Good day, ladies and gentlemen, and welcome to the Burlington Stores First Quarter 2018 Earnings Webcast. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to David Glick, Vice President, Investor Relations. Sir, you may begin.

Thank you, operator, and good morning, everyone. We appreciate everyone’s participation in today’s conference call to discuss Burlington’s fiscal 2018 first quarter operating results. Our presenters today are Tom Kingsbury, our Chairman and Chief Executive Officer; and Marc Katz, Chief Financial Officer and Principal. Before I turn the call over to Tom, I would like to inform listeners that this call may not be transcribed, recorded or broadcast without our expressed permission. A replay of the call will be available until June 14, 2018. 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 2017 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 discuss today are on a continuing operations basis. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are included in today’s press release. Now, here’s Tom.

Thank you, David. Good morning, everyone. We are extremely pleased to kick-off fiscal 2018 with strong first quarter results driven by a robust 4.8% comparable store sales increase on a shifted basis. Adjusted operating margin or EBIT expanded by 85 basis points. Our overall 12.8% sales increase combined with the increase in gross margin and expense leverage resulted in a 59% increase in adjusted earnings per share, significantly ahead of our guidance. In addition, we continued to reduce aged inventory levels to record lows and increased our inventory freshness in comparable store inventory turnover levels to record highs. We remain highly focused on executing the strategies that have driven consistent comparable store sales and increased operating margin results over the past several years and we expect our momentum to continue as we move through fiscal 2018. Turning to highlights for the first quarter. This was our 21st consecutive quarter of positive comp sales growth. Our comp sales growth was driven by an increase in traffic, our 13th quarterly traffic increase of the last 15 quarters. We delivered a 35-basis point improvement in gross margin and leveraged the SG&A rate by 45 basis points which helped drive an 85-basis point increase in our adjusted EBIT margin. And our adjusted earnings per share grew 59%. I’d like to clarify at this point how we are reporting comparable store sales. Our comparable store sales increase of 4.8% lines up with the comparable calendar weeks, specifically the 13 weeks ended May 5, 2018 versus the 13 weeks ended May 6, 2017. We believe this is the most accurate representation of our comparable store sales performance and is the basis in which we plan and manage our business. Another key element of our first quarter is the outstanding performance of our new stores. As I…

Thanks, Tom, and good morning, everyone. Thank you for joining us today. We ended the first quarter by recording our 21st consecutive quarter of positive comparable store sales. In addition, we achieved strong contribution from new stores and non-comp stores and expansion in adjusted EBIT margin, which combined delivered a 59% increase in adjusted earnings per share. Next, I will turn to a review of the income statement. Due to the 53rd week in fiscal 2017, our results are reported for the 13 weeks ended May 5, 2018 versus the 13 weeks ended April 29, 2017. All of our results are reported on this fiscal basis with the exception of comparable store sales which we report on a shifted basis comparing similar calendar weeks which are the 13 weeks ended May 5, 2018 versus the 13 weeks ended May 6, 2017. For the first quarter, total sales increased 12.8% and comparable store sales on a shifted basis increased 4.8%. New and non-comp stores contributed an incremental 82 million in sales for the first quarter. Our Q1 comparable store sales performance was driven by an increase in traffic, AUR and units per transaction while conversion was flat. We have seen traffic increases in 13 out of the last 15 quarters. As of the end of the first quarter, six stores were still closed due to the 2017 weather-related issues. We expect two stores to reopen by the end of the second quarter, one store by the end of the third quarter, two stores by the end of Q4 and a final store is expected to reopen in early 2019. Gross margin rate was 41.2%, an increase of approximately 35 basis points versus last year driven by a lower markdown rate and slightly higher IMU more than offsetting higher freight costs which…

Thanks, Marc. In summary, we believe our results this quarter once again demonstrate the agility and increasingly strong foundation of our business model. We drove operating results above our expectations and expect the continued implementation of our growth initiatives and store expansion plans to enable us to continue our positive performance through the remainder of 2018 and beyond. We remain confident in our outlook and believe in our focus on evolving our off-price model and our ability to capitalize on the rapidly changing retail landscape. This positions us well to bring more great brands, styles and value to our customers and increased value for our shareholders. Again, I’d like to thank the store, supply chain, and corporate teams for their contributions to our strong first quarter results. With that, I’d like to turn the call over to the operator to begin the question-and-answer portion of the call.

