BURLINGTON STORES, INC. 2027 Q2 Earnings Call

Please go ahead. Thank you, operator, and good morning, everyone.

We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2026 second quarter operating results. 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 September 3rd, 2026. We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties. Our remarks in 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 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 historical and forward-looking profitability metrics discussed on this call exclude costs associated with bankruptcy acquired leases. These pre-tax costs amounted to $4 million and $11 million during the fiscal second quarters of 2026 and 2025, respectively, and $16 million and $35 million for the full fiscal years 2026 and 2025, respectively. Now, here's Michael. Thank you, David.

Good morning, everyone, and thank you for joining us. I would like to cover three topics this morning. Firstly, I will talk about tariff refunds. Secondly, I will review our second quarter results. Finally, I will discuss our updated guidance. After that, Kristin will walk through the financial details. Okay, let's start with tariff refunds. In the second quarter, we received approximately $55 million in tariff refunds. These refunds are included in our reported earnings and provided a $0.64 benefit to our second quarter earnings per share. We intend to fully reinvest these refunds into the business in the back half to deliver even sharper values to our customers. So we expect the direct impact of these tariff refunds to be neutral to full-year earnings. I want to be explicit about the decision that we have made here.

Rather than taking a one-time boost to earnings, we are planning to use the refunds to deliver sharper values for our customers. Over the last few years, the rising cost of living has made life difficult for many moderate and low-income families. At Burlington, we already offer great deals. Our plan is to use these tariff refunds to further sharpen values across our assortment. Okay, let's move on to our second quarter results. As I mentioned a moment ago, these results include $55 million of tariff refunds. For the purposes of this morning's discussion, we are going to strip out this impact. The headline is that even after you strip out the favorable impact of tariff refunds, the underlying earnings momentum in our business is extremely robust. In Q2, we delivered yet another quarter of very strong earnings growth.

EPS increased 38% in the quarter, and this was on top of 39% growth last year. These very strong results further demonstrate our ability to convert sales growth into margin expansion and strong earnings flow-through. Let's talk about sales. Total sales grew 11% on top of 10% growth last year. New stores are a major driver of this growth. In Q2, we opened 51 gross new stores. After store relocations and closures, this represents a net increase of 45 new stores. As we mentioned at the start of the year, the strength of our new store pipeline has enabled us to front-load new store openings this year with two-thirds opening in the spring and one-third scheduled for the fall. This means that on a trailing 12-month basis, we have opened an extraordinary 178 gross new stores, translating to 149 net new stores after relocations and closures.

We are very pleased with the pace, quality, productivity, and profitability of these new store openings. Let's move on to comp stores. Comp sales increased 2% in Q2 on top of 5% comp growth last year. Our merchant and operating teams executed well in the second quarter, and I am pleased with our solid 7% two-year comp stack. I should add that the relatively higher number of new store openings in the last 12 months means the comp headwind from cannibalization by new stores is slightly elevated. As a reminder, whenever we approve a new store location, we analyze and estimate the potential cannibalization impact on nearby stores, and we build this into our economic modeling. For the last couple of years, this impact has been running at about one percentage point of comp.

Given the large number of new store openings in the past 12 months, it was worth about one and a half percentage points of comp in Q2. We expect this to continue through the rest of this year. Again, to be clear, the net sales lift and the overall economics of our new store program are extremely attractive and easily exceed this impact on comp growth. Okay, moving on to earnings. As I mentioned a moment ago, we were very pleased with our earnings growth in Q2. To reiterate, the numbers that I am going to quote exclude the favorable impact of tariff refunds. Operating margin expanded 100 basis points, well above the high end of our guidance for 60 basis points of expansion. As previously mentioned, adjusted EPS increased 38% on top of 39% for the same period last year.

This was a high-quality earnings beat driven by stronger merchandise margin as well as supply chain and SG&A leverage. Once again, these results demonstrate our ability to drive strong margin expansion and earnings growth even on relatively modest comp store sales increases. Before we move on to the outlook for the rest of the year, I think it is worth taking a moment to put our second quarter results into context. Sometimes it can be misleading to read too much into a single quarter. Let me talk about the last four quarters. Over that period, and again, excluding tariff refunds, we have driven EPS growth of 24% on total sales growth of 11% and comp store sales growth of 3%.

Going back even further, over the last eight quarters, we have driven EPS growth of 51% on 19% total sales growth and 6% comp sales growth on a two-year stack basis. Against any relevant benchmarks, these results are hugely impressive. I could keep going back further, but you get the idea. At Burlington, we have a tremendous track record of driving consistent margin expansion and earnings flow-through on our total and comp store sales growth. Okay. Now, let's talk about the outlook for the rest of the year. I will start with our full year guidance and then work backwards. We are taking up our earnings guidance to pass along the entire earnings beat from Q2. As described earlier, we received $55 million in tariff refunds in Q2, and we plan to use these to sharpen values in the back half.

For the full year, the direct impact of these refunds is expected to be neutral. Let's talk specifically about the back half. Excluding the impact of tariff refund investments, our earnings guidance for the back half is unchanged. Our sales guidance for the back half is also unchanged, but let me offer some editorial commentary. We continue to feel good about our sales upside potential. We will be lapping weather-related issues in Q3 and tariff-related supply constraints in Q3 and Q4. Add to that, as discussed, we will be using the favorability from tariff refunds to further sharpen merchandise values. We feel like we are set up for success in the back half. That said, there are external risks. For now, we have chosen to maintain sales guidance.

Our playbook, which has served us well and has contributed to our strong track record of earnings growth, is to maintain discipline and to manage our business in a tightly controlled way. As we have done in the past, we will chase the sales trend if it is stronger. Now, I would like to turn the call over to Kristin to provide additional financial details.

Kristin? Thank you, Michael, and good morning, everyone.