade down trend. For example, you can look at the performance of our business by price point. As we've disclosed in the past, our average unit retail or average ticket is about $10 In Q4, we saw a mid single digit percentage increase in that average retail versus last year, And the strongest comp sales growth rates in Q4 were in price buckets well above $10. Again, that's the trade down customer. So tying all that together, I would say that we are very pleased with the strength of our business with our core [indiscernible] And we're also very pleased with our success in attracting the want to deal or the trade down shopper To achieve a 6% comp store sales growth in Q4, we had to deliver great value to both of those important segments of customers and that's what we did.

Got it.

Super helpful. And then Michael, if I can do one more. Just we've tried this with some of our companies in the space, but I guess on the topic of broader policy changes, that are likely to happen in 2025, things like tariffs, tighter immigration controls, I mean, can you comment on how do you see these policy changes affecting your customer? And maybe what are the biggest risks as you kind of look out in that regard? Sure. Sure. Yes, it's a good question, Mike.

Ike. It's a question we've thought a lot about. Let me share some of our thinking. And let me preface my answer by saying we are very optimistic about our business. Over the next two to three years. We recognized that in the short term, there are risks and frankly the sales trend is likely to be choppy. There are a lot of things going on in terms of potential policy changes, including the things you mentioned, But at this point, I don't think anyone can confidently or accurately forecast What it all means? With that said, let me make a couple of points. Firstly, my experience has been that [indiscernible] uncertainty and disruption tend to be good for off price. The key thing for us as an off price retailer is to remain nimble and flexible, so we can react more effectively to whatever happens. That is what we are doing. We're being cautious and we're tightly controlling Arrow from Dubai. Secondly, if I think about specific policy changes, for example, tighter immigration control, higher import tariffs, both of which you mentioned, but also changes in the tax code, changes in federal benefits. It's true, some of these things could have a negative impact on our customers, but some of them could be very positive.

I think it all depends on the scale and the specifics.

And we just don't know those yet. And apart from individual policy changes themselves, think a lot depends on what happens in the overall economy. So what happens to inflation, what happens to hourly wages, what happens to trade down shoppers, And what happens to our regular price contest competitors and apparently the rest of retail [indiscernible] I describe myself as a rational optimist. I could Easily paint a scenario for our business that's very positive over the next couple of years. Lower taxes on hourly workers, lower energy price it lower corporate taxes, and strong availability of off price merchandise due to disruption from tariffs, We've just reported 6% comp store sales growth for Q4. And we see a lot of reasons to be excited and optimistic about our business in the years ahead. But that said, we realize it may not be a straight upward sloping line. We anticipate that in the short term, things could be volatile. There are external risks For example, higher tariffs, which you mentioned, could drive up inflation. And that could hurt discretionary spending. But this is a it's a complex issue. There are a lot of variables. That mean that that might or might not happen, which brings me back to my earlier point.

As a business, we need to focus on what we can control. And that means planning our business cautiously, being nimble, flexible and ready to react. And that's the approach that we are that we're taking. Got it. Thanks so much.

Your next question comes from the line of Lorraine Hutchinson from Bank of America. Your line is now Thank you. Good morning. My first question is for Chris Your 2025 full year guidance is zero to 30 basis points of operating margin expansion.

On that zero to two comp, For 2020, you guided 10 to 50 basis points on a similar comp range. Can you remind us of why you're guiding to lower expense in this year? Good morning, Lorraine. Yes, thanks for the question. You're right. We did initially guide 2024 EBIT margins originally up 10 to 50 basis points. However, as we talked about in our prepared remarks, we ended 2024 with EBIT margins up 100 basis points.

And this upside was due to exceeding our sales plan and driving leverage but also higher than planned merch margin improvement and faster than planned supply chain expense savings. In our long range model, we discussed 200 basis points of margin opportunities that were unrelated to sales Those were driven by higher merch margin and freight and supply chain savings. In fiscal twenty twenty four, merch margin increased six supply chain efficiencies and productivity gains drove 50 basis points of leverage and freight levered 20 basis points So essentially, we made faster progress than we expected in fiscal twenty twenty four. And we still expect to harvest those 200 basis points of savings Although for this year, in fiscal twenty twenty five, we factored in a more measured pace of progress We are expecting the 30 basis points of margin improvement on a 2% comp to be driven by merch margin improvement and additional leverage from supply chain efficiencies. We're being a bit more cautious on freight we want to plan conservatively based on the uncertainty. But those are the two key drivers of the 30 basis points in 2025, again, at a more measured pace than we saw in 2024.

