Burlington Stores’ (BURL) 2.0 & Store-Growth Efforts Look Good – October 10, 2023

Burlington Stores, Inc. (BURL Free Report) is well-placed for growth, thanks to the successful execution of its Burlington 2.0 strategy and strong fundamentals. The main objective of the 2.0 initiative is to significantly boost the execution of the off-price model. The company has also been progressing well in its store-expansion efforts. Let’s delve deep.

Deeper Analysis

In an era of competitive retail landscape, Burlington Stores has made multiple changes to its business model to adapt to the ongoing changes in the industry. The 2.0 initiative  is focused on three aspects such as marketing, merchandising and store prototype. Under the marketing aspect, Burlington Stores looks to communicate a stronger and more direct off-price value message and deliver the communication in a more cost-effective manner. This marketing program is expected to leverage the company’s wide reach.  

With respect to merchandising, management expects investing in the merchandising capabilities to better execute the off-price model and boost overall growth. The 2.0 initiative further focuses on offering great customer value by effectively managing liquidity, chasing sales, buying opportunistically, distributing lean inventories, getting fast fresh receipts to the sales floor and making the store model flexible.

In addition, Burlington Stores is focused on store expansion to drive top-line growth. The company’s store-related efforts, including smaller store prototypes, have been on track. Over time, this smaller prototype is likely to represent the majority of the company’s new store openings. With this smaller prototype, the company aims to operate with leaner in-store inventory levels.

Markedly, the company’s store count has increased from 13 in 1980 to 927 stores in fiscal 2022. During the second quarter of fiscal 2023, Burlington Stores inaugurated six net stores, taking the total store base to 939. This comprised nine store openings, and three relocations or closings. For fiscal 2023, management intends opening 70-80 net new stores and projects capital expenditures, net of landlord allowances, of $560 million.

Management believes that there is a significant opportunity to expand the store count, and is optimistic about the smaller store prototype. Apart from adding stores, it has an opportunity to relocate and downsize most of its older and less-productive outlets. It aims open more than 100 net stores a year.  Further, the company has bought 62 store leases directly from Bed Bath & Beyond. Such stores are expected to largely benefit the company in 2024.

Overall, management remains optimistic about the long term on greater consumer focus on value, lower levels of promotional activity, strong availability of great off-price merchandise, taking the right actions and a better expense environment.

Analysts also seem optimistic about the stock. The Zacks Consensus Estimate for fiscal 2023 sales and earnings per share (EPS) is currently pegged at $9.71 billion and $5.74, respectively. These estimates show an increase of 11.5% and 34.7%, respectively, year over year. Further, the apparel retailer’s shares have gained 6.5% in the past year compared to the industry’s 2.6% rise. A VGM Score of A for this presently Zacks Rank #3 (Hold) company further speaks volumes.

Key Picks

We have highlighted three better-ranked stocks, namely Abercrombie & Fitch (ANF Free Report) , Urban Outfitters (URBN Free Report) and American Eagle Outfitters (AEO Free Report) .

Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales suggests growth of 10% from the year-ago reported figure. ANF delivered a trailing four-quarter earnings surprise of 724.8%, on average.

Urban Outfitters, the lifestyle apparel and accessories retailer, currently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 19.2%, on average.

The consensus estimate for Urban Outfitters’ current financial-year sales and EPS suggests growth of 6.6% and 83.4%, respectively, from the year-ago reported figures.

American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently sports a Zacks Rank of 1. AEO delivered an average earnings surprise of 43.2% in the trailing four quarters.

The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year EPS suggests growth of 33% from the year-ago reported figure.

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