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The companies on this annual list make a conscious effort to be supportive, inclusive workplaces.

2025 Best Large Workplaces for Women_Burlington Stores, Inc._US1__68a71ffe383bc91cadd06a8c_1

Employees say:"Burlington truly is a caring company that offers everyone an opportunity to grow and flourish and reach their full potential within the organization. Burlington actively invests in the growth and advancement of its team members. I am proud to work for a company who considers the well-being of their associates and provides such a supporting environment for personal and professional development."

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Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

GPTW Retail Large 2024-Burlington Stores, Inc._US1__20240712204823_6

Employees say:"All ideas are valued and heard. Senior leadership exudes the company's culture and encourages us to step out of our comfort zone. I have autonomy to make the decisions for my team and to take appropriate risks. My senior leadership truly listens and respects my opinions. We don't always agree, however I have never felt ashamed when redirected or my ideas were not implemented."

Industries included in the sector are automotive retail, general merchandisers, internet retail, and specialty retail.

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The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

GPTW 2023 Best Workplaces Retail Large Burlington Stores, Inc_5

Employees say: 
 
"All ideas are valued and heard. Senior leadership exudes the company's culture and encourages us to step out of our comfort zone. I have autonomy to make the decisions for my team and to take appropriate risks. My senior leadership truly listens to my methodology and respects my opinions."

The Fortune 500, in its 69th year in 2023, ranks the biggest U.S. companies by revenue.

Great Places to Work in Retail Large- 2022-Burlington Stores, Inc._1400608-4

Employees say: 
 
“This is truly a diverse caring company. The organization is super flexible with work life and personal life and will help out in any they can to help you get the job done if you need support. Everyone that I've had the pleasure to work with are always smiling, they are kind, willing to help resolve questions or concerns. I feel very comfortable going to other internal departments to seek help when it's needed or just to get to know them and learn what they do it helps build strong relationships with my peers. It feels good when I walk down the hallway and I greet my peers and they greet back with a smile. I've learned so much working at Burlington and I love what I do. I look forward to many more years with them!”

This year’s Fortune 500 marks the 68th running of the list.

Our 2021 list of the 100 best companies to work for, as ranked by their employees. See which companies made the list.

100 Best Companies 2021-70-Burlington Stores, Inc.

While off-price retailers like Burlington Stores are typically among the fastest-growing chains, not having e-commerce really dinged the company during the early weeks of the pandemic when stores were largely closed. But Burlington still paid employees who got sick from COVID up to two weeks’ pay while they quarantined. As stores reopened in early summer, Burlington brought back its furloughed employees and restored pay to initial levels.

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These companies foster supportive cultures, where employees find opportunities for growth with help from their colleagues.

Best Large Workplaces New York 2021-Burlington-Stores

Employees say: 
 
“The people here were all super nice and welcoming when I first started. At Burlington, the managers are super nice and see mistakes as learning opportunities and as a part of doing business.”

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Employees say: 
 
“This is a very welcoming company. They don't judge people and their value based on "titles" and there are many opportunities to improve and grow. Our associates are very friendly, fun, welcoming and diverse making Burlington such a fun place to work.”

This year’s Fortune 500 marks the 67th running of the list.

F500-2021-471-Burlington Stores

2020 was a brutal year for retail and Burlington Stores was no exception. The company reported a loss of $216.5 million in net income for 2020 and a 21% decrease in total sales compared to 2019. Yet, as bargain hunters emerge from their pandemic-induced hibernation, the New Jersey-based off-price retailer could benefit; in the first quarter of 2021, the company reported a 35% year-over-year sales increase.

Best-Workplaces-Retail-2020-Burlington

Employees say: 
 
"Very impressed with our opening after COVID. Not only was management ready to deal with the unexpected possibilities of re-opening, but they were well organized for the additional responsibilities of our 50% off sale."

The companies on this year's list make a conscious effort to be supportive, inclusive workplaces.

Best Workplaces Women 2020-Burlington Stores, Inc

Employees say: 
 
“There are a lot of women in management. Makes me feel like they take the role of women in the workplace seriously.”

This year's Fortune 500 marks the 66th running of the list.

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Discount apparel retailer Burlington Stores has recently tacked against prevailing trends in its industry. It opened 76 new physical locations in 2019, and it announced in March 2020 that it would wind down its ecommerce operations.

From groceries to apparel to home decor, see which companies made the list.

Burlington Stores-Best Workplaces in Retail 2019

Employees say: 
“There is a smile on most associates' faces and the offices in general have a upbeat nature to it. We are given the opportunity to grow and it shows through Burlington's efforts to engage and develop employees.”

At the Best Workplaces for Women, company leaders foster mentorship and career growth.