And finally, it's worth calling out, last point I'll make here is that for every 100 basis points of comp above a 2% comp, we would expect 10 to 15 basis points of incremental EBIT margin expansion. Thank you. And then my second question is about the purchase of the DCs. What are the implications of higher CapEx for debt levels and stock buybacks?

Thanks Lorraine. It's David. I'll take that question. Fair question. You've heard us talk about the strategic importance of owning and controlling really our most modern technologically advanced distribution centers as we transform our supply chain over the next several years.

And buying the Savannah and the California DCs are really two important steps.

In that transformation And as Kristen indicated earlier, those in 2024 and 2025. We just invested $844,000,000 in 2024. And as you know, we're now planning to invest $950,000,000 in our growth in fiscal twenty twenty five. Also, Kristen commented in her prepared remarks that those DC purchases did increase our CapEx levels over those two years. I just cited 2024 and 2025 by about $200,000,000 versus our original plan. And that increase is really attributable to the purchase of the California DC We had planned all along to buy the Savannah DC And if you think back to September, we did increase our term loan by about $300,000,000 to fund the Savannah DC purchase. And we will evaluate whether or not we want to raise debt to fund the California DC investment but it is important to put all this into the overall context of the debt levels on our balance sheet. What do I mean by that? First, we are retiring the $156,000,000 outstanding in 2025 converts, which will be paid down with cash in April And secondly, capitalized operating lease attributable to lease DCs are already captured on the balance sheet. So if we do choose to add some additional debt to finance the California DC purchase, we think the resulting increase in our leverage ratios would be very modest.

And finally, probably to the crux of your question as far as share repurchases, we believe it's important to return excess cash to our shareholders on a consistent basis. So we would expect that practice to continue this year in fiscal twenty twenty five with repurchases similar to the levels we executed in each of fiscal twenty twenty three and fiscal twenty twenty four. Thank you. Your next question comes from the line of John Kernan from TD Cohen.

Hey, good morning, Michael, Chris and David. Thanks for taking the question.

Good morning.

Kristen, any additional color about category and regional performance in Q4 as well as how traffic and ticket drove the 6% comp increase in the quarter.

I think Michael talked earlier about trade down shopper and need a deal shoppers both demonstrating strength. It seems like traffic and ticket would have both been positive drivers. Is that a fair statement?

Yes, John. Thanks. Thanks for the question. Yes, to your last point, comp was driven by both an increase in transaction as well as higher average transaction value The strongest metrics you implied were higher traffic and we did see higher AUR. While conversion and units per transaction were flattish. So it was really traffic and AUR in the quarter. In terms of category performance, there was relative strength in accessories, in beauty and in home. But that said, all major categories really comped well, including apparel, in the mid single digits. In Q4. And then, you also asked about regional performance and regional trends, the Southeast and Southwest. Were above the chain. But regional strength was really broad based with every region comping up at least mid single digits.

That's helpful. Maybe, Kristen, one follow-up. Michael talked about whether regional dynamics into Q1. Is there any detail on how weather may have driven the business in Q4 obviously the 6% comp and better holiday comps we've seen in a while.

Yes, thanks. You're right. Michael touched on this a little bit in the other parts of the call. But in terms of Q4, if I put it all together, weather did have a negative impact on our sales trend, particularly at the beginning of the quarter as we saw that unseasonably warm weather continue from October into November, And then the other weather impact in the quarter was in January with disruptive winter storms and then add to this the California wildfires also If I step back and look at Q4 overall, our cold weather businesses underperformed the chain. Most of that underperformance was driven by that warmer weather in November. And that's a really important part of our mix in November. And we quantify the negative impact of this was worth about one point of comp in the quarter overall.

Okay, got it. Thank you. Thanks, John.

Your next question comes from the line of Alex Stratton from Morgan Stanley. Your line is now Thanks so much for taking the question. Two from me. One for Kristen. I was just wondering if you could give us some more color on the components of the 15% inventory increase. It was nice to see that the comp store inventories were down 3%, but can you talk about the discrepancy there and then any key drivers? Yes, Alex, good morning. It's a good question. So overall inventory was up 15%. At the end of Q4 This was driven really by adding 101 net new stores but also higher levels of reserve inventory. In the store, on a comparable store basis, inventory in stores were down 3% as you noted This compared pretty favorably to our 6% comp increase We continue to drive faster turns, which is a very healthy sign of our business. And while it can vary from quarter to quarter, so it may not always be this way, we generally expect to manage our comp store inventory levels below last as we still see opportunity to turn our inventory faster And then last point I'll make, it's an important point here, is a driver of that 15% increase was our reserve and in 46% of total inventory versus 39% last [indiscernible] And the buying environment has been strong and our merchants took advantage of great reserve buying opportunities and we feel really good about the values and the content of our reserve inventory.

