Burlington (BURL) Q4 2025 Earnings Call Transcript

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Date

Thursday, March 5, 2026 at 8:30 a.m. ET

Call participants

• Chief Executive Officer — Michael O'Sullivan
• Executive Vice President & Chief Financial Officer — Kristin Wolfe

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Takeaways

• Total sales growth (fiscal Q4, period ended Jan. 31, 2026) -- 11%, on top of 10% growth in the prior year, demonstrating consecutive double-digit quarterly increases.
• Comparable store sales (fiscal Q4) -- 4%, exceeding guidance and building on 6% comp growth in the prior year.
• Operating margin expansion (fiscal Q4) -- 100 basis points improvement versus last year, reflecting cost discipline and margin recovery actions.
• Adjusted EPS (fiscal Q4) -- $4.99, representing a 21% increase, supported by merchandise margin gains and cost leverage.
• Gross margin rate (fiscal Q4) -- 43.7%, rising 80 basis points, with 60 basis points from merchandise margin and 20 basis points from lower freight costs.
• Product sourcing costs (fiscal Q4) -- $232 million, up from $217 million in 2024, but levered 30 basis points due to productivity and cost savings.
• Adjusted SG&A leverage (fiscal Q4) -- 40 basis points improvement, mainly from store payroll and occupancy cost leverage on higher sales.
• Comp store inventories (fiscal Q4) -- Up 12% compared to the end of the prior year, driven by preparation for higher anticipated sales and greater freshness in assortment.
• Reserve inventory penetration (fiscal Q4) -- 40% of total inventory, down from 46% last year, aligning with historical norms.
• Total liquidity (fiscal Q4 end) -- Approximately $2.2 billion, including $1.2 billion in cash and $926 million in availability on the ABL facility; no borrowings outstanding.
• Share repurchases (fiscal Q4 and full year) -- $59 million repurchased in fiscal Q4, $251 million for the full year, with $385 million remaining on the current authorization expiring May 2027.
• Store count (fiscal Q4 end) -- 1,212 stores following a net increase of one in fiscal Q4, comprised of two openings and one closure.
• Total sales growth (fiscal full year) -- 9% on top of 11% last year, reflecting multi-year sales acceleration.
• Comparable store sales (fiscal full year) -- 2% increase, compared to 4% prior-year growth.
• Operating margin expansion (fiscal full year) -- 80 basis points, following 100 basis points expansion the previous year.
• Merchandise margin (fiscal full year) -- Expanded by 40 basis points despite tariff headwinds.
• Freight expenses (fiscal full year) -- Improved by 20 basis points, aided by ongoing supply chain initiatives.
• Adjusted SG&A (fiscal full year) -- Achieved 30 basis points of leverage, partially offset by 20 basis points of deleverage in depreciation and amortization.
• Net store openings (fiscal full year) -- 104 net new stores, resulting from 131 openings, 18 relocations, and nine closures.
• 2026 sales guidance -- Anticipates total sales growth between 8%-10%, underpinned by 110 net new store openings and 1%-3% comparable store sales growth.
• 2026 adjusted EBIT margin guidance -- Projects flat to 20 basis points increase versus last year, incorporating start-up costs for the new Savannah distribution center.
• 2026 adjusted EPS guidance -- Range of $10.95 to $11.45, or 8%-13% projected growth.
• 2026 capital expenditures -- Expected at $875 million net of landlord allowances, reflecting expanded growth and infrastructure initiatives.
• Fiscal Q1 2026 outlook -- Forecasts 9%-11% total sales growth and 2%-4% comp growth; adjusted EPS between $1.60 and $1.75, versus $1.67 last year; expects fiscal Q1 EBIT margin down 60-100 basis points sequentially due to startup and timing factors.
• Elevation strategy impact -- Mid-single-digit increase in average unit retail for the quarter; strongest comp growth in higher price buckets, showing customer acceptance of elevated assortment and value offerings.
• Burlington 2.0 & Merchandising 2.0 initiatives -- Expected to drive further localization and completion of Store Experience 2.0 remodels in 2026.
• Tariff response (2025) -- Management shifted assortment away from home categories, reduced inventories, raised retails selectively, and aggressively pursued cost savings, resulting in margin protection at the expense of some sales upside.
• Fiscal Q4 sales trend by month -- "As we look at it, it makes the most sense, given the timing of holiday, to look at and speak to November and December combined. And for that two-month period in fiscal Q4, our comp sales increased mid-single digits."; January continued with mid-single-digit comp, though severe weather in late January cost about one comp point for the quarter.
• Customer demographics (fiscal Q4) -- Comp sales trends were "very broad-based" across income and ethnic segments, with slightly higher comps in lower-income areas but minimal variance across cohorts.

Summary

Burlington Stores (NYSE:BURL) delivered consecutive double-digit sales growth in its largest quarter, with margin expansion supported by operational discipline and strategic merchandise mix adjustments in response to tariffs. Management explicitly increased 2026 comparable sales guidance above historical levels, driven by completion of key strategic initiatives, easier sales comparisons, and favorable customer trends. Capital allocation remains aggressive, with strong liquidity, continued share repurchases, and a record net store pipeline, including ongoing investments in supply chain infrastructure. Store fleet transformation and localization initiatives are prioritized as earnings leverage opportunities, while full-year margin gains are expected to be sustainable and expandable beyond 2026. First quarter margin guidance is conservative, reflecting transitional supply chain costs but is expected to be more than offset by improvements in later quarters.