Burlington Stores-Best Large Workplaces for Women 2019

An employee supervisor says: 
 
"They hire people because their potential as an employee - they don't care what preference you have in your personal life, or gender, or nationality. They recognize you as a good employee and encourage you to keep growing with the company." 
 
Read the Great Place to Work review .

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

Best Large Workplaces for Women 2018_Burlington Stores

Employees say: 
 
&nbsp; 
 
"A wonder management team of women who make it fun and engaging for all the employees." 
 
&nbsp; 
 
Read the Great Place to Work review .

This year's Fortune 500 marks the 63rd running of the list.

Fortune’s annual list of the 100 Best Workplaces for Women highlights companies with generous benefits, flexible schedules, and an emphasis on balancing work and life. 

Best Workplaces for WomenBurlington Stores, Inc.

Employees say: "We are a retailer that has a strong focus on being a caring company and serving a purpose in the community. It's great to be able to provide our customers with great values, but it's especially heartwarming to be part of something bigger and make a difference in our local communities nationwide." 
 
&nbsp; 
 
"Upper level management cares and interacts with all employees. Your voice counts. " Read the .

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This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Burlington Stores, which operates the Burlington Coat Factory chain, is an off-price retailer of high-quality branded merchandise at deep discounts, typically selling items for 60% off department store prices. Its first store opened in Burlington, N.J., in 1972. It now has around 1,100 stores in 46 states, and its merchandise assortment has expanded to include women’s ready-to-wear apparel, menswear, youth apparel, beauty products, and more. Like rival businesses including Ross Stores and TJX, Burlington not only sells close-out items that went unsold at department stores; it also offers merchandise made by top brands, which sell them directly to Burlington Stores.

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Q3 2025

Burlington Stores (BURL): Company Profile, Stock Price, News, Rankings

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Burlington Stores

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Hello, and welcome to the Burlington Stores Inc. 3rd Quarter 2024 Earnings Webcast and Conference Call. Please note that this call is being recorded. After the speakers' remarks, there will be a question and answer session. Thank you.

I'd now like to hand the call over to David Glick, Group's Senior Vice President, Investor Relations and Treasurer. You may now begin.

Thank you, operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2024 Q3 operating results. Our presenters today are Michael O'Sullivan, our Chief Executive Officer and Kristin Wolf, 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 expressed permission. A replay of the call will be available until December 3, 2024.

We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties. Our remarks and the Q and 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 ks for fiscal 2023 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 4 topics this morning. Firstly, I will discuss our 3rd quarter results. Secondly, I will review our 4th quarter outlook.

Thirdly, I will share some comments on our longer term model and specifically our new store program. And lastly, I will describe our preliminary thinking on our sales and earnings growth outlook for 2025. Then I will pass the call to Kristin to share the financial details. Okay. Let's start with our Q3 results.

Total sales increased 11% in the 3rd quarter on top of 12% sales growth last year. The major driver of this growth is our new store opening program. We continue to be very pleased with the performance of our new stores and we are excited by the strength of our new store pipeline. I will talk more about our new store program in a few moments. Comp store sales for the Q3 increased 1%.

This was on top of 6% comp growth in the same period in 2023. Our comp sales trend in the Q3 was impacted by significantly warmer temperatures than last year. After stripping out the impact of these warmer temperatures, our underlying comp store sales growth was very healthy. To explain and illustrate this, I'm going to provide more context on our Q3 comp performance than I normally would. In the past, I have described Q3 as having 2 very distinct sales drivers.

For the first half of the period, the trend is dominated by back to school selling. Typically, this lasts through the 2nd week of September. After that, the trend depends critically on the weather. If the temperature for the remainder of the quarter is cooler than last year, then that helps to drive positive comp growth. On the other hand, if it is warmer than last year, then that is a headwind to comp.

At Burlington, we are particularly sensitive to warmer weather in Q3. Many shoppers still think of us as Burlington Coat Factory. In October, our cold weather businesses represent almost a quarter of our sales. This is significantly higher than our peers. Let me break down our comp performance in Q3.

In the 1st 6 weeks of the quarter, our quarter to date trend was up 6%. We were very happy with our back to school performance. Then from mid September onwards, the trend dropped off significantly. This was driven by much warmer temperatures than last year. I'm going to illustrate this impact with a couple of data points.

We track and internally report the sales trends for cold weather categories. These include all the areas that you might imagine, coats, hats, boots, fleece and so on. For Q3 as a whole, these categories represent about 15% of sales. This mix is much lower in August, then as I described a moment ago, by October, this mix expands to almost a quarter of our business. In Q3, the comp store sales trend for these categories was down in the negative teens.

Meanwhile, our comp trend in non cold weather categories, which represents 85% of our business in Q3 was up 4%. In other words, the impact of warmer weather was worth 3 points of comp. If you strip out this impact, then our underlying comp trend in Q3 was positive 4%. This is consistent with the trend that we have seen since March of this year. I should add that this analysis probably understates our underlying trend in Q3.

