Burlington Stores(US:BURL)2023-05-25 16:58Financial Data and Key Metrics Changes - In Q1 2023, total sales increased by 11%, while comparable store sales rose by 4%, which was below the guidance of 5% to 7% [29][24] - The gross margin rate for Q1 was 42.3%, an increase of 130 basis points compared to 41% in Q1 2022, driven by a decrease in freight expenses [9][10] - Diluted earnings per share were $0.50, up from $0.24 in Q1 2022, while adjusted diluted earnings per share rose to $0.84 from $0.54 [10][11] Business Line Data and Key Metrics Changes - The adjusted EBIT margin for Q1 was 4.1%, which was 100 basis points higher than the same period in 2022, but below the low end of guidance due to lower sales [30] - In-store inventories increased by approximately 10% on a comparable store basis at the end of Q1, with reserve inventory representing 44% of total inventory, down from 50% last year [31][52] Market Data and Key Metrics Changes - The company observed a slowdown in sales trends in mid-March, attributed to lower tax refunds and cooler weather leading up to Easter, impacting lower-income customers significantly [4][25] - The company is guiding for a comp growth range of 2% to 4% for Q2, with expectations of operating margin expansion of 10 to 50 basis points compared to Q2 2022 [32][38] Company Strategy and Development Direction - The company is focused on its Burlington 2.0 initiatives, particularly in merchandising, to enhance buying and planning capabilities, which are expected to improve performance over the next several years [8][94] - The company plans to open 70 to 80 net new stores in 2023, with a strong pipeline for new store locations due to retail bankruptcies [63][64] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the economic health of lower-income customers, noting potential tailwinds such as lower gas prices and improved promotional activity compared to last year [27][36] - The company remains comfortable with its full-year guidance of 3% to 5% comp store sales growth and expects adjusted EBIT margins to increase by 80 to 120 basis points [11][34] Other Important Information - The company is experiencing early evidence of a trade-down customer, with stores in higher-income areas outperforming those in lower-income areas, indicating a shift in customer demographics [17][58] - The company is actively managing its buying process to ensure optimal inventory levels and is focused on controlling costs amid a competitive retail environment [45][68] Q&A Session Summary Question: Can you elaborate on the continued concern around the low-income consumer? - Management noted that lower tax refunds significantly impacted lower-income shoppers in Q1, but they expect this to improve as the tax refund season ends [36][57] Question: What are the drivers of the lower-than-expected margin expansion? - Management indicated that lower sales and transitory expenses contributed to the lower-than-expected margin expansion, but they expect improvements in the second half of the year [38][60] Question: How do you assess your performance relative to other major off-price retailers? - Management acknowledged that while they are newer to the off-price business and face challenges, they see significant growth opportunities as the off-price retail channel expands [89]