• Michael O'Sullivan emphasized that 2026 offers "tremendous opportunity" for sales, referencing the opportunity to address prior assortment gaps, especially in the home business.
• Kristin Wolfe clarified that gross margin improvement in fiscal Q4 was led by "lower shortage as well as the actions we took to mitigate tariffs," with 30 basis points of supply chain leverage and 40 basis points of SG&A leverage achieved in the quarter.
• Burlington's guidance reflects confidence in chasing sales upside, supported by an intentional 12% comp store inventory increase heading into the new year.
• Management expects new store openings to yield first year sales of approximately $7 million per store, with recent cohorts "actually outperforming these expectations for comp growth."
• Burlington's elevation strategy achieved higher average unit retail and transaction size "without taking a hit to margin"; internal data confirms the strongest comp growth rates were in higher price buckets.
• Supply chain cost leverage is expected to resume following the opening and ramp-up of the highly automated Savannah distribution center, which is "more than twice the size" of the existing largest DC.
• Store relocation and downsizing programs are delivering improved sales lifts and significant occupancy cost reduction, with management signaling this as a growing focus for transformation.
• Management described the current off-price merchandise availability environment as "excellent," noting there is "plenty of supply in the market across most categories."
• Tax refund season is expected to be more favorable than recent years, with leadership citing "early signs and expert predictions are very positive" for customer demand in the first quarter.
• Localization initiatives now being rolled out are identified as a "major unlock" for sales and merchandising, as Burlington aims to close the historical capability gap with off-price peers.

Industry glossary

• Comparable store sales (comp sales): Year-over-year sales growth generated by stores open at least 12 months, used to assess organic retail expansion.
• Operating margin: Earnings from continuing operations as a percentage of net sales, excluding certain one-time expenses as described in the company's reconciliation.
• Adjusted EBIT margin: Earnings before interest and taxes, adjusted for certain non-GAAP items, divided by total sales.
• Reserve inventory: Merchandise purchased but held in storage rather than sold through stores, used to manage product flow and support future sales opportunities.
• ABL facility: Asset-based lending credit line secured by company assets, typically receivables and inventory, providing short-term liquidity.
• Elevated assortment / elevation strategy: Strategic focus on offering higher-quality, more recognizable brands and styles at increased price points within off-price retail, aiming to increase average transaction value and brand perception.
• Burlington 2.0 / Merchandising 2.0: Internal strategic initiatives targeting store experience modernization and advanced merchandise planning, including advanced analytics and localization capabilities.

Full Conference Call Transcript

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 recorded or broadcast without our expressed permission. A replay of the call will be available until 03/12/2026. We take no responsibility for inaccuracies that may appear in transcripts of the call by third parties. Our remarks and the Q&A that follows are copyrighted today by Burlington Stores, Inc. 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-Ks and in our 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. As a reminder, as indicated in this morning's press release, all profitability metrics discussed in this call exclude costs associated with bankruptcy-acquired leases. These pre-tax costs amounted to $8 million and $5 million during 2025 and 2024, respectively, and $35 million and $16 million for the full fiscal years 2025 and 2024, respectively.

Now here is Michael.

Michael O'Sullivan: Thank you, David. Good morning, everyone, and thank you for joining us. I would like to cover three topics this morning. Firstly, I will discuss our fourth quarter results. Secondly, I will review our full year 2025 results. And thirdly, I will talk about our outlook for 2026. Then Kristin will provide additional details. Okay. Let's start with our fourth quarter results. Total sales increased 11%. This was on top of 10% total sales growth last year. The fourth quarter is by far our largest quarter of the year, so to grow total sales by double digits on top of double digits is especially impressive. It shows that we are continuing to take retail market share.

Comparable store sales increased 4%. We knew coming into the quarter that we were up against 6% comp growth from last year and that we had some tariff-related gaps in our assortment. We expected our sales to be within our guidance range of 0% to 2%. So we were very pleased to handily beat this guidance and to deliver a strong two-year comp stack of up 10% for the fourth quarter. Our buying, planning, supply chain, marketing, and store teams executed very well to chase this trend. I am not going to spend a lot of time dissecting the details of our Q4 comp performance, but I would like to call out two important items. Firstly, our elevation strategy.

This has been a focus over the last couple of years: elevating the assortment to offer better, more recognizable brands, higher quality, and more fashion, all at terrific values. There is clear evidence of the success of this strategy in our internal sales data. For example, when we analyze our sales by price point, we see that the highest comp growth rates are in the higher price buckets. In other words, despite the economic pressure she may be feeling, our customer is responding to the great values we are offering at these higher price points. These trends drove a mid-single-digit increase in our average unit retail in the fourth quarter.

The second point I would like to make is that although we are pleased with our ahead-of-plan comp growth, as we hindsight the quarter, we can see that there were important categories where we could have done more business. I will explain what I mean, and we will talk more about this in a few moments when I discuss the full year. But before I move on to our full year 2025 results, let me just touch on Q4 earnings. In the quarter, we achieved 100 basis points of operating margin expansion and 21% earnings per share growth. Again, this is the largest quarter of the year, so we are especially happy with this performance.

Now let's discuss our results for the full year 2025. For this discussion, I am going to read the headlines, but then I would like to spend most of the time talking about how, in response to tariffs, our operating strategies shifted in 2025 and how this impacted these sales and earnings results.

The headlines are that in 2025, we delivered 9% total sales growth on top of 11% total sales growth last year; 2% comp sales growth on top of 4% comp sales growth last year; 80, that is eight-zero, basis points of operating margin expansion on top of 100 basis points last year; and 22% earnings per share growth on top of 34% earnings per share growth last year. What really jumps out from these headline results is that we drove extraordinarily strong earnings growth on a relatively modest comp sales increase. Let's talk about that. When we started the year 2025, as usual, we planned our business for low single-digit comp growth.

