Executive Summary / Key Takeaways

• Burlington Stores delivered a solid start to Fiscal 2025 with Q1 results meeting sales guidance and exceeding earnings expectations, driven by operational improvements and expense control.
• The company reaffirmed its full-year Fiscal 2025 guidance, projecting 6-8% total sales growth and flat to 30 basis points of Adjusted EBIT margin expansion, underpinned by aggressive store expansion and internal efficiency initiatives.
• Burlington's "Burlington 2.0" strategy, encompassing merchandising, supply chain, and store experience enhancements, leverages technology and process improvements to drive agility, faster inventory turns, and cost savings, strengthening its competitive position.
• Despite macroeconomic uncertainty, potential inflationary pressures from tariffs, and a choppy consumer environment, Burlington's flexible off-price model and conservative planning approach are designed to capitalize on market disruptions and capture market share.
• The company's ambitious real estate strategy targets 2000 stores long-term, with plans for 100 net new openings annually through FY2028, fueled by attractive returns on new stores and opportunistic acquisitions of competitor leases.

Setting the Scene: The Off-Price Powerhouse and Its Ambition

Burlington Stores, Inc. traces its roots back to 1972, evolving from a single coat store in New Jersey into a nationally recognized off-price retailer. Today, operating 1115 stores across 46 states, Washington D.C., and Puerto Rico as of May 3, 2025, Burlington offers a diverse range of value-priced apparel, footwear, accessories, and home goods. Its core value proposition lies in providing in-season, high-quality branded merchandise at significant discounts, often up to 60% below traditional retailers' prices. This model positions Burlington squarely within the highly fragmented and competitive U.S. retail landscape, vying for consumer dollars against department stores, specialty retailers, discount chains, and online marketplaces.

Recognizing the opportunity to significantly grow its market share and profitability, Burlington embarked on its "Burlington 2.0" strategy. This multi-year transformation aims to unlock the company's full potential by enhancing its core off-price execution. A central pillar of this ambition is a bold real estate strategy targeting a long-term footprint of 2000 stores in the U.S., supported by an average of 100 net new store openings per year through Fiscal 2028. This aggressive expansion, coupled with ongoing operational and technological advancements, forms the foundation of Burlington's plan to reach approximately $16 billion in total sales and $1.6 billion in operating income by 2028.

The Engine of Growth: Store Expansion and Network Transformation

The rapid expansion and strategic enhancement of Burlington's store base are primary drivers of its total sales growth. In Fiscal 2024, the company demonstrated strong progress on this front, opening 147 gross new stores, including 31 relocations of older, larger locations, and closing 15 stores, resulting in 101 net new stores for the year. This momentum continued into the first quarter of Fiscal 2025, with 14 new stores opened (including 4 relocations) and 3 closures, bringing the total count to 1115.

The strategy emphasizes opening smaller, 25,000 square foot prototype stores, often located in busy strip malls with national co-tenants. Early performance data from these new stores is encouraging, reportedly running ahead of the benchmark expectation of $7 million in sales in their first full year. Similarly, store relocations, which aim to right-size locations, improve competitive positioning, and reduce occupancy costs, are also seeing sales lifts well ahead of the expected 10% average. The attractive rate of return on these new store openings and relocations reinforces management's confidence in the expansion plan.

Beyond organic site selection, Burlington has opportunistically leveraged the challenging retail environment and competitor bankruptcies to acquire desirable leases. In 2023, the company secured 64 former Bed Bath & Beyond locations, and in 2024, it added dozens more from other troubled retailers, including 46 leases from JOANN's Fabrics (JOAN) expected to open in 2026. These acquisitions supplement the pipeline and provide access to prime retail locations that might otherwise be unavailable, positioning Burlington well to meet or exceed its goal of 500 net new stores by the end of Fiscal 2028.

Operational Excellence and Technological Edge

Burlington's strategic ambition is not solely reliant on opening new doors; it is equally focused on enhancing the efficiency and effectiveness of its operations, increasingly supported by technological advancements. The "Burlington 2.0" initiative includes significant efforts in merchandising, supply chain, and the in-store experience.