Unseasonably warm temperatures do not just impact the comp sales trend for cold weather merchandise, they also they're also a drag on overall traffic coming into the store, which affects every business. Anyway, even leaving aside this additional point, we are very encouraged with our underlying comp sales trend. In addition to this strong underlying trend, I was also very pleased with our margin performance in Q3. 80 basis points of margin improvement on 1% comp sales growth. As Kristen will describe later in this call, this was a very high quality increase driven by higher merchant margin and supply chain savings.

I'd like to make one other point about Q3. Early in the quarter, when we saw strong back to school selling, we were careful not to overreact to this. One of the advantages of a conservative plan is that it makes it easier to keep tight control over liquidity and receipts. This means that in the back half of September, we were able to react quickly to the unseasonably warm temperatures. So despite the sudden slowdown in the sales trend in September October, at the end of the quarter, our selling inventory on a comp basis was down 2% versus last year.

I've talked about this in the past. As an off price retailer, it is important not just to chase the sales trend when it is strong, but to react quickly when it softens. I am very happy with how our teams reacted in Q3. Because of these actions, our inventories are clean and current and we are in great shape as we enter the critical holiday selling period. This is a good segue to our Q4 guidance.

For all the reasons that I have described, we are optimistic about holiday and Q4 as a whole. For November month to date, sales are running ahead of plan. With that said, the big sales weeks are still ahead of us. And as you have probably heard from other retailers, the holiday calendar, specifically the number of days between Thanksgiving and Christmas is relatively compressed this year. Given these factors, we are maintaining our previously issued guidance range of flat to 2% comp growth in Q4.

I would like to pivot now and talk about our long term model. A year ago, we shared our financial goals and assumptions for the next 5 years. The headline from that discussion was that by 2028, we expect to grow total sales to about $16,000,000,000 and operating income to $1,600,000,000 Overall, we feel very good about the progress that we are making towards these goals. On our Q4 call in early March, we will get into more specifics and provide a scorecard if you like and some commentary on key metrics and assumptions. But I would like to take a few moments today to provide an update on one of the most important drivers of this long range model, our new store opening program.

Including a handful of stores that we opened this month, we have now opened a gross total of 147 new stores this year. This is comprised of 116 new stores and 31 relocations of older oversized existing stores. After factoring in 15 store closures, we are now projecting that we will end 2024 with 101 net new stores. Almost all of the stores that we have opened this year are our 25,000 square foot prototype and most of these stores are in busy strip malls with national co tenants. We are making rapid progress in transforming our chain.

As we have disclosed previously, on average, we expect new stores to run at about $7,000,000 in sales volume in their 1st full year. It is early, but our 2024 new stores are running well ahead of this expectation. Also, as we have disclosed in the past, we expect store relocations to see an average sales lift of 10%. I am pleased to say that our 2024 relocations are running well ahead of this expectation. Again, it is early, but these run rates reinforce our confidence and our excitement in our new store program over the next several years.

Separately, I would like to comment on our new store pipeline. We typically build our new store pipeline by identifying attractive potential new store locations and working directly with individual landlords to secure and lease these sites. I would anticipate that this will continue to be our primary approach going forward. But in the past couple of years, we have been able to supplement our new store pipeline by selectively acquiring existing leases from retailers that are going through a bankruptcy process. This approach has allowed us to move into centers that we might not have otherwise been able to access.

Of course, as you would expect, we carefully evaluate the detailed economics of these locations before making any bid. In 2023, we picked up 64 former Bed Bath and Beyond locations through this process. And this year, we have picked up or are working on a few dozen locations from other troubled retailers. We are excited about the quality and the full economic potential of these stores. Adding these deals to our existing pipeline and with the prospect of more opportunities ahead, we are very well positioned to open 100 net new stores in 2025 as well as meet or even exceed our 500 net new store opening goal for the period 2024 through 2028.

That is all I plan to say today about our long range model. We will come back in March and provide a more comprehensive update on progress towards our goals. In a moment, I will hand the call over to Kristin. But before I do, let me talk about our outlook for 2025.

a lot of uncertainty in the year ahead. It is difficult to forecast what will happen with the economy and with consumer spending and add to that the potential impact of tariffs, changes in the tax code and other factors. As we have discussed before, in general, we believe that uncertainty and disruption tend to be good for off price versus other forms of retail. In addition, there are a number of very exciting internal improvements and initiatives that we believe will help us to drive sales and earnings in the next few years. As we look forward, we feel very optimistic.