So we believed or hoped that we might be able to chase to mid-single-digit comp growth for the year. Our initial 2025 focus and operating strategies were consistent with this comp sales outlook. But then in April, things changed. The introduction of tariffs forced us to recalibrate. It was clear that if we ignored the margin impact of tariffs, then this would significantly reduce our earnings growth. Over the last few years, we have worked hard to build our operating margin. And in 2025, we decided that we were not going to allow tariffs to set us back. So we took numerous actions to offset the impact of tariffs.

We talked about these actions in our quarterly calls in May and November. They included pivoting away from and planning down receipts in categories which faced the greatest negative margin pressure from tariffs. These categories were mostly in our home businesses. Reducing inventory levels across the store to drive a faster turn and thereby generate lower markdowns. Raising retails in select, fast-turning categories where there was limited resistance or pushback from the customer. And aggressively going after expense savings across the P&L. These actions were very successful. In May, despite the initial shock of tariffs, we were confident enough to reiterate our earnings guidance for the year. In August, we took this guidance up.

In November, we took our guidance up again. And today, we are reporting actual full year results featuring 80, eight-zero, basis points of operating margin expansion and 22% earnings per share growth. These numbers are well ahead of the original earnings guidance that we issued on this call in March. So let's talk about sales. As I said a moment ago, at the start of 2025, we planned our business for low single-digit comp growth but hoped we would be able to chase to mid-single-digit. We did not. We did not because the actions we took in response to tariffs were a drag on sales. Of course, we knew this.

We knew that cutting receipt plans for businesses most impacted by tariffs was the right thing to do for earnings growth, but that it would likely dampen our sales upside. This impact showed up in Q3 and Q4. In Q3, unseasonably warm weather hurt our outerwear business. That can happen. We do not control the weather. But in the past, when this has happened, we have been able to lean on non-seasonal businesses, particularly home categories, to pick up some of the slack. That did not happen because our home assortment was the most impacted by the shift away from businesses with the greatest margin pressure from tariffs.

Without these assortment gaps in Q3, we would likely have driven more sales. That said, given tariffs, our earnings growth would have been lower. My commentary is similar for Q4. I know it seems like an odd thing to say given that we are reporting strong percent comp growth on top of 6% comp growth last year. But I am convinced that we could have done even more sales in the fourth quarter. For example, toys. There are categories that are very important in Q4—gifting and housewares—where we could have done more business and driven higher comp growth across the chain. At the start of 2025, we had much higher full year sales plans for these businesses.

But once tariffs were introduced, it made sense to pull back. We could have made a different decision. This would likely have delivered a stronger comp increase but with lower earnings growth. Wrapping up on the full year, let me reiterate that we are very pleased with our results. 80 basis points of operating margin expansion on top of 100 basis points last year; 22% EPS growth on top of 34% last year. One of the reasons why I have taken a few minutes to go through all this and to provide a full analysis of the drivers of our 2025 results is that it helps inform how we are thinking about the sales outlook for 2026.

In fact, this is a good segue to talk about that sales outlook. I tend not to use the word “bullish” very often. But I am going to use it now. We feel very bullish about our sales outlook in 2026. Barring some black swan event, we think that we have an opportunity to really drive sales this year—comp store sales and total sales. There are several external and internal factors that are driving this optimism. On the external side, based on our trends in the fourth quarter, our view is that our customer looks quite resilient right now. Add to that, we expect that the current tax refund season is going to be more favorable than recent years.

As we have said in the past, our core customer is very sensitive to tax refund payments. And the early signs and expert predictions are very positive. So we think there may be sales upside, especially in the first quarter. Staying on external issues, we do not know what will happen with tariffs this year. It is very uncertain. But we believe that the industry and our supply base have now adjusted to them. And the tariffs are unlikely to represent the same margin challenge that they did last year. Let's move on to the internal drivers of our optimism. There are two things to highlight.

Firstly, in 2026, we will be up against our easiest comp sales comparisons for some years. In Q1, in Q3, and even in Q4, we look at the comp numbers that we posted last year and we feel like we have tremendous opportunity. As I explained a moment ago, in the back half of 2025, we had significant tariff-related gaps in our assortment, especially in our home businesses. These gaps held back our sales trend. Now that the industry and our supply base have adjusted to tariffs, we plan to go after these assortment opportunities in the back half of 2026.

Secondly, we expect continued progress on our Burlington 2.0 initiatives, including the completion of our Store Experience 2.0 remodel for the balance of the chain. And we are also excited about the rollout of additional Merchandising 2.0 capabilities, especially regional and store-level localization. Since our last quarterly call in November, these favorable external and internal factors have caused us to reconsider and take up our sales plans for 2026. That is why we are raising our comp guidance to 1% to 3% for the full year. This is modestly higher than our typical model. That said, you can divine from my comments that we think there may be potential upside to this guidance.

And we are positioned to chase the sales trend. There is one other important point to make. Although we are very excited by the sales outlook, we do not plan to go after this sales opportunity at the expense of margins. We have made huge progress expanding our operating margin over the last couple of years. We are confident there is more to come, and we anticipate that any ahead-of-plan sales in 2026 will drive further operating margin leverage. At this point, I would like to turn the call over to Kristin. Kristin?

Kristin Wolfe: Thank you, Michael, and good morning, everyone. I will provide more details on the financials. First, starting with the fourth quarter, total sales grew 11% and comp store sales grew 4%, well above the high end of our guidance. As Michael noted earlier, this Q4 growth is on top of last year's 10% total sales growth and 6% comp store sales growth. Our Q4 adjusted EBIT margin expanded 100 basis points versus last year. This was 50 basis points above the high end of our guidance. The gross margin rate for the fourth quarter was 43.7%, an increase of 80 basis points versus last year.