A key component is Merchandising 2.0, which involves rolling out new systems, processes, and tools designed to enhance agility and responsiveness. This includes refreshed and updated reporting suites and a new in-season trending process. These tools enable buyers and planners to more frequently and rapidly analyze sales trends, re-forecast demand, and shift open-to-buy dollars into businesses that are performing well, or pull back from those that are not. This improved transparency and speed are critical for an off-price model that thrives on reacting quickly to market opportunities and unexpected shifts in consumer demand or supply availability.

In the stores, the company is implementing new store-level sales and allocation algorithms based on machine learning. These algorithms aim to optimize the allocation of receipts based on the selling patterns of individual store classes, driving greater customization of the assortment by location. The stated goal is to improve sales performance, accelerate inventory turns, and reduce markdowns by ensuring the right product is in the right store at the right time. Complementing this is the Store Experience 2.0 initiative, which is transforming the physical layout and design of stores to be more welcoming, inviting, and aligned with the "deals, brands, wow" value message. About half the chain has been converted, with the remainder expected by the end of 2026.

Within the Supply Chain, Burlington is pursuing significant productivity and efficiency initiatives. This includes streamlining processes within distribution centers, automating select tasks, and ultimately reducing labor costs and time to process merchandise. Management notes that these efforts are already yielding faster-than-expected cost savings, contributing meaningfully to margin expansion. Looking longer-term, the supply chain strategy involves a shift towards owning rather than leasing key distribution centers. This provides greater control over design and allows for the incorporation of more advanced automation. The company has exercised a purchase option on a large 2 million square foot DC under construction in Savannah, Georgia (expected 2026), and opportunistically purchased its Cactus facility in Riverside, California. While acknowledging that Burlington may be "behind off-price peers" in terms of systems, tools, and execution maturity, management frames this gap as a "huge opportunity" for future improvement and competitive advantage.

These technological and operational enhancements collectively contribute to Burlington's competitive moat by improving its ability to execute the core off-price model more effectively – sourcing deals, managing inventory flow, and presenting value to the customer efficiently.

Financial Performance: Translating Strategy into Results

Burlington's strategic initiatives have translated into tangible financial performance improvements. In Fiscal 2024, the company achieved robust total sales growth of 11% and comparable store sales growth of 4%, building on a 4% comp increase in Fiscal 2023. This top-line momentum, coupled with operational efficiencies, drove a significant 100 basis points of operating margin expansion for the full year, well ahead of initial guidance. Key drivers included stronger merchandise margins (up 60 basis points), freight improvement (up 20 basis points), and supply chain leverage (up 50 basis points), partially offset by investments in store payroll and higher depreciation.

The positive trend continued into the first quarter of Fiscal 2025. Net sales increased 6.1% to $2.50 billion, primarily fueled by contributions from the 94 net new stores opened since the end of Q1 Fiscal 2024. Comparable store sales were flat, aligning with the midpoint of guidance. Despite the flat comp, profitability exceeded expectations. Net income rose to $100.8 million from $78.5 million in the prior year period. Adjusted EBIT margin expanded by 30 basis points to 6.1%, and Adjusted EPS increased 18% to $1.67. This margin improvement was driven by a 30 basis point increase in gross margin (to 43.8%), reflecting improved merchandise margins and lower freight costs, and a decrease in SG&A as a percentage of sales (to 34.7%), benefiting from lower incentive compensation and store payroll costs. The Q1 earnings beat was attributed to a combination of timing favorability expected to reverse in Q2 and the early capture of expense savings initiatives implemented in anticipation of potential tariff impacts.

Inventory management remains a critical focus. Total merchandise inventories increased to $1.32 billion at the end of Q1 Fiscal 2025 compared to $1.14 billion a year prior, reflecting the growth in the store base and a strategic increase in reserve inventory (48% of total inventory vs 40% last year). This higher reserve level is seen as a positive, reflecting opportunistic buys of branded, high-quality merchandise, particularly acquired ahead of potential tariff impacts. Comparable store inventories, however, decreased 8%, indicating faster turns within the existing store base.