Thank you. [Operator Instructions]. Our first question comes from Ike Boruchow with Wells Fargo. Your may begin.

Hi. Good morning, Tom, Marc, David. Congrats on another great quarter.

Thanks.

Tom, for you, a two-part question if you don’t mind. First, a number of retailers had talked about the impact of weather on Q1, maybe could you comment on the impact weather had on your business in the first quarter? And then second, I think on the last call you talked about some issues and opportunities in ladies apparel. Could you maybe update us on any progress in that category?

Okay. Well, first of all, there’s no question that weather was not as favorable as it could have been in the first quarter. So it had to have some impact on our apparel businesses overall. Temperatures nationally were colder than last for each month of the quarter. But with that said, like in the fourth quarter we were pleased with the progress we made in Q1 deweathering our business. Apparel in total did come slightly below the chain average while coats clearly underperformed the chain; however, growth in those underdeveloped, less weather-sensitive businesses such as home and beauty among others helped us not only overcome the weather but outperformed in total once again in the first quarter. We also saw weather impact in our regional performances as the West and the Southwest led the chain, while the more weather-sensitive regions, the Northeast and Midwest, were either with or below the chain. So the second part of your question in terms of what’s going on in ladies apparel. First of all, it trended much closer to the chain average in the first quarter than it did in 2017. That said, the business is not outperforming the chain. As I said in my prepared remarks, missy sportswear led the first quarter trend again in ladies apparel. Not only were better and active strong but in the first quarter we also saw much stronger performance in moderate sportswear which also comped above the chain which was very encouraging. In addition, as I mentioned earlier, we are adding a second SVP in ladies apparel in the second half of the year to expand our leadership and increase our specialization in that business.

Got it. Thanks, Tom. And then if I can, one more. Marc, on the freight dynamic, I think freight costs are 20 bips you said in Q1 and now you’re expecting higher for the year. Can you just kind of walk us through what changed in the drivers of gross margin that are helping you offset those costs?

Yes, sure. You’re absolutely right. We had originally guided 10-basis point headwind in freight for the year and that was really being driven by three things; higher fuel, higher contract rates and a mix of more West Coast deliveries versus the East Coast. It just so happens in Q1 the fuel really ended up being higher than we had originally planned and that really – that drove that additional 10 basis points. The good news is that we were able to offset it and we were able to offset it with 5 basis points of incremental good news in merchandize margin and with product sourcing costs only being 5 basis points of course when we had originally guided 10. So to your point on the year now, we are forecasting 20 basis points of bad news for freight due to fuel and contract rate increases more so for the back half of the year. Again, both of those are beyond our original assumptions. But we’re still guiding that 30 basis points of loaded margin and of course by loaded margin what I mean, the reported margin less the product sourcing costs. Those are still at 30 basis points. So we believe we can offset those incremental freight costs with increased merchandize margin and little bit less in product sourcing just as we did in Q1. And I guess your other question was, what were the specifics that helped us at that? So we had 55 basis points of good news in merch margin and that was really driven primarily by a lower markdown rate, slightly higher markup but the lower markdowns was the big contributor there. And you got to tip your head to our merchant team because they did a great job with inventory management. Comp store inventories were down 7%. Comp store turnover was 12% faster and as Tom mentioned, aged inventory once again at record low levels. I guess I should also throw out that we did start the year with very clean inventories. And from a product sourcing point of view, supply chain continues to embrace our profit improvement culture and they were able to implement some efficiencies during the quarter and I’m certainly hopeful that that will continue as well.

Got it. Congrats, everyone.

Thanks.

Thank you.

Thank you. Our next question comes from Matthew Boss with JPMorgan. You may begin.

Thanks. Congrats on another great quarter guys.

Thanks.

Tom, as we think about lateral brick and mortar closures, have you seen any impact on Baby Depot from the Toys R Us bankruptcy so far? And I guess as we think about your store growth trajectory, does Toys R Us present an acceleration opportunity where maybe there’s the opportunity to potentially increase store openings as the year progresses?

