Good morning. My name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the Burlington Stores Fourth Quarter 2023 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. [Operator Instructions]. I would now like to turn the conference over to David Glick, Group Senior Vice President. David, you may begin your conference.

Thank you, operator. And good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2023 fourth quarter operating results. Unless otherwise indicated, our discussion and results for the 2023 fourth quarter and full year are on a 13 or 52-week adjusted basis and exclude the impact of certain expenses associated with the acquisition of Bed Bath & Beyond leases. Our presenters today are Michael O'Sullivan, our Chief Executive Officer, and Kristin Wolfe, our EVP and 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 March 14, 2024. 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 2022 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 Michael.

Thank you, David. Good morning, everyone. And thank you for joining us. I would like to cover four topics this morning. Firstly, I will discuss our fourth quarter results. Secondly, I will comment on our full-year 2023 results. Thirdly, I will talk about our guidance for the year ahead. And finally, I will offer some longer term commentary. Then, Kristin will provide some additional financial details. Okay. Let's talk about our Q4 results. Comp store sales for the fourth quarter increased 2% on a 13-week basis. This was above our guidance of minus 2% to flat. I would like to peel back the onion a little and describe some important aspects of this fourth quarter comp performance. Firstly, we continue to see strong selling at our opening price points. The lower income customer, the need a deal shopper, is responding well to these values. This is a very important customer for us. A year ago, this shopper was really struggling with a higher cost of living and with the loss of pandemic era benefits. This customer is still fragile. The cost of living is not declining. It is just going up less quickly. That said, this represents an improvement versus last year and it may have helped to underpin our comp in Q4. Secondly, what really drove our incremental comp growth in Q4 was the success of our strategies and businesses targeting trade downs or slightly higher income shoppers. These customers responded well with a higher mix of recognizable brands in our apparel and accessories businesses. These shoppers also grow very strong selling across our key holiday categories in gifting, accessories and home decor. Frankly though, looking at the results of our peers, I am disappointed that we didn't drive stronger comp growth with these shoppers. There is clearly a…

Thank you, Michael. And good morning, everyone. I will start with some additional details on the fourth quarter. Please note that the following discussion of fourth quarter financial results will be on a 13-week non-GAAP basis, unless otherwise indicated. Total sales growth in the quarter was 9%. This was higher than our guidance of 5% to 7%, driven by higher comp store sales. Our comp sales growth in Q4 was 2%, which was above our guidance of minus 2% to flat. In addition, the 53rd week added $138 million in total sales to this result, bringing our Q4 total sales increase on a 14-week basis to approximately 14%. The gross margin rate for the fourth quarter was 42 .6%, an increase of 190 basis points versus last year. This was driven by a 140 basis point increase in merchandise margins, mostly driven by lower markdowns, as well as a 50 basis point decrease in freight expense. Product sourcing costs were 20 basis points lower than last year. This was driven by supply chain leverage of 40 basis points, as we've made progress on our distribution center productivity initiatives. This supply chain leverage was partially offset by higher incentive compensation. Adjusted SG&A costs in Q4 were 100 basis points higher than last year, which included 20 basis points of deleverage attributable to expenses related to the acquired Bed Bath & Beyond leases. Excluding Bed Bath & Beyond leases, adjusted SG&A deleverage was 80 basis points, driven primarily by higher incentive comp accruals and investments in store payroll. Q4 adjusted EBIT margin was 11.1%, 110 basis points higher than last year, compared with guidance of 0 to 40 basis points. Again, this excludes Bed Bath & Beyond costs worth 20 basis points. Our adjusted EPS in Q4 was $3.69. This was well…

Thank you, Kristin. Let me summarize the key points that we have discussed. We are happy that we beat our comp guidance for the fourth quarter. But the more important takeaway from the quarter is that we have the opportunity to drive even stronger performance, especially by delivering stronger and more compelling value to trade down shoppers. Stepping back and looking at 2023 as a whole, we would have liked to have done more. But, overall, we are happy with our double-digit total sales growth, 80 net new stores, 4% comp growth, and 130 basis points of margin expansion. As we look ahead to 2024, there is plenty of uncertainty, and we see good reasons to be cautious. We are guiding 9% to 11% total sales growth, driven by 100 net new stores and 0% to 2% comp growth. With this sales growth, we anticipate margin expansion of 10 basis points to 50 basis points. Lastly, we are very excited about the long-term prospects for our business. As we discussed in November, we think that, over the next five years, we can grow sales to $16 billion and drive our operating earnings to approximately $1.6 billion. With that, I would now like to turn the call over to your questions.