Liquidity remains strong. As of May 3, 2025, the company held $371.1 million in cash and cash equivalents and had $748.2 million available under its ABL Line of Credit, with $100.0 million outstanding. This compares to $994.7 million cash and $827 million ABL availability (with no borrowings) at the end of Fiscal 2024. The decrease in cash in Q1 Fiscal 2025 was primarily due to significant cash used in investing activities ($412.7 million, largely CapEx for supply chain and new stores) and financing activities ($182.0 million, including settlement of the 2025 Convertible Notes and share repurchases), which outpaced operating cash flow generation ($28.9 million used). Capital expenditures are expected to remain elevated at approximately $950 million net of landlord allowances in Fiscal 2025, driven by store growth and substantial investments in supply chain infrastructure, including the purchase of distribution centers. The company continues to return capital to shareholders through share repurchases, buying $105.2 million in Q1 Fiscal 2025 and authorizing an additional $500 million program through May 2027.

Competitive Landscape: Carving Out Market Share

Burlington operates in a fiercely competitive retail environment. Its primary direct competitors include other large off-price retailers like TJX Companies (TJX) and Ross Stores (ROST), as well as discount stores like Dollar Tree (DLTR) and specialty retailers like Foot Locker (FL) in specific categories, and regional players like Citi Trends (CTRN). The market is characterized by fragmentation and intense price competition, with traditional retailers also offering significant markdowns at times.

Compared to peers, Burlington differentiates itself through its specific off-price model focusing on a broad assortment of branded merchandise at deep discounts, its aggressive store expansion strategy, and its ongoing operational and technological transformation. While larger peers like TJX and ROST have significantly more stores (two to three times Burlington's current count), Burlington sees its smaller current footprint as a major opportunity for domestic growth.

Financially, Burlington's recent performance demonstrates its ability to gain market share. The 11% total sales growth in Fiscal 2024 significantly outpaced the growth of the broader retail market. Burlington's profitability metrics, such as its gross margin (43.8% in Q1 2025) and operating margin (6.1% Adjusted EBIT margin in Q1 2025), compare favorably to some competitors like Citi Trends (37% gross margin in FY2024) and Foot Locker (29% gross margin in FY2024), reflecting effective inventory management and cost control. However, larger scale competitors like Dollar Tree (36% gross margin, 8% operating margin in FY2024) and Tractor Supply (TSCO) (36% gross margin, 10% operating margin in FY2024) demonstrate strong efficiency, particularly in cost leadership and supply chain resilience, areas where Burlington is actively investing to close the gap.

Burlington's focus on value resonates strongly with consumers, particularly in the current economic climate. Management notes evidence of value-conscious customers trading down from moderate and higher-income brackets, contributing to sales growth at higher price points. Simultaneously, stores in lower-income trade areas, representing Burlington's core customer base, have shown improved performance and are outperforming the chain, suggesting a recovery in spending among this demographic. The company's flexible buying model and low direct import exposure (approximately 8% of merchandise in 2024, with about 7% having direct tariff exposure to China) provide a competitive advantage in navigating supply chain disruptions and potential tariff impacts compared to retailers with more rigid sourcing models. Management believes that uncertainty and disruption in the external environment often create buying opportunities that benefit off-price retailers, positioning Burlington to potentially gain further market share.

Outlook and Guidance: Planning for Uncertainty

Burlington's outlook for Fiscal 2025 reflects a cautious yet optimistic stance, balancing strategic growth initiatives with significant external uncertainties. The company reaffirmed its full-year guidance, projecting total sales growth in the range of 6% to 8%, driven by the planned opening of 100 net new stores. Comparable store sales are forecast to increase in the range of flat to 2%. Adjusted EBIT margin is expected to be in the range of flat to an increase of 30 basis points versus Fiscal 2024, resulting in adjusted earnings per share guidance of $8.70 to $9.30.

