Burlington Stores, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Burlington Store's Fiscal First Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to turn the call over to your host, David Glick, Senior Vice President of Investor Relations and Treasurer.

Thank you, Operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's Fiscal 2022 first 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 June 2, 2022. 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 2021 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 in 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. I would like to cover three topics this morning. Firstly, I will review our first quarter results. Secondly, I will discuss our outlook for Q2 and for the balance of the year. Thirdly, I will offer a few comments on the external retail environment, and I'll explain While this environment may create near-term headwinds for us, we believe that it could drive longer-term strategic benefits for our business. After that, I will hand the call over to John to walk through the financial details. Then we will be happy to respond to your questions. Okay, let's talk about our results. comparable store sales for the first quarter decreased 18%. In Q1 of last year, we achieved 20% comp store sales growth. We had estimated at the time that the federal stimulus checks had driven 10 to 15 points of this growth. As we developed our plan for Q1, we knew we were up against this headwind. So we planned the quarter at a mid-teens comp decline. We viewed this as a baseline that we would be able to beat. In fact, we missed this plan. As I will explain, this was largely self-inflicted. The root cause of this sales miss was that in-store inventory levels were too low and unbalanced in February and March. We had deliberately planned inventories down in Q1, but this backfired on us as we faced late deliveries and receipt churn early in the quarter. Let me explain what we were trying to do. In the past 12 to 18 months, we have reduced inventory levels significantly, providing greater flexibility and driving faster turns, more freshness, and lower markdowns. We believe that we still have room to turn faster, so we reduced inventory levels further in Q1. We were also mindful of the fact that during the quarter, we would be lacking the federal stimulus checks, so we felt that these lower inventory levels would provide additional flexibility. As I say, this completely backfired. In February, we experienced significant receipt delays These created big gaps in our assortment, especially in our fastest trending businesses. And these assortment gaps critically impacted our sales trend. In March, we moved quickly to take up receipt and inventory levels. By early April, our in-store inventories were back up and in line with last year. Since then, our comp trend has improved. During this call, when describing our comp trend, I'm going to use a three-year geometric comp stack. This is just like a simple three-year comp stack, but it accounts for the compounding effect of growth from year to year. Given our very large comp numbers last year, we believe that this geometric stack provides a more meaningful indicator of our multi-year trend. This metric is described in more detail in today's press release. In February, our three-year geometric stack was minus 6%. In March, it was minus 2%. And in April, it was plus 5%. For Q1 as a whole, our three-year geometric stack was minus 1%. Again, we are very unhappy with this result. and we recognize that it was largely self-inflicted. Our trend in April suggests that if our inventories had been appropriate since the start of the quarter, then our comp performance could have been six points higher in Q1. One other point on this inventory issue, and then I'll move on. We have raised our inventory plans for the rest of the year so that in-store inventories will be in line to slightly higher than last year. We still believe that we have room to increase turns, but we will not go after this opportunity until global shipping issues and delays normalize. To be clear, inventory levels for the rest of this year are now planned to be in line to slightly above 2021, but this means they will still be well below historic levels. I'm going to move on now to talk about Q2 and the outlook for the rest of the year. As I mentioned a moment ago, our three-year geometric stack in April was plus 5%. Our May month-to-date trend has been consistent with April. That said, we think it is prudent to plan Q2 more cautiously than this trailing two-month trend. So, we are planning Q2 based on a three-year geometric stack in the low single digits. This implies a one-year comp decline of minus 15 to minus 13. This range compares with 19 percent comp growth in Q2 of 2021. There are two reasons why we are being cautious in planning Q2. Firstly, we are concerned about the economic environment, and especially about the impact of inflation on retail spending. Lower income customers are under significant economic stress, and it is not clear that this will change in the next few months. The second reason for caution is that it seems to us as if many retailers are over-inventoried and overbought. We think that this could lead to a very promotional