Well, we haven’t talked about Baby Depot for a long time as an outperforming business. We really feel that we’re making a lot of progress in that business overall. Candid, we feel we’re on the right track at the right time. So the Toys R Us liquidation does create disruption in product availability. But with that said, Baby Depot it’s a very important business but it’s a small heritage business for us and we see it as a differentiator overall. And we’ll see over time what will happen with the business based on obviously Toys R Us no longer in business. In addition to the potential sales opportunity, Toys R Us situation could present us with a real estate opportunity. This type of situation, like the Sports Authority liquidation is a fluid dynamic process and will evolve over time. The good news as I mentioned, we have our C point strategy, so we have real clarity as to what stores we may be interested in. We did end up with over 30 Sports Authority locations, so we shall see if the Toys R Us situation will end up yielding additional locations for us or not. As always, we will be disciplined, not chase store count and make sound financial decisions as we approach this potential opportunity. But stay tuned.

Great. And then maybe one for Marc. Understanding the comps you guys reported on a shifted basis, total sales in the first quarter were up 13% and then the second quarter’s plan up 8% to 9%. I guess can you just walk through some of the drivers of the delta and any color you can provide on the shift by quarter for the balance of the year that would be helpful?

Sure, Matt. As Tom mentioned in his prepared remarks, we believe that shift is the most accurate representation of our comp sales performance. That’s how we plan and manage our business. I think some other folks have talked about the impact of shifted versus non-shifted spring versus fall, but just to state the obvious in terms for us reporting comps on a shifted basis versus non-shifted results in us reporting a lower number for the first three quarters and a higher number in Q4. In terms of your specific question, we’re moving from a 13% in Q1 to a 9% at the high end of Q2, really two drivers there. The first is, the higher shift impact we had in Q1 versus Q2. So in Q1, Matt, you’re talking about a differential over 200 basis points and in Q2 expectation is it’s more around [50] [ph]. So that’s one piece. And the second piece was of course our Q1 was a [4-A] [ph] comp and at the high end of Q2 were [to 3] [ph]. So those were the big differences there. Matt, in terms of modeling the rest of the year, we obviously guided 2% to 3% shifted comps for the remaining quarters of the year. But given that we’re up against this 53rd week, we thought maybe it’s be helpful to provide a little bit more color than we typically do and this is not something that we’re going to do every year but just to try and help as it relates to total sales. We’ll give some direction that for Q3 the total sales increase should be approximately 11% to 12% and Q4 total sales increase to approximate 7% to 8%. Those are the numbers that we have baked into that full year guidance that we already provided just to try to help a little bit here.

That’s great, really helpful and congrats again.

Thanks, Matt.

Thank you. Our next question comes from Lorraine Hutchinson with Bank of America. Your line is open.

Thanks. Good morning. I wanted to ask about the initial markup was a nice driver to merchandized margin. Can you talk about what drove that and then your expectations for markup going forward?

Yes, slightly higher markup did help us, Lorraine, but just to be clear, the 55 basis points of good news we had in merch margin, the major piece of that was a lower markdown rate. The lower markdown rate was much more impactful than the markup. And the markup I can tell you continues to be – as our buying team continues to mature, I think we continue to negotiate a little better. The slightly better markup came across all buy types which we like to see. So that obviously is a balance. This model is rooted in value as you well know, so we’re always balancing markup with driving sales. But I would expect some slight pickup there, but again I think the majority of our merch margin pickup through the rest of the year will be more so related to the lower markdown rate.

Yes, and just to piggyback on what Marc said. We’re going to continue to pass value onto the customer because one of our primary focus is driving comp store growth. So we will really – most of the improvement will come out of the markdown like Marc said. Markdown optimization has been really a good tool for us and it’s really helped us stay current in terms of the inventory freshness. So again, we’re going to continue just to deliver value to the customer. That’s our number one goal.

Thank you.

Thank you. Our next question comes from Kimberly Greenberger with Morgan Stanley. You may begin.

Great. Thank you so much, Marc, and I appreciate the extra color on the modeling. If I could just follow up on a couple of the things you talked about. In the fourth quarter you indicated 7% to 8% revenue growth. Is that a 13-week versus 14-week sales growth rate?

No, that’s flat, 13 to 13.

Okay, got it. Thank you. Perfect. And then tax rate obviously you’re coming in lower than expected. I know it’s very difficult to project at the stock comp piece I think came in $0.06 better than the guide. Should we leave $0.22 to $0.23 – I’m sorry, 22% to 23% in our tax rate for the rest of the year?

Yes. Kimberly, that’s the best we can give. You’re absolutely right. The big difference in the $0.06 in that tax rate was related to share-based compensation and just all of our associates. It is not just restricted stock vesting for us. A lot of that has to do with options and we have options at varying strike prices. So that was the big driver that took us to 17. But for the rest of the year you asked for right now 22% to 23% and of course we’ll update that each quarter.