This was driven by a 60 basis point increase in merchandise margin and a 20 basis point decrease in freight expenses. Product sourcing costs were $232 million versus $217 million in 2024. Product sourcing costs levered 30 basis points as a percentage of sales, driven by supply chain productivity and cost savings initiatives. Adjusted SG&A costs in Q4 were 40 basis points lower than last year. The leverage in SG&A was primarily driven by leverage from store payroll and occupancy costs on higher sales in the quarter. Q4 adjusted EBIT margin was 12.1%, and our adjusted earnings per share in Q4 was $4.99. Both of these were well above the high end of our guidance.

Our Q4 adjusted EPS represents a 21% increase versus the prior year. At the end of the quarter, comparable store inventories were up 12% versus the end of the fourth quarter in 2024. Our reserve inventory was 40% of our total inventory versus 46% of our inventory last year. We are very happy with the quality of the merchandise, the brands, and the values that we have in reserve. We ended the quarter in a very strong liquidity position, with approximately $2.2 billion in total liquidity, which consisted of $1.2 billion in cash and $926 million in availability on our ABL. We had no borrowings outstanding at the end of the quarter on our ABL.

During the quarter, we repurchased $59 million in common stock, bringing our annual share repurchases to $251 million. At the end of Q4, we had $385 million remaining on our share repurchase authorization, which expires in May 2027. In Q4, we opened one net new store, bringing our store count at the end of the year to 1,212 stores. In Q4, we had two new store openings and one closing. I will now move on to discuss our full year 2025 results. Total sales increased 9% on top of 11% in 2024. Comp store sales increased 2% on top of 4% in 2024. Our operating margin for the full year expanded by 80 basis points.

Merchandise margin increased by 40 basis points despite the negative impact from tariffs. Freight expenses improved by 20 basis points and product sourcing costs levered by 20 basis points. We also achieved 30 basis points of leverage on adjusted SG&A. This leverage was offset by 20 basis points of deleverage in higher depreciation and amortization costs. In terms of store openings, for the full year, we opened 131 new stores, while relocating 18 stores and closing nine stores, adding 104 net new stores to our fleet. I will now move on to our 2026 guidance. This guidance excludes expenses associated with bankruptcy-acquired leases of approximately $8 million in 2026 versus $35 million in 2025.

For 2026, we expect total sales growth in the range of 8% to 10%. This assumes 110 net new store openings. We anticipate that approximately 60% of these new stores will open in the first half of the year, with the balance opening in the fall. We are forecasting comp store sales for the full year to increase 1% to 3%, and our adjusted EBIT margin to be in the range of flat to an increase of 20 basis points versus last year. This results in adjusted earnings per share guidance in the range of $10.95 to $11.45, an expected increase of 8% to 13%.

Capital expenditures, net of landlord allowances, are expected to be approximately $875 million in fiscal 2026. I would now like to move on to guidance for the first quarter of 2026. This Q1 guidance excludes expenses associated with bankruptcy-acquired leases of approximately $6 million each in 2026 and 2025. We expect total sales to increase 9% to 11%. Comp store sales are assumed to increase 2% to 4% for Q1. We are expecting adjusted EBIT margins to be in the range of down 60 to down 100 basis points over 2025, which results in an adjusted EPS outlook in the range of $1.60 to $1.75 versus last year's first quarter adjusted earnings per share of $1.67.

I would now like to turn the call back over to Michael.

Michael O'Sullivan: Thank you, Kristin. Before I turn the call over to questions, I would like to reinforce a few of the key points that we have discussed this morning. Firstly, we are very happy with our Q4 performance: 11% total sales growth, 4% comp sales growth, 10% two-year comp stack, 100 basis points of operating margin expansion, and 21% increase in earnings per share. Secondly, we are also pleased with our full year results. We achieved 80 basis points of operating margin expansion on top of 100 basis points last year, and 22% earnings per share growth on top of 34% last year. In 2025, in response to tariffs, we had to adjust and make choices.

We took actions to address the margin impact of tariffs and to drive earnings growth. The results are clear. This strategy was spectacularly successful. And thirdly, we are feeling bullish about 2026. There are external and internal factors that are driving this optimism. We think there may be upside to our sales guidance. And we anticipate that any ahead-of-plan sales should help drive additional operating margin expansion. I would now like to turn the call over for your questions.

Operator: Thank you. We will now open for questions. If you would like to ask a question, please press star followed by 1 on your telephone keypad. Again, that is star followed by 1 on your telephone keypad. Kindly limit your questions to one question and one follow-up. Your first question comes from the line of Matthew Robert Boss of JPMorgan. Please go ahead.

Matthew Robert Boss: Great. Thanks, and congrats on another nice quarter. So Michael, to break down the fourth quarter further, could you elaborate on what drove your ahead-of-plan sales? And in particular, what makes you think that you could have done even more sales in the fourth quarter than your reported results?

Michael O'Sullivan: Well, good morning, Matt. Thank you for the question. As I said in the script, overall, we were very pleased with our trend in Q4, a strong 4% comp growth on top of 6% comp growth last year. So 10% two-year stack. That said, the breakdown of this comp growth by business was very, very different to how we had originally planned it. Let me explain that. Over the last few years, we have had enormous success growing our home businesses. Especially in the back half of the year, home has been a real engine of growth for us, with categories such as gifting, home decor, housewares, bedding, toys, and seasonal decor.

