Burlington Stores, Inc.

Good day, ladies and gentlemen, and welcome to Burlington Stores' third quarter 2021 earnings conference call. At this time, all participant lines are in a listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will be given at that time. To ask a question, you will need to press star, then one on your telephone. As a reminder, this call is being recorded. If anyone should require operator assistance, please press star, then zero. I would now like to turn the call over to Davey Click. Senior Vice President, Investor Relations, and Treasurer. Please go ahead.

Thank you, Operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2021 third quarter operating results. Our presenters today are Michael O'Sullivan, our Chief Executive Officer, and John Crimmins, 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 express permission. A replay of the call will be available until November 30th, 2021. We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties. Our remarks and the Q&A that follows are copyrighted today by Burlington Stores. Remarks made on this call concerning future expectations, events, 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 such forward-looking statements. Such risks and uncertainties include those that are described in the company's 10-K for fiscal 2020 and in other filings with the SEC, all of which are expressly incorporated herein by reference. Please note that the financial results and expectations we discussed today are on a continuing operations basis. Reconciliations of the non-GAAP measures we discussed today to GAAP measures are included in today's press release. Now here's Michael.

Thank you, David. Good morning, everyone, and thank you for joining us. Our usual approach on these calls is to structure our remarks in a chronological order, starting with a review of the most recent quarter, then moving on to the next quarter and the year ahead, and finally commenting on the longer-term outlook. Today, we're going to take a slightly different approach. Rather than chronologically, we will cover these topics in order of their importance to our long-term shareholder value. I will begin with our longer-term expectations. The timeframe for these remarks will be the next five years. Then I will move nearer in and talk about 2022. We think that 2022 is going to be very unpredictable. That said, we believe it could provide the ideal setup for our business. Finally, I will comment on our Q3 results and the outlook for the rest of the year. Okay, the longer term. There are two aspects of the longer term that I would like to talk about. Number one, the macroeconomic and competitive environment. And number two, progress we are making on our Burlington 2.0 strategy. On the macroeconomic and competitive environment, let's start with the customer. For many years, there has been a growing consumer focus on value. It is possible that we are entering a period, a prolonged period of consumer price inflation across the whole economy. We believe that in inflationary periods, consumers trade down, not up. In an environment of rising prices, we think shoppers will be even more attracted to the great value that we offer. Our business is a third bigger now than it was in 2019. One reason for this is that our value differentiation versus other retailers has grown. The delta between the price of an item at Burlington and the price of a light item at a full price store has never been greater. Leaner inventories in the full price channel have driven higher realized prices. It is not clear if these higher prices will be sustained. If they are sustained, then in the coming quarters, we think that we may have the opportunity to capture additional market share to take up our retail prices or to do both. If on the other hand, retailers return to more promotional habits, then these higher realized prices in the full price channel will come down. If that were to happen, then we think it would trigger yet another wave of consolidation of marginally profitable full-price bricks and mortar stores. We anticipate that the second scenario, a return to a promotional environment and a decline in realized prices, is the more likely. But it's going to take some time to see how this plays out. But in either scenario, we think that the long-term implications for Burlington are very favorable. I would like to talk now about the progress we are making on Burlington 2.0. The core of this strategy is to make our business as flexible as possible so we can chase the sales trends, take advantage of supply opportunities, and deliver great value to our customers. So far this year, we have chased from a comp plan of flats to an actual year-to-date comp of 18% versus 2019. In addition to comp growth, we are very excited about our new store performance, especially our smaller store prototype. In 2021, we have opened 101 new stores. This translates to 77 net new stores after closures and relocations. Our new stores are performing extremely well, and I am excited to announce that we have decided to accelerate our new store opening program. In 2022, we expect to open about 120 new stores, which after closures and relocations should yield about 90 net new stores. Beyond 2022, we now expect to open 130 to 150 new stores each year. About 30 of these will be relocations of older stores to newer, smaller price prototype locations. So overall, from 2023 onwards, we expect to open 100 to 120 net new stores each year. Today, we have just over 800 stores So in the next five years, this program will drive a very exciting transformation of our chain. Moving closer in, I would like to talk now about 2022. We think that there are three factors that could make 2022 a very good year for Burlington, but all three factors are difficult to predict. Firstly, sales. This year, all retailers have benefited from one-time items like stimulus checks and pent-up demand. As we get into 2022 and lap these items, it seems likely that comp trends across retail will fall off sharply. On the other hand, it is possible that rising wage rates or further government spending will offset this decline. We have to be ready for either scenario. Secondly, pricing. As I said a moment ago, we don't yet know if higher realized prices at full price retailers will be sustained. This will play out in 2022. If these higher prices are sustained, even as supply loosens up, then we think we will have a tremendous opportunity to drive sales or to take up retails or to do both. And if there is a general rise in inflation across the whole economy, then this opportunity could be even greater. Thirdly, we do not know if the issues with global supply chains will ease in 2022. If they do, then this could have a huge beneficial impact on off-price supply. And it could also drive significantly lower freight and supply chain expenses. We don't have great visibility on any of these three items. No one does. But in this situation, our playbook is always to plan our business conservatively and be ready to chase. So our initial buying and operating plans for 2022 are anchored on a mid single digit comp decline. This is not a prediction of what we think will happen. We do not have enough visibility for a reliable prediction. You should think of the minus 5% comp as a baseline, a starting point for the chase. In 2021, our baseline was a flat comp. Year to date, we have chased sales 18 points above this baseline. As for our margins, so much depends on freight and supply chain expenses. Again, we concede that we do not know how these will play out. We think that these expenses should start to come down in 2022, but we don't know if, when, and how much this will happen. In a moment, John will share our margin estimates assuming that these costs remain at their current levels through mid-2022 and then begin to moderate. I'm going to wrap up my remarks with a few comments on our Q3 performance and our Q4 outlook. As described in today's press release, comp growth in Q3 was 16%. We estimate that warmer weather from late September onwards reduced our comp by about three points. In other words, we believe that our underlying weather adjusted comp in Q3 was about 19%. For Q4, we are currently projecting our comp performance to be in the low double digits. Our month to date comp is running well ahead of this. What really matters is the next four to five weeks. If the sales trend is stronger, then we are ready to chase it. Then we move on now to talk about inventory levels. Comp in-store inventories were down 24% at the end of Q3. This means they were slightly above our plan coming into the quarter. Our plan was for in-store inventories to be down in the high 20s. The other promising news is that at the end of Q3, reserve inventory was 30% of total inventory versus 21% in 2019. It is usually the case that you drain your reserve inventory in the third quarter. You pull goods out of reserve to get prepared for holiday. In fact, We built our reserve inventory in Q3. Reserve receipts in Q3 increased 174% versus the same period in 2019. We were able to make some great opportunistic buys during the quarter. It is too early to extrapolate, but we think that over the coming months, we are likely to see a very favorable buying environment as other retailers cancel late deliveries. One final point on inventories. At end of Q4, we are planning in-store inventories to be down in the mid 30% range. We believe that we can end the year more cleanly than we have in the past and thereby transition more effectively to the spring seasons. I would like now to turn the call over to John to walk us through the financial details.