[Operator Instructions]. Your first question comes from the line of Matthew Boss from J.P. Morgan.

Congrats on a really nice quarter. Michael, maybe to start off, could you elaborate on the rationale behind your 2024 comp sales guidance and just how we should think about this guidance in relation to your long-term target, which calls for mid-single digit comps on average over the next five years?

It's a good question. Let me start by putting 2024 into context with the last three years. If I go back to 2021, our trend was extraordinarily strong, stronger than peers, fueled by the impact of pandemic era benefits on our poor, lower income shoppers. Then in 2022, we came back down to earth with a bump as those shoppers were crushed by lower benefits and by big increases in their cost of living. Now those issues continue to bleed into the first half of 2023. So here we are, what to expect in 2024? I'm going to whisper this, but we think it's possible that 2024 could be the first full normal year since I joined Burlington in 2019. And that's kind of how we approached guidance for 2020. In normal times, before the pandemic, we would likely have planned a low single-digit comp and then been ready to chase. Of course, we don't know if the trend in 2024 will be stronger or weaker. There is plenty of economic uncertainty, interest rates, inflation, gas prices, as well as political and geopolitical risks even. But by planning 0% to 2% comp, we're positioning ourselves to react, I think, to an appropriate range of outcomes. If the trend is weaker than 2%, we can pull back and absorb it. If it's stronger than 2%, then we know we could chase it. I should add, in Q4, as we've just reported, we grew 2% comp versus last year, so that gives us some confidence that our 2024 guidance is reasonable. The key part of your question was about our longer-term outlook, so let me try and reconcile our 2024 guidance to a longer range target of mid-single-digit comp growth. In the years leading up to the pandemic, although we might have planned low-single-digit comp, the intent was always to chase above that. And measured over multiple years, our comp indeed averaged 3% to 4%. But we think that, as the after effects of the pandemic continue to recede, that's the right baseline for our longer term model. We believe all the underlying consumer, competitive and structural factors that drove that growth still exist. But, in addition, we know that we've taken significant actions to improve our own execution of the off-price model. And as those actions gain traction, we expect to outperform that 3% to 4% baseline. So, if I pull all this together, for the 12 months ahead, for 2024, our plan is based on low-single-digit comp growth with the potential to chase. In future years, I should add, it will likely take a similar approach, and I expect in some years, we'll chase and beat that number. In other years, we won't. But we believe over an extended period, a five-year period, we will be able to achieve average annual comp growth in the mid-single-digits.

Kristin, maybe to follow up on the 2024 margin guide, could you just walk us through some of the puts and takes in this year's guidance and, maybe more specifically, could walk through the drivers of leverage on a flat to 2% comp for this year?

The margin drivers for 2024 are consistent with what we shared on the November call. That's higher merchandise margin and savings and freight and in supply chain. And these three margin drives are not dependent on sales, which is why we believe we can increase our EBIT margin on a flat to 2% comp by 10 to 50 basis points. So let me go through each of these quickly. I'll start with merchandise margin. We continue to make good progress here, as evidenced by the 110 basis point increase in merchandise margin in fiscal 2023. We continue to believe we can turn faster and drive lower markdown. And as in 2024, we're entering with clearance levels down meaningfully versus last year, and our inventory levels and assortments are well-transitioned, are fresh, and with great values. Secondly, on freight, freight continues to be a tailwind for us, particularly in the first half of 2024. We're benefiting from lower contracted domestic rates and remain largely covered with our contracts on ocean freight rates. And finally, we're making good progress on supply chain expenses, as evidenced by the 40 basis points of leverage we drove in the fourth quarter. I would say these are the three line items that are the primary drivers of leverage in 2024. There are two offsets that we're planning for in 2024 that I want to mention. One is SG&A. We do expect some modest deleverage in SG&A due to continued investment in store payroll, which we really didn't step up into the back half of 2023. In addition, we'd expect some deleverage on a 0% to 2% comp in SG&A, given that range. And the second offset is in depreciation. We're planning for some modest deleverage in depreciation, given the step-up in CapEx we're planning for this year.

Your next question comes from the line of Ike Boruchow from Wells Fargo.