Now our original plan for 2025 was to significantly expand those areas, starting in Q3 and then into Q4. We believed that we had a significant sales opportunity. Now with the introduction of tariffs in the spring, we faced a different set of economic choices. If we had maintained our original plans in those areas, we could have driven higher sales. But because of tariffs, we had to adjust. You know, the way I think about this is our mission is not just to chase sales; it is to chase profitable sales. And looking back, I am very pleased with how smartly and flexibly our teams responded in that situation.

When tariffs were announced, we set about remixing our plans to focus on businesses that were less impacted by tariffs—you know, certain categories in apparel, footwear, beauty, and accessories. So not surprisingly then, coming back to your question, our comp growth in Q3 and Q4 was strongest in these specific businesses. I would say that our merchandising teams in those categories did a great job delivering terrific assortments that drove our comp sales in the back half. The flip side, of course, was that our comp growth in our most important home and holiday categories was lower. Of course it was. As I said, we deliberately lowered the mix of these businesses in response to tariffs.

And it was that remixing that really enabled us to drive such extraordinary earnings growth in 2025. Now the last part of your question— which businesses could have delivered more sales then? It is all the categories that I mentioned: gifting, home decor, housewares, bedding, toys, seasonal decor. Now despite the gaps in the assortments in those businesses, we still turned very fast. So that tells me that if we had more receipts, then for sure, we could have done more business. But those additional sales would have come with unacceptably low margins. Let me wrap up my answer by looking forward, though. We are excited for 2026. The math is different now.

The industry has had the chance to adjust to tariffs—you know, tariffs are still here, but they are lower now than they were last summer. You know, as I have described, last year we started out with ambitious sales plans in our home businesses, but we had to shelve those plans in response to tariffs. That opportunity—that sales opportunity—has not gone away. And in 2026, unlike 2025, we see the chance to go after that opportunity aggressively and profitably.

Operator: Your next question comes from the line of Ike Boruchow of Wells Fargo. Your line is now open.

Ike Boruchow: First question for Michael. I think I have a question on the comp guidance just for 2026—1% to 3%. It is higher than you normally give us. I know it is relatively small, but it is a deviation from your typical guide. How can you give us a little bit more color on how we should interpret this along with your—cannot help but hear the word “bullish” and think that is a change from you as well. So just how should we interpret this?

Michael O'Sullivan: Yeah. Good morning, Ike. Yeah. Growing up in the UK, “bullish” really is not a part of the vocabulary. But yeah, I am using “bullish” this time around. So let me answer your question. As you know, we typically plan our business and guide to flat to 2% comp growth, with the goal being to chase any sales upside. You know, in the fall, when we started to put together our 2026 budget, flat to 2% was our starting point. And that was the—obviously, that was the initial guide that we discussed in November. So over the last two months, we have had a chance to really look at the outlook for 2026.

And obviously, we have torn apart and analyzed our 2025 performance. Now based on all that, we see a lot of potential upside. You know, again, as I said in the prepared remarks, there are external and internal factors that are driving our optimism. On the external side, based on our fourth quarter sales trends, our customer looks pretty resilient to us. We also think the tax refunds are likely to create some momentum, certainly in the first quarter. And while we do not know what will happen with tariffs, we think they are unlikely to present the same margin challenge that they did last year.

Now on the internal side, specific to Burlington Stores, Inc., if you like, we see an opportunity to drive sales as we look at Q1, Q3, and even Q4, as we lap issues in those quarters—especially tariff-related assortment issues in the back half. Now with all that said, let me reassure everyone that, you know, we are an off-price retailer. Our overall playbook has not changed. We are still going to plan sales conservatively, manage the business flexibly, and then chase any upside. I should also make the point that although raising guidance to 1% to 3% is not a very significant change, it does matter.

It gives our merchants a little more open-to-buy so they can be more aggressive as we start the year, as we start the quarter. It gives them more of a head start, if you like, as they chase the sales trend. The other data point that I should call out is our inventory level. At the end of Q4, our comp store inventories were up 12%. Now that kind of increase is very unusual for us. But it was deliberate. And it is another indicator that we see potential sales upside in 2026—especially in Q1.

Ike Boruchow: Got it. And then a quick follow-up for Kristin. On the margins—just the 1Q down 60 to 100—can you just elaborate what exactly are the moving pieces there? Because the full year seems pretty solid, but what is going on in the first quarter that we should take note of?

Kristin Wolfe: Hi. Good morning. Thanks for the question. It is a great question—glad you asked. Let me start with the full year, and then I will touch on the Q1 dynamic specifically. So for full year 2026, 1% to 3% comp store sales growth and operating margin flat to up 20 basis points. Going down the P&L, we are assuming relatively flat merchandise margin as we invest and reinvest any favorability from cycling tariffs to better support better brands, higher inventory levels in stores—all of this to drive sales.

Similarly, for the full year, we are expecting relatively flat freight and product sourcing costs as our continued productivity and cost saving initiatives are still there, but mostly offset by new DC start-up costs this year. Then in SG&A for the full year, we expect to see about 20 basis points of leverage at a 3% comp. That is what is driving the full year guidance. And it is worth reiterating: we continue to expect 10 to 15 basis points of incremental leverage for every point of comp above the 3%. So now to your specific question about the first quarter—it is an outlier for the year.

We are guiding lower margin in Q1, but we absolutely expect margins to increase in Q2, Q3, and Q4. We have some unique factors going on in the first quarter. First, we have some pressure on gross margin. We will not have anniversary tariffs—that puts some modest pressure on markup. And we also have a markdown timing shift into Q1 from Q2. Secondly, as it relates to our supply chain costs, we will see some deleverage specifically in Q1 that is related to the start-up costs from our new Savannah distribution center, which we plan to open in the second quarter.