Okay, great. And then my last modeling clarification is just on SG&A. I’m wondering if the one-week shift in the fiscal calendar is shifting perhaps here in the first quarter a higher expense week into Q1 and therefore caused perhaps a slightly higher SG&A growth rate in the first quarter. And is that expected to maybe can vary throughout the year?

Yes, I guess the way I would say it is, is we did end up with 45 basis points of leverage in other SG&A and typically on a 5 comp that number would be 40. So maybe it was about 5 higher and some better flow through. But nothing significant, nothing that changes our full year guide.

Great. Thanks, Marc, and congratulations on a really great first quarter.

You bet, Kimberly.

Thank you. Our next question comes from John Kernan with Cowen. You may begin.

Good morning, everybody. Congrats on another solid quarter.

Thanks, John.

Tom, I think you talked about reduced aged inventory to record lows, comparable store inventory turns are at record highs. How much lower can you push aged inventory? How much faster can you turn comparable store inventory at this point before you start to affect the comps in your mind?

Well, we feel we have a lot of opportunity to increase our inventory turns. We’re going to focus on reducing our comp store inventories by mid to high-single digits or a long period of time. Even though we’ve done a really great job in reducing our inventories, I just personally feel that we can do even more. So I think it’s a long time before it would impact our overall sales performance, but I feel very good about what we’ve done. The aged inventories I mentioned was at record lows and freshness goods were received in our stores were lesser days as record high. So we’re going in the right direction but we still I think have work to do in terms of increasing our turns.

That’s great. Thanks. And then Marc, did you give us an updated on the drivers of comp between traffic and ticket in Q1 and how are you thinking about that as we go through the year on the guidance for 2 to 3? Thank you.

Sure, John. Traffic was by far the biggest driver of our comp. We did see nice increases in AUR and UPT as well, conversion was flat. And again, traffic up 13 of the last 15 quarters. So we feel real good about that. AUR was up again as we said and it probably a combination; higher, better, best penetration, higher percent of full price sales versus markdown sales. But John, we’ve talked about this before. We don’t have a strategy to move AUR from X to Y. We have lots of merchandizing strategies to grow the business and some of those put downward pressure on AUR and some of them put upward pressure on AUR. So I think we’ll continue to move similarly but again it’s really going to be based on those underlying merchandizing strategies.

That’s great. Thanks everybody. Best of luck.

Thanks, John.

Thank you. Our next question comes from Daniel Hofkin with William Blair. You may begin.

Good morning, everyone. Nice job once again on the quarter.

Thank you.

Just a couple of questions, I don’t know if you touched on this specifically. But any comp progression comment within the quarter? I think February of last year you had the negative impact of the late tax refund. So just curious, is February the best month or how did that flow this quarter?

I guess the best way to answer that is we felt good about February and we felt good about Marpril [ph].

Okay.

Because with the Easter shift – it can’t do any better than that.

You have to look at it March and April combined.

Fair enough. I guess if you were to adjust for that, was – did February have an outsized gain relative to March and April combined?

No. We were very happy with the result in both those time periods, if you will.

Okay. And then can you discuss the stores I guess that are – that have been under your brand standard for some period of time? Can you discuss kind of the performance of those stores whether it’s comps or margins progression versus stores that are not yet under the brand standard? Any commentary you can give there?

Well, I’ll tell you, we see nice comps across the entire fleet of stores and across really all of our cohorts. So even the older stores we’re seeing nice comps and a lot of those older stores, the bigger stores, but they also pay low occupancy rates and have very high EBIT percent. So overall, we’re very comfortable with those. If the question was more related to new stores and our new store cohorts and how they comp versus the chain average, Dan, I’d probably go back to the stat that we gave at the end of the last year which was our 14 and 15 cohorts together, how did they react 16 to 17 versus the chain. And they out-comped the chain by 240 basis points. It’s probably I’d go back to [indiscernible] for the most recent cohort.

Okay. Thanks very much. Best of luck.

Thank you.

Thank you. Our next question comes from Adrienne Yih with Wolfe Research. You may begin. Adrienne, you’re line is open. Please check your mute button.

Hello?

Hello. We can hear you now?

You can hear me now? Okay. I was not mute though. Anyway, congratulations.

Thank you.