Congrats on the quarter. Kristin, I guess first for you, you guys ended up with really nice margins in the fourth quarter and the full year. I guess how much of the upside do you consider to be one-time in any way? In other words, how much of this upside would stick on a go-forward P&L? And I have a follow-up for Michael.

We didn't provide line item guidance for the fourth quarter, so let me provide some color. The first thing I would say is there were not any, what I would consider, one-time benefits. In fact, we faced a margin headwind given the higher accrued incentive comp expense versus the fourth quarter of 2022. So when I look at our Q4 margin, I feel good about the quality of the upside. Starting with gross margin, that increased 190 basis points. Freight came in largely as we had expected at 50 basis points lower, but the 140 basis point increase in merchandise margin was very healthy and better than we planned. As Michael highlighted in his prepared remarks, strong regular price selling did help drive lower markdowns than in turn a higher merchandise margin. Within product sourcing costs, as I just mentioned, supply chain leveraged 40 basis points. That was ahead of our expectations, and that was due to higher productivity and benefits we're starting to realize from our efficiency initiatives and supply chain. SG&A in the fourth quarter did delever by 80 basis points. Now, that excludes the Bed Bath & Beyond expenses. But that was in line with what we had expected and was driven primarily by higher incentive comp, as well as our store payroll investment during the quarter. So, overall, for the fourth quarter, our 110 basis point increase in EBIT margin, that was 70 basis points above the high end of our guidance. We felt like this was a strong outcome, gives us confidence as we head into 2024, continue to expand operating margin. And finally, the strength of Q4 did contribute to the 130 basis point increase in EBIT margin for the full year fiscal 2023. And that enabled us to ultimately exceed the high end of that original EBIT margin guidance for 120 basis point increase in fiscal 2023.

Just a quick one for Michael. Just on real estate, you still sound very confident on 100 net new stores for 2024. You mentioned some things like lumpiness in openings over the next couple of years. I wonder if you could maybe just elaborate a little bit on that and maybe just update us on the overall real estate environment and what your pipeline looks like.

Let me anchor my answer on the gross number of new store openings. We expect to open about 140 new stores on a gross basis this year. That includes relocating a couple of dozen of our older, oversized, less productive stores. As we've described previously, that program of relocations is pretty important. It's going to be important to us in the next few years as we reposition ourselves away from some of our less attractive legacy real estate. Anyway, if you take 140 gross new stores and remove those relocations and remove any closures, then we expect our incremental number of new stores to net down to about 100. As I said in the prepared remarks, we have high standards and tight controls for the quality of the real estate where we open new stores. Each potential location is analyzed carefully based on the traffic, trade area, demographics, and co-tenants. And based upon those detailed characteristics, we feel pretty excited about the new stores that we're planning to open this year. Now beyond this year, it's a little difficult to get specific, but I'd offer up a couple of comments. We typically manage our new store pipeline two to three years out. So we still have plenty of work to do on our 2025 new store pipeline, but so far I would say it's shaping up well. It includes a number of additional former Bed Bath & Beyond stores that we didn't pursue directly during the bankruptcy process, but instead have negotiated directly with the underlying landlords. And we're excited about those locations. Beyond 2025, the pipeline is going to depend on the availability of attractive real estate locations. Again, difficult to be specific, but given the weak outlook across bricks and mortar retail, there are reasons to think that that availability could be fairly strong.

Your next question comes from the line of Lorraine Hutchinson from Bank of America.

Michael, can you give us more color on what you see as the opportunity with the trade down or that slightly higher income customer? I'm interested in how you're thinking about that opportunity and the actions you're taking to address it.

I would say that historically in off price, and certainly for us, the lower income shopper has been, A, or even B, major driver of growth. But since early 2022, that has not been the case. In fact, I would say that, for the last few years, it's been clear that right now the growth in off price is being driven by higher income shoppers. That's not a new revelation. We talked about that last year. In 2023, especially in the fall, we pursued a number of strategies to go after those shoppers, in particular focused on delivering a higher mix of recognizable brands and on elevating our assortments in specific businesses. Those strategies worked. They worked really well. But looking back, we could see that we could/should maybe have been even more aggressive. Many of the areas that I'm talking about require that you make buying commitments well ahead of time. In other words, it's more difficult to chase in some of those businesses. And that means that you have to commit further out. And that means you have to be prepared to take more risk. So although I'm happy with the success of the strategies we pursued, in retrospect, I think we should have leaned in more. We should have taken a little more risk. And we might have ended up actually with a slightly lower margin, but we could have driven more sales. So as we look at 2024, we see that as an opportunity. Again, the lead times are a little longer for many of those brands and those businesses. So I would say the opportunity is likely to be stronger in the second half versus the first. I guess the last thing I would say is that we have always had a lower mix of higher income shoppers than some of our peers. We know this. It's partly a reflection of where our stores are located. I think we've shared before that about 70% of our stores are in trade areas where the mean household income is less than $80 ,000. That footprint is not going to change in the short term. But what 2023 demonstrated is that we have enough higher income shoppers coming into our stores, but we can drive incremental sales if we offer great value on the recognizable brands, styles, and items that they are looking for. So we're going to go after that business much more aggressively in 2024.

