Burlington Stores(BURL) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Comparable store sales for Q2 decreased by 17%, following a 19% growth in the previous year [7][34] - Total sales in Q2 were down 10%, with a three-year geometric comp stack of minus 1% [34] - Adjusted EPS for Q2 was $0.35, exceeding the guidance range of $0.18 to $0.31 [35][34] - Gross margin rate was 38.9%, a decrease of 320 basis points compared to 42.2% in Q2 2021 [35][34] Business Line Data and Key Metrics Changes - The company managed in-store inventories closely, ending the quarter 5% below 2021 levels on a comp store basis [40] - Reserve inventory was 52% of total inventory, up from 31% last year, indicating a strategic increase in opportunistic buys [40][41] Market Data and Key Metrics Changes - The low to moderate-income customer segment, which constitutes approximately 40% of the company's sales, is under significant economic pressure, impacting discretionary spending [11][12] - The current retail environment is characterized by high promotional activity, particularly affecting retailers serving low to moderate-income shoppers [13][16] Company Strategy and Development Direction - The company is focusing on offering the best value in categories, brands, styles, and price points to attract customers [10][48] - Plans for the fall include tightly controlling buying and liquidity, managing inventories, and aggressively pursuing opportunities to reduce expenses [25][24] - The company is optimistic about 2023, anticipating a recovery in sales and earnings as the inventory overhang clears and promotional activity declines [28][33] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment with Q2 sales performance, attributing it to external factors affecting low to moderate-income customers and increased promotional activity [46][47] - The company expects weak sales trends and significant promotional activity to persist through the rest of the year, leading to a revised guidance of minus 4% to minus 1% for the three-year geometric stack [21][23] Other Important Information - The company recently released its corporate social responsibility report, highlighting progress on environmental, social, and governance priorities [49] - A transition in the CFO position was noted, with Kristin Wolfe taking over from John Crimmins, who is retiring [51][50] Q&A Session Summary Question: Thoughts on the relative performance of major off-price retailers - Management noted a divergence in performance, with one peer up in the mid-teens and another in mid-single digits, while the company is at minus 1% [55] - The low-income customer segment, which previously drove growth, is currently struggling, impacting the company's performance [57] Question: Impact of 2022 challenges on long-term opportunities - Management emphasized the importance of separating short-term headwinds from long-term structural advantages of the off-price model [64][66] Question: Current pricing trends in the retail industry - Management indicated that realized prices have plummeted due to excess inventory, leading to significant markdowns across the industry [72][73] Question: EPS performance in Q2 despite comp miss - Management explained that gross margin pressure was offset by productivity and expense savings, leading to better-than-expected EPS [75][76] Question: Updated guidance rationale - Management acknowledged that the guidance is conservative, reflecting missed sales targets and ongoing promotional activity [84][85] Question: Inventory levels and response to sales trends - Management expressed confidence in managing inventory levels and the ability to respond to stronger sales trends through reserve inventory and market purchases [90][94]