And then the last thing going on in Q1 is we are lapping a few one-time favorable items from Q1 last year. Michael has talked about how aggressively we went after expense savings across the P&L in response to tariffs, and there were some levers that we pulled specifically in April to drive savings that we are now lapping in Q1. These are the primary deleverage items that drive the down 60 to 100 basis points for Q1.

And again, just to reiterate, we do expect EBIT margins to increase to varying degrees for each of Q2, Q3, and Q4 to offset the lower operating margin in Q1 and net out to that flat to plus 20 basis points for the full year.

Operator: Your next question comes from the line of Lorraine Hutchinson of Bank of America. Your line is now open.

Lorraine Hutchinson: Thank you. Good morning. Michael, we are expecting tax refunds to be much higher than last year. In 2021, you saw a significant sales lift from these stimulus checks. Should we think of higher refund checks in the same way?

Michael O'Sullivan: Good morning, Lorraine. Thank you for the question. At a very high level, I would say that the answer is yes. Whether it is a tax refund check or a stimulus check, it puts extra money in our customers' pockets, and that is always a good thing and helps to drive comp sales. That said, there are a couple of very important differences, I think. Firstly, the stimulus checks back in 2021 were much more significant and more expansive. They went to everybody. For the one big beautiful bill, it looks like there are many different pieces to it. And it does not affect everybody equally. So it is difficult to tell how much it will impact our customers.

You know, our expectation is that the impact will be much less significant than the 2021 stimulus checks. The second point to make is that the 2021 stimulus checks—they were a one-time thing. So in 2022, you will remember, we were up against them. The one big beautiful bill is a change in the tax code. And in that sense, it is permanent. So any sales lift that comes from it should be sustained rather than a one-time event. Anyway, I guess boiling it all down, it is difficult to know how big an impact it might have. We have built in some upside to our plans, and we are ready to chase.

Lorraine Hutchinson: Thank you. And then wanted to follow up on inventory. You spoke earlier about the comp store inventory up 12%. But your reserve penetration was lower than last year at the end of the fourth quarter. Are you happy with your inventory levels? And maybe more broadly, how are you feeling about merchandise supply and off-price availability?

Kristin Wolfe: Good morning, Lorraine. This is Kristin. I will take the first part of your question on inventory. Michael kind of spoke to it on the higher inventory levels in an earlier question, talking about our approach for 2026 sales guidance. But at the end of Q4, our comp store inventories, as you noted, were up 12%. This was deliberate, and we feel very good about the amount of inventory and the freshness of that inventory. The primary driver of the higher inventory is we wanted to be prepped and stocked for higher traffic, due to the higher tax refunds as well as the underlying trend of our business and sales anticipated in Q1.

In addition, the other dynamic is we did a great job delivering transitional receipts in Q4, such that our assortment was fresh—there is newness in the store as we move from holiday and into spring. And we are continuing to improve our capabilities to better localize assortments by geography and climate, and these strategies contributed slightly to higher comp store inventory levels at the end of Q4 versus last year. So that is on in-store inventory. On reserve inventory, our reserve penetration was lower than last year, but at 40% of total inventory, it is really more in line with historical levels at the end of Q4.

In 2023, for example, it was slightly higher than this—we saw 39% at that time, the end of 2023. And as we look at that inventory that we have in reserve, we really feel good about the quality and the values and the brands that will help support sales and support our ability to chase in 2026.

Michael O'Sullivan: And then let me jump in on the last part of the question—on off-price merchandise availability. I would describe the buying environment for off-price right now as excellent. I think you have probably heard the same thing from other off-price retailers. There is plenty of supply in the market across most categories. You know, I mentioned in the prepared remarks that we think there may be sales upside in 2026. Well, it is important to add that we see plenty of off-price merchandise availability to help fuel that sales trend.

Kristin Wolfe: Thanks, Lorraine.

Operator: Your next question comes from the line of Brooke Siler Roach of Goldman Sachs. Your line is now open.

Brooke Siler Roach: Good morning, everyone. Firstly, I have a quick question about the monthly cadence of comp sales in 4Q. In particular, I am wondering how your business performed in January and your comp trend exited the quarter. Thank you.

Kristin Wolfe: Good morning, Brooke. It is Kristin. I will take the question. It is a good question. As we look at it, it makes the most sense, given the timing of holiday, to look at and speak to November and December combined. And for that two-month period in Q4, our comp sales increased mid-single digits. And as we got closer to Christmas, that trend accelerated. So we were really pleased with this holiday performance and the sales trend we saw, particularly given the strength of our holiday season last year. Then as we moved into January, that strong trend and momentum continued. January also ran a mid-single-digit comp.

And I will point out that our comp in January would have been even stronger if not for the significant winter storm that impacted many of our major markets late in the month. It was widespread and led to several hundred store closures. This disruption cost us about a point of comp on the full quarter and several points for the month of January. Now to the last part of your question, once we dug out from the winter storm, we resumed that strong comp store sales trend. Momentum has continued into February, such that Q1 is off to a very strong start. We have a lot of the quarter ahead of us, of course, but so far, good.

Brooke Siler Roach: That is great to hear. As a follow-up, I was hoping you could speak to sales trends by customer demographic. What are you seeing in terms of sales trends by different income groups? And are there any callouts on trends for other demographic groups that we should be aware of? Thank you.

Michael O'Sullivan: Yeah. Good morning, Brooke. It is Michael. I will take that. It is a good question. It is something we look at all the time. We slice and dice our internal sales data just to see if there are any pockets of weakness or pockets of strength. So let me tell you what we are seeing. You know, on sales trends by different income segments, as we analyze the performance of stores based on median household income of the surrounding area, our comp sales trends in the fourth quarter were very broad-based. It is true that our stores in lower-income trade areas had a slightly higher comp than the rest of the chain, but it was very close.

