Burlington, N.J. – The outlook from Burlington Stores is filled with ‘ifs’ and ‘maybes’ along with projections for accelerated growth.
“We think that 2022 going to be very unpredictable. That said, we believe it could provide the ideal set-up for our business,” CEO Michael O’Sullivan told analysts during this morning’s third quarter call.
He pointed to a series of factors that will impact the business in 2022 and over the next five years.
Macro economy – The United States may enter a prolonged period of consumer price inflation across the broad economy. “We believe that in an inflationary period, consumers trade down, not up,” said O’Sullivan, creating space for off-price to gain additional market share.
Pricing – Higher prices could become a permanent fixture. In an alternative scenario, costs come down but full-price retailers opt to hang onto higher margins by tightening inventories and reducing promotions. In either case, Burlington can capture new customers and/or raise its own prices, he said.
Supply chain issues – The company tentatively believes supply chain costs could start levelling out in the middle of 2022, but it’s not expecting them to return to pre-pandemic levels. Late deliveries will result in more cancelled orders, opening more merchandise to opportunistic buys for Burlington’s merchants. Higher sustained supply chain costs will result in higher-priced merchandise at full-price retailers, making off-price a more attractive channel for consumers – and will give off-pricers the opportunity to raise their own pricing while still providing a comparative value on merchandise.
“In off-price, what really matters is the reference point for price. If the competitors move up prices, that gives us an umbrella to move up prices, too. The uncertainty we have is those higher realized prices; you’ve got to be assured that they stay high,” said O’Sullivan.
Other key takeaways from the call:
- Burlington is starting to push prices on in some of its fast-moving businesses. It is also testing higher retails on goods that may have been more sharply priced than they needed to be. “So far, it has worked well,” he said.
- The retailer announced today that it will accelerate store growth. Next year it will open 90 net new stores and in subsequent years will aim for 130-150 total new stores annually, including roughly 30 relocations. Most new stores fit the smaller prototype.
- In 2019, average sales per store were around $10 million annually. This year, that figure is on pace to exceed $11 million. Smaller-format stores, which average 25,000- to 30,000-sq.-ft., have an expected productivity of more than $400 per square foot on a selling area basis.
The company’s third quarter results topped sales and profit estimates.
For the quarter ended Oct. 30, net sales of $2.3 billion were up 38% over the year-ago period and up 29% over Q3 2019. Comp sales were up 16% compared to the pre-pandemic level in 2019.
“Our business is one-third bigger now than in 2019,” said O’Sullivan. “The delta between price at Burlington and the price of a like item at a full-price store has never been greater.”
Net income of $13.6 million came in 70% higher than last year’s third quarter but plunged 86% compared to 2019.