Great. Tom, my first question is for you on the pack away strategy. So I was wondering if you were able to take advantage of some other retailers on maybe issues at the latter end of the quarter. And how quickly can you redeploy the current pack away that you have? And then Marc, as you layer in higher density store locations, are you finding that your new store productivity is improving? Thank you.

As far as pack away goes, right now we’re comfortable with the level of pack and hold that we have. We really don’t want to talk about how we source our product to be honest with you. As I mentioned, there’s tons of products available. And we can move on pack and hold and bring it into our stores if we need it. We’ve done that successfully with coats when it got colder in prior years, so we can deploy them. We have a lot of liquidity, meaning we have a lot of open buy. So we can continue to buy product every single day if we need to. Our merchants are still on the market every single week looking for great deals. And some of it will be put on the selling floor, some of it will be put in pack and hold, but overall we have the agility to really move in any direction we need to, to support the business.

Okay. Thanks.

And Adrienne, our new store productivity, the answer is absolutely. These new stores have a higher sales per square foot. I think the stat that we did give at the end of the year was our stores less than 60,000 square feet were 22% more productive from a sales versus square foot point of view.

Okay. That would make sense. And my last housekeeping question. Your average hourly rate increase, is that already in the Q1 numbers or did that go into effect in 2Q?

Everything is baked into our guidance.

Yes.

Yes, in the guidance. I’m just curious that some people – some retailers have the implementation of AHR on a July annual basis. Is that the case?

We have various things that happen throughout the year depending on the market.

Okay, fair enough. Thanks so much and best of luck.

Thank you.

Thank you. Our next question comes from Michael Binetti with Credit Suisse. You may begin.

Hi. Good morning. This is actually Casey Callan [ph] on for Michael. Thanks so much for taking our questions. And let me also add our congrats on a solid quarter.

Thank you.

So looking at EBIT margins, so EBIT margins on the second quarter looked like they’re implied to be up in the range of about 60 to 70 basis points but the full year margins are guided to be a little bit lower, up 20 to 30. If we’re right on some of those forensics, it looks like the second half marks an expansion, they should slow pretty significantly but it looks like you’re actually up against a little bit easier margin comparison in the second half. Can you maybe talk through some of the puts and takes we should be thinking about on margins as we go into the second half?

We guide conservatively. So as of right now, EBIT margins 20 to 30 basis points for the year and those are all coming with a 2% to 3% shift to comp. Obviously as we move through it, I think we’ve proven that our sales outperformed that number that we can have a pretty nice flow through on the incremental sales. But we’d like to be conservative within our guidance.

Okay, great. Makes sense. And then maybe on the top line obviously shifting to the second quarter and the rest of the year you’re going to be up against some tougher same-store sales compares. I know that you typically target comps in the 2% to 3% range but this does require a slight acceleration in the two-year stack rate relative to what you did in the first quarter. You clearly have some big opportunities in home and beauty and women’s apparel, but can you maybe talk through what you see as the biggest near-term driver to help drive comps higher as you start to get into these tougher compares?

Well, I think we’re going to deploy the current strategy that we have right now that drove the first quarter results. As I mentioned, we have big opportunities in home which we continue to – we’ll continue to see that in the future. In beauty, our gifting strategy, we’re really excited about our gifting strategy in the first quarter and that will continue and obviously peak during the fourth quarter overall. But it’s the same as we’ve talked about a lot. We need to continue to execute our off-price model superbly and that will obviously help us in the future.

Great. Thanks so much for all the color and best of luck for the rest of the year.

Thank you.

Operator, we have time for one more question.

Our last question is from Laura Champine with Loop Capital. You may begin.

[Technical Difficulty] …also on the women’s apparel side, I think you mentioned that you believe home can eventually become 20% of sales. You entered [ph] an index on women’s apparel and your hiring new management to drive growth there. Can you give your thoughts on a similar basis for what the penetration rate should be on women’s apparel at Burlington?

We think it should be around 30%. So we have a big opportunity there. Again, we had some really strong businesses in the first quarter. Ladies sportswear was strong overall really led by a better sportswear business, our active business and then we saw some improvement in our moderate sportswear business. But yes, we really feel that we have a big opportunity relative to some of our peers out there that run in the 30% range.

Got it. Thank you.

Thank you. This concludes the question-and-answer session. I’d like to turn the call back over to Tom Kingsbury for closing remarks.

Thanks, operator. Thanks for joining us today. We look forward to speaking with you when we report second quarter results in late August. Thank you.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. Have a wonderful day.