Great. And maybe a follow-up just for Michael. There's obviously a lot going on with store closings across retail.

Going through a bankruptcy process? Good. Yes. Well, good morning, Alex.

It's a good question. As you'll recall, in 2023, we acquired leases for 64 Redpath and Beyond stores, through the bankruptcy process. We opened about half of those stores 2023 and the balance in 2024 So they were an important source of some of our new store openings last year. And then late last year, we were able to secure from a handful of other retailers that are going through a bankruptcy process.

We're very pleased about these new store locations. Overall, these retail bankruptcies have given us access to locations and strip malls that we might not otherwise have been able to get into. The 39 locations that I referenced a moment ago, are included in our new store opening plan of 100 net new stores for 2025. So we're excited about those [indiscernible] Your final question comes from the line of Brook Roche from Goldman Sachs. Good Burlington thank you for taking our question. Michael, I'm curious about your view of the potential changes that might be made to the de minimis exception for small package imports. If these proposed changes go through, are they likely to slow the growth of companies like Shein and others? And would this be positive for Burlington Burlington?

Good morning, Brook. Thank you for the question. I guess the way I would answer that, I would say stepping back world view is that we operate in a very large and fragmented competitive space, there are many companies and retail format [indiscernible] That compete in the categories that we sell, department stores, specialty stores, fast fashion, online retailers, etcetera. Now some of those companies are growing and some of them aren't. We know that we at Burlington need to earn our living every day.

We need to be able to compete successfully with this broad competitive set by offering great value to shoppers. Now the data shows that we've achieved very strong growth over the last couple of years. In 2024, we grew total sales by 11%. That was on top of 10% to The overall market is not growing at anything like those kinds of rates. So empirically, it's clear that we at Boeing ten are taking significant market share. So all a long way of coming back to your question on Sheehan. Based on the growth numbers that I've just cited, it certainly doesn't look like the growth of Siyan over the last few years has had much impact on us. So conversely, you know, will the elimination of the de minimis exception impacts Sheehan? And if it does, will that be a benefit to us? I guess my answer is I guess, conceptually, yes. [indiscernible] I wouldn't expect the impact to be very material I suspect this is a much bigger issue for other e commerce or for fast fashion or for specialty retailers than it is for us.

Great. And then my second question, and you hinted at this earlier in another response to another question. Could you update us on your view on off price merchandise availability today?

Sure. Yes, it's a good question, a very important question. There's not much new to call out here. I would say, as you've heard, from other off price retailers, availability in the channel, I would say, is very strong. Of course, there are always categories, brands and styles. Either easier to get hold of or more difficult to get hold of. That's just the nature of Off White [indiscernible] But overall, our merchant team has, I think, gone really good at finding terrific off price deals. Q4 was a good illustration of that. We came into the quarter with actually a weaker than expected trend in early November driven by weather and with our comp guidance of flat to 2% for the quarter, we then from mid November onwards, we chased Our merchants worked with our vendor partners and we were able to chase to 6% comp growth Again, from a slow start, So stepping back, I would say I feel very good about our vendor partnerships. Our partnerships with vendors are mutually respectful and mutually beneficial. We help our vendors build their businesses and we're happy to do that. And they help us to build ours. There are many retailers that are consistently growing top line sales at double digit rates every year.

Our vendors know that. And so our growth and our growth potential I think, have really helped us to expand, develop and deepen our vendor network over the last few years. There is one final point I think I should touch on though and that's around tariffs. And the potential impact of tariffs on off price merchandise supply Right now things are very dynamic. It feels like there's new developments every day, literally every day on tariffs. That's creating a lot of uncertainty. It's likely that that uncertainty is going to drive disruption in supply chains across retail, as merchandise that was ordered months ago starts to arrive and is hit with a tariff. And that disruption, I would say, is likely to create a buying opportunity for off price. So off price available to use good right now and I think the chances are it's going to get better in the months ahead.

Great. Thank you.

Thank you. I'd now like to hand back the call over to Michael O'Sullivan, CEO. Please go Let me close by thanking everyone on this call for your interest in Burlington Burlington. We look forward to talking to you again in May to discuss our first quarter twenty twenty five Thank you for your time today.

Thank you for attending today's call. You may now disconnect.