In other words, all income cohorts performed well in the fourth quarter. So when you segment our customers based on household income, every segment is looking fairly resilient right now. On the second part of your question—other demographic groups—again, there is not much to call out. When we look at performance of our stores based on ethnicity of the surrounding area, again, the trends look fairly broad-based. For example, stores in high Hispanic trade areas—if I exclude the southern border—those stores are pretty much right in there with the rest of the chain in terms of comp performance.

So, you know, overall, as we look across demographic segments, income and ethnicity, etcetera, we are not seeing any major pockets of weakness at this point.

Brooke Siler Roach: Thanks so much. I will pass it on.

Michael O'Sullivan: Thank you.

Operator: Your next question comes from the line of Adrian Yee of Barclays. Your line is now open.

Adrian Yee: Great. Thank you very much. It is really nice to see Burlington 2.0 kind of really coming into its own. Thank you. A little bit more color on the elevation strategy. How should we be thematically thinking about the pyramid of sort of good, better, best—where it was, where it is going to? Your other off-price competitors that are doing a similar strategy—they are also opening stores in your market. So just how do we think about how you are differentiated on the product? And then, Kristin, a little bit more on the supply chain, but maybe more from a qualitative benefits over multi-year horizon. How do you think about productivity, capacity utilization? And are you running anything in tandem?

Like, are you running, you know, legacy DCs or something that we can roll off, you know, in the next twelve to eighteen months? Thank you.

Michael O'Sullivan: Good morning, Adrian. Thank you for the questions. Obviously, I will take the first one on the elevation strategy. Yeah. We are very pleased with what we are seeing in our elevation strategy. It has been a major focus for us for the last couple of years: elevating the assortment to offer better, more recognized brands, higher quality, and more fashion, all at great values. You know, we are very encouraged by the results.

And our internal data shows us that by elevating our assortments, we have been able to drive higher customer perception scores, stronger comp growth in higher price buckets, and ultimately, higher average unit retail and higher transaction size, which is what you should be seeing if you have a successful elevation strategy. Now one aspect of this that I am especially pleased about is that we have successfully pursued this elevation strategy without taking a hit to margin. You know, that has always been the major challenge in off-price. When you increase the mix of better brands or you raise the quality or you take more fashion risks, then that can really pressure your merchandise margin.

When you elevate the assortment like that, and the AUR goes up, the typical pattern is that markup is pressured and markdowns increase. It takes skill to elevate the assortment without hurting merchandise margin. So the fact that we have been able to elevate the assortment and at the same time have actually expanded our margins is, I think, a clear testament to the strength and the talent of our merchant teams. By offering a terrific assortment with great value at higher price points, we have been able to convince the customer to trade up and to spend more.

And, yeah, as I say, over the past couple of years, we have elevated the assortment, but it is really important to point out that we, at the same time, have expanded our margins. And, Kristin, do you want to take the second question?

Kristin Wolfe: Yes. Adrian, on supply chain—I appreciate the question. I will speak to both qualitatively and quantitatively. We do continue to make significant progress reducing supply chain expenses as a percentage of sales. That has certainly been a focus. We are doing this through numerous productivity initiatives in our DCs and cost savings projects across supply chain. So for 2025, supply chain costs levered 20 basis points, and this was on top of 50 basis points of leverage in supply chain in FY 2024. So we are seeing that leverage. This spring, 2026, we are going to go live in our newest DC in Savannah, Georgia. We are really excited about this new asset.

It is more than twice the size of our current largest DC. It is highly automated. It is built for off-price processing. Now kind of near term, as you would expect, there are significant start-up expenses associated with opening a new facility of this size, and that will drive some deleverage in 2026. And for 2026 overall, we expect supply chain costs as a percentage of sales to be relatively flat for the year as these new DC start-up costs are then offset by our continued efforts around productivity and cost savings initiatives elsewhere in the supply chain. You see this dynamic more in Q1, where we are expecting about 10 to 20 basis points of deleverage on this line.

And then as the year goes on, we expect that deleverage to moderate as we offset with these cost savings initiatives. Now sort of on the qualitative point in your question, it does typically take two or so years for a DC to be fully ramped up. Over time, we absolutely expect this state-of-the-art design-for-off-price DC to drive cost efficiencies for us, notably significantly faster processing time. And additionally, based on the physical locations of our vendors and our store base, we believe over time we can see some modest leverage in freight related to this new DC.

So we are continuing to invest in new distribution centers and, over time, we will modify our DC footprint to have the majority of our supply and processing go through our more efficient DCs. That will take time, but that is the plan that we are continuing to execute.

Adrian Yee: Fantastic. Thank you very much. Best of luck.

Michael O'Sullivan: Thanks, Adrian. Thank you. Your next question comes from the line of Mark R. Altschwager of Baird.

Mark R. Altschwager: Great. Thank you for taking my question. Michael, can you talk about the pipeline for new stores and relocations?

Michael O'Sullivan: Yes. Good morning, Mark. Yeah. I am glad you asked this question. I am really very excited about our new store program and our new store pipeline over the next couple of years. When we—you know, going back a little bit—when we laid out our long-range plan back in November 2023, we said at the time that we thought we could open roughly 500 net new stores over the next five years, or approximately 100 net new stores per year on average. We are running slightly ahead of this. And not only are we ahead in terms of number of new stores, we are also very—it is important to say—we are also very happy with how those stores are performing.