environment later in the quarter. This kind of environment tends to hurt our business. Let me move on to our guidance for the full year. Our updated guidance for the full year is based on a three-year geometric stack of 5% to 8%. This implies a one-year comp decline of minus nine to minus 6%. This is up against a four-year comp growth in 2021 of 15%. Our updated four-year guidance does assume an uptick in the trend as we get into fall. While we remain concerned about the external environment, there are a couple of factors that we think could provide a tailwind for us in the back half of the year. Firstly, there's been a sea change in the availability of off-price merchandise. We do not know if this has been driven by overproduction by vendors, a decline in the sales trend at other retailers, a sudden catch-up of supply, or all of the above. But whatever the reason, the buying environment now is better than it has been for years. Our buyers are seeing great deals. We have taken this opportunity to build our reserve inventory. At the end of Q1, our reserve was double the level of last year. If this buying environment persists, then we would expect our assortment to be more compelling with even stronger values. We know that in an environment where the customer really needs a deal, a more compelling value-driven assortment can drive an improved sales trend. We expect that the buys we are making now could begin to have an impact in late summer. The second factor that could cause our sales trend to be higher is if shoppers begin to trade down looking for value. Clearly, there is a lot of focus and concern about the lower income customer right now. Based on recent results, it feels like the retail industry is bifurcated. Those retailers that serve lower income customers are experiencing a weaker sales trend, while retailers serving higher income shoppers are seeing stronger sales growth. But we think it's unlikely that the impact of inflation and of a possible broader economic slowdown this year will be confined only to lower income shoppers. We anticipate that high inflation, higher interest rates, a falling stock market, and a possible economic slowdown will, at some point, affect other income groups as well. If this happens, then we would expect to see a trade-down customer in our stores. And this could drive stronger sales trend for our business in the back half of 2022. Let me recap. Our guidance for Q2 is based on a three-year geometric stack in the low single digits. And our updated guidance for the full year is based on a three-year geometric stack of 5% to 8%. This guidance feels appropriate given the risks and uncertainties. As a reminder, our inventory levels are in line with last year, and we have a very strong reserve position. So if the trend turns out to be stronger, then we should be well positioned to chase it. In a moment, John will provide more financial details on our Q2 and rest of year guidance. But before we go there, I would like to provide some high-level commentary on what we think might happen in the retail industry through the rest of this year. As I described a moment ago, we believe that the economic environment is likely to worsen this year and that this could further undermine the trend across the retail industry. We anticipate that if this happens, it is likely to create headaches and challenges for us in the short term. But we believe that this slowdown could provide longer-term benefits for our business. Many investors will remember that last summer, we began to call out that 2022 could be a very difficult and turbulent year across the retail industry. At the time, we characterized the strong trend across retail as something of a sugar high, driven by a combination of government support programs and pent-up demand as the consumer emerged from the pandemic. This sugar high drove higher sales and, for some retailers, higher margins than they would otherwise have been able to achieve. This sales trend was always going to be difficult to anniversary. What we did not anticipate last summer was that there would be other factors that would further undermine retail spending, specifically the impact of inflation on lower-income shoppers and potentially fallout from a broader economic slowdown. The important point to make is that difficult and turbulent times in retail are almost always in the long run good for off-price. Historically, this has been the cycle. Make no mistake, a slowdown in retail spending makes life difficult for us in the short term. We are certainly feeling that. But as an off-price retailer, we can adapt to the new trend. we can benefit from the loosening of supply. And in the coming quarters, we may be able to drive our sales trend by appealing to the trade-down customer. In addition, we believe that difficult and turbulent times in retail, sooner or later, will drive further rationalization of full-price bricks and mortar stores. We do not know if or when this might happen, but if it does, then it could represent a very important strategic tailwind to the off-price retail channel. Now, I would like to turn the call over to John, who will share more details on our first quarter financial performance, as well as our outlook for fiscal 2022. John?