Kristin, in November, you had mentioned that you expect CapEx to be elevated over the next few years. Can you walk us through the uses on capital spend in 2024?

Our CapEx plan for 2024 is $750 million, which is about 7% of sales. And most of that investment is in our stores and supply chain as we're stepping up investments to support accelerated new store growth, as well as the expansion of our distribution center network to support our larger store base. Let me provide a little bit more color on these two main drivers. So starting with stores, as Michael mentioned, we're planning to open 100 net new stores, close or relocate about 40 stores. So that's approximately 140 gross new stores. This is well above the level we've opened the last few years and actually the highest number of stores we've opened in our history in a year. Our store CapEx represents about 45% of the CapEx spend in 2024. Secondly, on supply chain, supply chain CapEx is about 30% of our CapEx spend. The big driver of our CapEx spend in supply chain is the material handling equipment that will go into our state-of-the-art 2 million square foot DC opening in the southeast in 2026. That's about twice the size of our next largest DC and will be designed and built for our off-price business, be highly automated and more productive than any DC in our current network. These incremental investments in new stores and supply chain capacity are really what's driving the step up in CapEx this year and in the next few years.

[Operator Instructions]. Your first question comes from the line of John Kernan from TD Cowen.

Kristin, it's encouraging freight and supply chain are now sources of margin improvement. They've been a source of pressure the past few years. Are you making faster progress here than you expected on those two line items? How do we think about the potential improvement on freight and supply chain in your 2024 guidance? And just what's the long-term. magnitude of the margin amount here.

I'll take you through these separately starting with freight. In fiscal 2023, freight leveraged 90 basis points. Those savings were driven by lower freight rates, but also specific transportation initiatives we have to optimize our outbound and inbound processes. We still expect freight to be a contributor to our margin expansion in fiscal 2024 as we anniversary lower freight rates in the first part of the year and we continue to drive efficiencies across transportation. There has been some limited pressure on ocean freight on certain routes, but we do not see significant risk to our ocean freight and that's embedded in our merchandise margin. Domestic freight represents a significant majority of our freight expense and we continue to see some opportunity to bring that expense lower as we plan. On supply chain, in the fourth quarter, I think I mentioned, supply chain cost leveraged 40 basis points compared to last year. And the efficiency initiatives that drove that that we previously discussed to reduce labor hours and processing reserve to more efficiently manage the flow of goods and minimize number of touches across distribution center, that's really what's driving this deleverage recapture. In 2024, we are assuming continued modest improvement on supply chain costs as a percentage of sales, driven by those initiatives I just mentioned, but also other specific productivity initiatives we're working on. We are planning supply chain leverage as a contributor to the 50 basis points of operating margin expansion at the high end of our margin guidance for 2024. So those are the shorter term objectives. Longer term, while we haven't specifically built this into the five year model we've laid out, we are building out much larger, more automated, more productive new distribution centers to accommodate our growth. Over time, we'll move an increasing percentage of our merchandise through these more efficient DCs that are designed for off price. And in the long term, this could drive even more leverage on supply chain expense.

Maybe a follow-up for David. You increased the share buyback this quarter, $100 million, but the business generated nearly $400 million in free cash flow in fiscal 2023. How should we model the buyback on a quarterly basis and annual basis going forward?