We expect new stores to achieve about $7 million in sales in their first full year. Our new stores are running in line with that. We then expect them to comp above the chain for their first few years in the comp base. And, again, recent cohorts are actually outperforming these expectations for comp growth. That means that our overall investment returns for new stores are very strong, well above our hurdle rates. The other aspect of our new store program that I am excited about and I want to call out is our store relocation and downsizing programs. You know, as you know, we have a lot of older, oversized stores in the chain.

In 2025, we relocated 18 of those stores to smaller format locations, mostly in busier nearby strip centers. Now with those relocations, we are seeing a good sales lift and a reduction in occupancy costs. So driving much improved earnings. In 2025, we also physically downsized about 20 existing stores. Now this is a new and growing program for us. When we downsize the store, we reduce the footprint of the store, and we either return the excess space to the landlord or we sublease it to a co-tenant. Now as we reduce the footprint, we have refurbished, modernized, and improved the reduced space. With our downsized projects, we are seeing very strong returns driven by significantly lower occupancy costs.

In many cases, we are also seeing a sales lift. We have many stores in the chain that are candidates for our downsizing program. So we expect that program to grow over time and become more important. Now wrapping up my answer, we obviously have a much, much smaller store base than our off-price peers. And we therefore have much, much more room for growth. So we are very excited about our new store program and our new store pipeline, including the 110 net new stores that we plan to open in 2026. And we are also excited by our relocation and downsize programs as I described.

These programs are not only going to help us expand our store base, but they are going to help us transform it.

Mark R. Altschwager: That is very good color. Thank you. And just a follow-up. In the prepared remarks, you talked about some of the localization initiatives and how that seems to be ramping up. Can you give us a little bit more detail?

Michael O'Sullivan: Yeah. Sure. It is actually another really great question. Localization—it is hard to overstate this—but I think localization is a major opportunity for us. It is a capability that our off-price peers have had and have invested in for many, many years. And it is an area where we frankly are a long, long way behind. You know, there have been times over the last several years—there are even times now—when I walk one of our stores, say, in a beach community or in the South in the summer, I look around, and it looks like Burlington Coat Factory has come to town.

So we need to—we have a huge opportunity to improve and get better at customizing and localizing our assortment not just based on the region and the climate, but also based on income levels and demographics of the trade area. Now, you know, this is a business problem where people, process, and technology—including, by the way, artificial intelligence—can make a huge difference. And we have known for some time now that it is a major opportunity for us. Indeed, we have talked about it with investors. But we also recognized that it would be difficult for us to make significant progress on localization until we had really strengthened and upgraded our foundational merchandise planning and allocation systems.

Over the last couple of years through Merchandising 2.0, that is what we have done. And we are now in a position to really start going after localization. Now, you know, I know from experience that this is not a capability that we can build overnight. But I am very excited about some of the initiatives that we have begun to roll out—better store and class-level planning and forecasting, much stronger localization analytics, new store assortment planning and trending, seasonal flow and event planning, assortment distortions based on income and demographics, and an expansion and redesign of our merchandise planning regions.

You know, if you go back and look at the history and the growth of our off-price peers over time, you will see that localization was a major unlock in their evolution and growth. As I say, we are a long way behind. We have a lot of work to do. And it is going to take some time. I think that over the next several years, localization is going to be a key driver for us.

Mark R. Altschwager: Thanks again.

Operator: Thanks, Mark. Our last question comes from the line of Dana Telsey of Telsey Group.

Dana Telsey: Hi. Good morning, everyone, and nice to hear the progress. Your operating margins were very strong in the fourth quarter as well as for the fiscal year. Can you just walk us through the puts and takes of the margin drivers? Thank you.

Kristin Wolfe: Good morning, Dana. Thanks for the question. I will start with Q4 and then I will go into full year. As Michael discussed and we talked about on this call today, we took deliberate actions in 2025 to drive our operating margin and earnings growth. In Q4, the biggest contribution was an increase in gross margin. There was an 80 basis point increase versus last year. Sixty of that 80 basis points came from merchandise margin. Merchandise margin was driven by lower shortage as well as the actions we took to mitigate tariffs that Michael talked about today. The other 20 basis points came from lower freight expenses.

Similarly, on product sourcing costs, supply chain cost savings helped us leverage 30 basis points in the quarter. And then we achieved 40 basis points of leverage in SG&A. This was mostly driven by sales leverage in store payroll and occupancy expenses. And all of these items more than offset deleverage we saw from higher depreciation expenses in the quarter. For the full year, many of the same levers drove the 80 basis points of improvement in EBIT margin. And as a reminder, this 80 basis points of improvement was on top of 100 basis points of improvement in 2024. Gross margin for the year increased 60 basis points.

That was made up of merchandise margin of 40 basis points and freight expenses of 20 basis points. Supply chain savings drove a 20 basis point leverage for the year with cost savings initiatives. And SG&A drove 30 basis points due to many of the cost savings initiatives we put in place earlier this year that we described. These improvements more than offset 20 basis points of deleverage we saw in depreciation for the year. And just one last point on margin. I want to reiterate that we believe the margin gains we achieved in 2025 are absolutely sustainable, and we believe we have further margin expansion opportunities ahead of us.

We will be laser focused on driving sales in 2026, but we have opportunities over time to drive faster turns, generate more supply chain savings, and leverage SG&A expenses, particularly as we deliver a stronger comp store sales increase.

Operator: That concludes our question and answer session. I would now like to turn the call back to Mr. Michael O'Sullivan for final remarks.

Michael O'Sullivan: Let me close by thanking everyone on this call for your interest in Burlington Stores, Inc. We look forward to talking to you again in May to discuss our first quarter 2026 results. Thank you for your time today.

Operator: Thank you for attending today's call. You may now disconnect. Goodbye.

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