The guidance is explicitly contingent on several key assumptions: that current tariff rates (30% on imports from China, 10% elsewhere) do not increase through year-end, that the inflationary impact of tariffs across the retail industry is modest and does not significantly deter consumer spending (especially among core customers), and that import volatility does not cause a material or sustained increase in ocean freight expense above contracted rates.

For the second quarter of Fiscal 2025, Burlington guides for total sales to increase 5% to 7% and comparable store sales to be flat to plus 2%. Adjusted EBIT margin is expected to be in the range of down 30 basis points to flat compared to Q2 Fiscal 2024, with adjusted EPS between $1.20 and $1.30. The expected margin pressure in Q2 is partly due to the timing favorability that benefited Q1 earnings. Management anticipates that Q1 Fiscal 2025 will be the toughest margin comparison of the year, with profitability expected to improve sequentially through the year, culminating in the most significant year-over-year improvement in the fourth quarter. This cadence reflects the timing of expense savings realization and the impact of the 53rd week calendar shift in Fiscal 2024, which negatively impacts the Q4 2024 comparison.

Burlington's approach to guidance is rooted in its "playbook" of planning conservatively and being ready to chase. While acknowledging potential upside if the external environment proves more favorable or if internal initiatives outperform, the company prioritizes maintaining tight control over inventory and expenses to navigate volatility effectively.

Key Risks and Challenges

Despite its strategic momentum, Burlington faces several pertinent risks that could impact its performance and the investment thesis. Macroeconomic conditions remain a significant concern, with high uncertainty, prolonged inflationary pressures impacting core low-income customers, and economists raising recession probabilities. A broad economic slowdown or persistent inflation could dampen consumer discretionary spending, negatively affecting sales and profitability.

Tariffs represent a complex and potentially disruptive challenge. While the recent reduction in tariffs on imports from China from 145% to 30% has eased immediate concerns, the volatility and uncertainty surrounding trade policy could still disrupt supply chains, lead to shortages or excess inventory in certain categories, and potentially increase costs that are difficult to fully offset. The company's guidance is explicitly tied to assumptions about tariff levels and their inflationary impact, highlighting the sensitivity to changes in this area.

Competition in the off-price and broader retail markets is intense and expected to increase. The ability of traditional retailers to offer significant markdowns, the scale of larger off-price peers, and the evolving landscape of e-commerce and fast fashion players pose ongoing competitive pressures. Burlington must continue to differentiate itself through value, assortment, and customer experience to maintain and grow market share.

Operational risks include the successful execution of the ambitious store expansion plan, managing the complexities of a rapidly growing supply chain (including integrating new owned facilities and automation), and effectively implementing new merchandising and allocation systems. While progress has been made, these initiatives are still in early stages and require sustained focus. Dependence on vendors, particularly those with overseas production, exposes the company to risks related to political instability, port disruptions, and increased labor or production costs.

Conclusion

Burlington Stores is executing a strategic transformation aimed at capitalizing on the enduring appeal of the off-price model and its significant domestic growth potential. The company's "Burlington 2.0" initiatives, focused on aggressive store expansion, operational enhancements, and leveraging technology in merchandising and supply chain, are demonstrating tangible results, driving market share gains and margin expansion. The solid start to Fiscal 2025, with a beat on earnings despite a flat comp, and the reaffirmation of full-year guidance underscore management's confidence in their strategy and ability to navigate a complex environment.

While significant external uncertainties persist, particularly related to macroeconomic conditions, consumer spending, and the potential impact of tariffs, Burlington's flexible playbook of conservative planning, agile execution, and opportunistic buying positions it to react effectively to volatility. The company's commitment to delivering value, coupled with its ongoing investments in its store base and operational capabilities, forms a compelling investment thesis for those seeking exposure to a transforming retailer poised for long-term growth in the value segment. Investors should monitor the pace of store expansion, the realization of operational efficiencies, and the impact of external factors on consumer demand and supply chain costs as key indicators of the company's progress towards its ambitious 2028 goals.