We did, in fact, increase our buybacks to a little over $100 million last quarter, which was nearly double the previous quarter. So we were more opportunistic this past quarter, as we will from time to time, depending on valuation and liquidity. And we don't guide to buybacks, but I think you can see, looking at our balance sheet at the end of the quarter, we had over $900 million in cash and over $1.6 billion in liquidity, so we're in a really very strong liquidity position. As we've said many times before, our first priority is to invest in our growth. And Kristin just, a few questions ago, walked through our larger CapEx investment in 2024. Nevertheless, despite that step up, we still expect to generate sufficient cash flow, free cash flow to return excess cash to shareholders. We're going to continue to be active, but we're not going to guide to a level. I guess what I would say is, if you look at the buyback level in fiscal 2023 for the year as a whole, that's probably a reasonable proxy for what you might expect, again, depending on market conditions. I would also remind you that we had $500 million remaining at the end of Q4 on our buyback authorizations that run through August 2025. So we'll update you in May on our Q1 buyback opportunities.

Your next question comes from the line of Brooke Roach from Goldman Sachs.

Michael, as you evaluate the better-than-expected comp result in 4Q, can you share a bit more color on the impact that you may have seen in the fourth quarter from weather or other factors?

I'm going to answer your question, but I want to preface my answer by saying, we're students of our business, so we always analyze weather. We always analyze everything, but we always analyze weather to help us explain the context for our trends. But internally, and I want to underscore this internally, we're very careful to focus on what we control. We don't want our merchants or operators to use weather as an excuse. But with that said, there were two main weather call-outs in Q4. I think the one that's most widely reported elsewhere is January. The weather in January was certainly disruptive with winter storms in many of our major markets. As we came into the month, we were running a stronger trend, but the disruptive weather dragged down our comp for the quarter. But, look, it's, our view is it's January. Winter storms happen, and I assume that those storms also hurt other retailers in our markets. There was another sort of weather impact in Q4 that probably hurt us disproportionately versus other retailers. That was driven by milder temperatures for most of November and for December versus last year. Those are obviously the prime selling months for outerwear, which for a company that many people still think of as Burlington Coat Factory is relatively very important. Our outerwear business is not just to drive our sales in its own right. It also brings traffic to the store and therefore lifts sales across other departments. Now in Q4, our comp sales in outerwear was down in the negative mid-single digits. Leaving aside the broader impact on store traffic, that comp sales impact alone cost us a full point in overall comp sales for the quarter.

As you look ahead, how are trends progressing quarter-to-date? Are there any specific items we should keep in mind as we think about the cadence of comp growth opportunity throughout the year?

Quarter-to-date, we've just wrapped up February. So, we're four weeks into the quarter. And truthfully, I would describe the trend in February as softer than we had anticipated. Now I suspect you've probably heard that from some other retailers as well. We attribute that softness to maybe some unfavorable weather early in the month and then a slower pace of tax refunds versus last year. As we've discussed previously, our core customer is just extremely sensitive to the timing of tax refunds, especially the timing of earned income tax credit. Now we're expecting that tax refunds will catch up over the next few weeks. But candidly, this is a good example of why it makes sense to plan our comp conservatively and flexibly, which is what we've done.

Your next question comes from the line of Alex Straton from Morgan Stanley.

I have two for Kristin. The first being, can you just break down the drivers of comp growth in the fourth quarter? How did that look across traffic, conversion, basket size, and AUR? And then I have a quick follow-up.

The single biggest driver of our comp growth in the fourth quarter was higher traffic. We see this as further evidence of the improving health of the off-price shopper. And in addition, conversion was slightly higher compared to last year. Higher units per transaction were actually more than offset by lower AURs. The lower AURs were driven by a mix of business and expanded opening price points versus a year ago.

Any color on how the different regions performed in the quarter as well?

All regions were positive and comp performance was relatively broad based geographically. In the fourth quarter, the Southwest and the Midwest regions, those were the strongest performing regions in fourth-quarter 2023.

Your next question comes from the line of Adrienne Yih from Barclays.

Congratulations on a nice end to the year. Michael, I was wondering, can you provide some additional color on the point that you had made about red price selling versus clearance, kind of two things to dig into there. What do you think is the biggest driver of that? Is it the seasoning of the merch team? Is it the consumer at the margin slightly less price sensitive or is it the sharper price points that Kristin just mentioned?

One of the metrics that we always look at internally is our comp sales growth on regular price versus markdown merchandise. That's particularly important for us. As you know, one of the major elements of Burlington 2.0 is to turn our in-store inventory out faster. That means fewer markdowns, and that means less clearance inventory. That's very healthy from a margin perspective, but lower clearance balances are also a slight headwind to comp. I call that out in the comments because it was quite significant in Q4. Our clearance sales were down by about a fifth versus last year. Our regular price comp was up about 4%. We regard that as a very healthy sign. In other words, the customer likes what we're putting in front of them. I would attribute it to all three of the things that you called out. I think our execution on the merchant side in the fall season was very good. And actually, one of things I really liked about how we managed the business in the fall season, there were some merchandise areas that did not perform well. But early in this season, we saw that they were not performing well, and our merchants and planners moved very quickly to take money out of those businesses and push that money into faster trending areas. That's exactly what you want in an off -price business, and that worked well for us. It obviously saved margin dollars because had we not done that, we would have taken markdowns in those businesses. But it also helps drive the sales trend in businesses that we could chase. So I feel good about what it says about the seasoning of the buyers, and also I also feel about good what is says our values. Ultimately, what's driving the customer to make a purchase is the value they are seeing in front of them. And if they're seeing great value at a regular price, then we don't need to mark it down. So, I take that as a very positive sign. The last thing, I should say, I should add that we are planning faster inventory turns in 2024. So we anticipate that that comp headwind from lower clearance will continue to have an impact, especially in the first half of the year. We've factored that into our guidance, but I think it's worth calling out.

Your next question comes from the line of Mark Altschwager from Baird.

Maybe first for Michael, what impact would you expect department store closures to have on your business?

I would say that, in general, whenever a bricks and mortar competitor shuts down stores, that tends to help us. We would expect to pick up some of their traffic. But of course, the size of the impact depends upon which particular retailer, which specific geographies and which specific stores. If a retailer closes stores that it has in more urban, lower to moderate income areas where we have a strong presence, then we would expect the impact to be bigger. Stepping back, in terms of the overall outlook for bricks and mortar retail, we think it's likely that there are going to be a lot of store closures over the next two years. So like I say, in general, it's hard to be specific without looking at specific details. But in general, we would expect those closures to be a tailwind for us.

And a follow-up for Kristin. Can you remind us how many of the Bed Bath leases you acquired last year? How many opened in the fourth quarter? And how should we think about the cadence for the remaining openings this year?

In total, we acquired 64 leases from Bed Bath & Beyond in the fall of last year. Of those 64 Bed Bath locations, we opened 32 in fiscal 2023 with the majority opening during the fourth quarter. It's still early, but we feel very good about how these stores are performing so far, pretty much as we had expected. So at the end of Q4, we had 32 remaining to open. We expect to open the majority of these locations in the first quarter with the balance to open in the second quarter of 2024, and that will be all 64. In 2023, the cost associated with the Bed Bath dark rent, these are the costs that we incur before the store is opened, totaled $18 million last year. In Q1, we expect these costs to be approximately $8 million with about $1 million expected in Q2. And then at that point, those costs will be fully recognized.

We have time for one more question and that question comes from Dana Telsey from Telsey Group.

As you think about the low income consumer, can you expand on the health of the low income consumer, what you saw last year and how you're thinking about it for 2024?

I think this is a very important question. You probably picked this up from the script, but I think how this customer performs this year is going to be very important to our business. This customer is critical for us. As I said in the prepared comments, we think that their situation has improved versus last year. Back then, they were experiencing double-digit increases in the cost of everyday essentials – food, rent, transportation, et cetera. So we think that that pressure eased in the back half of last year and that that helped to underpin our trend. But I don't want to overstate that. Discretionary spending levels for this segment of shoppers have been seriously impacted over the last two years. You can see that in the results of most retailers who serve that lower end customer. I should also add that although the situation may have eased, those customers are still highly sensitive to things like timing of tax refunds, which obviously we just spoke about. And although inflation has come down, I think it's going to take a bit of time, considerable time for that customer to really start to recover. So that sort of ties to something else that we talked about in the script and that we've responded to on some of the questions. So we really think the incremental growth for our business this year is going to have to come from increased penetration with trade down customers. We think that's where the opportunity is. We think that's really what drove our comp in the second half of last year. And we think there's more opportunity for us there.

Thank you, everyone. I will now turn the call back to Michael O'Sullivan, Chief Executive Officer, for closing remarks.

Let me close by thanking everyone on this call for your interest in Burlington Stores. We look forward to talking to you again in May to discuss our first quarter 2024 fiscal results. Thank you for your time today.

This concludes today's conference call. Thank you for your participation and you may now disconnect.