But when it comes to planning our business, we know that the best posture for us is to plan conservatively and be ready to chase. That is what we have done this year. This playbook has worked well for us. So I anticipate that our 2025 outlook will be for total sales growth of up high single digits driven by 100 net new stores and comp sales growth of flat to 2%. We would expect some modest operating margin expansion at the high end of this comp range.

We will update this initial outlook and share more details in our Q4 call in March. Now, I would like to turn the call over to Kristin.

Thank you, Michael, and good morning, everyone. Let me start with our Q3 results. Total sales grew 11% on top of 12% total sales growth in the Q3 of 2023. Comp sales grew 1%, which was on top of 6% last year. This result was at the midpoint of our guidance range.

Our adjusted EBIT margin expanded 80 basis points versus last year. The drivers of this margin expansion were higher gross margin and leverage on supply chain costs. Let me walk through the details. The gross margin rate for the Q3 was 43.9%, an increase of 70 basis points versus last year. This was driven by a 50 basis point increase in merchandise margin due to strong regular price selling, which generated faster inventory turns and lower markdowns and also due to higher markup from better buying.

Freight expenses decreased 20 basis points in the quarter. Product sourcing costs were $210,000,000 versus $200,000,000 in the Q3 of 2023, decreasing 50 basis points as a percentage of sales. This was entirely driven by supply chain expense leverage from continued progress on our distribution center productivity initiatives. Adjusted SG and A costs in Q3 were 40 basis points lower than last year. When excluding approximately $10,000,000 in expenses associated with the acquisition of Bed Bath and Beyond leases in the prior year, adjusted SG and A delevered by 10 basis points.

Q3 adjusted EBIT margin was 5.6%, 80 basis points above last year. We had guided to 60 basis points to 80 basis points of improvement. Our adjusted earnings per share in Q3 was $1.55 at the high end of our guidance range and represents a 41% increase versus the prior year. Last year's Q3 2023 results exclude approximately $10,000,000 of pre tax expenses associated with Bed Bath and Beyond leases. At the end of the quarter, our comparable store inventories were down 2% versus the end of the Q3 in 2023 as we pulled back on cold weather merchandise receipts in reaction to the unfavorable Q3 weather.

At the end of the quarter, our reserve inventory was 32% of our total inventory versus 30% of our inventory last year. We are very pleased with the quality of the merchandise and the values that we have in reserve. During the quarter, we repurchased $56,000,000 in common stock. At the end of Q3, we had $325,000,000 remaining on our share repurchase authorization that expires in August 2025. Before I turn to guidance, I would like to briefly touch on our longer term supply chain strategy.

As we've discussed previously, going forward, we would like to own rather than lease new distribution centers. This will enable us to design these facilities to support the flexibility and efficiency that our off price model requires. We have a new 2,000,000 square foot DC under construction in Savannah, Georgia that is on target to be open in 2026. We intend to own this facility. As a reminder, as previously discussed, we expect our CapEx in 2024 2025 to be around 7% of sales, slightly higher than our historical levels.

This is driven by our new store opening program and our investment in new distribution centers. In addition, we may also explore opportunities to take ownership of an existing lease distribution center. It is possible that this might make sense for 1 or 2 of our existing lease DCs and we would only pursue opportunities where the economics work. These opportunistic buy versus lease deals are not factored into the CapEx levels that we have discussed previously. Now I will turn to our outlook for the Q4 of fiscal 2024.

We are maintaining our Q4 2024 guidance for comp sales, total sales, EBIT margin and earnings per share. We are guiding comparable store sales to be flat to up 2% with total sales to increase 5% to 7% for the 4th quarter. We expect our 4th quarter adjusted EBIT margin to decrease by 50 basis points to 80 basis points, unchanged from our previous outlook. This margin outlook still translates to adjusted earnings per share range of $3.55 to $3.75 dollars And it's important to note, as we discussed on our last quarter's earnings call, that the 53rd week calendar shift has a negative impact on Q4 total sales, adjusted EBIT margin and adjusted earnings per share. For fiscal 2024, after factoring in our actual Q3 results and Q4 guidance, this outlook implies comp store sales growth of approximately 2%, total sales to increase 9% to 10% and EBIT margins to range from an increase of 60 basis points to 70 basis points.

Finally, factoring in Q3 actuals, full year earnings per share is now expected to be in the range of $7.76 to $7.96 I will now turn the call back to Michael.

Thank you, Kristen. Before I turn the call over to questions, I would like to emphasize 3 key points from today's call. Firstly, we feel very good about the underlying comp trend that we achieved in the Q3. Our comp trend after factoring out cold weather categories was around 4%. This was consistent with our trend since March of this year.

We're also very pleased with our margin performance in Q3. We achieved 80 basis points of leverage on 1% comp growth. Secondly, we believe that we are well positioned as we enter the key holiday selling period in Q4. We are managing our business cautiously, but based on our underlying sales trend in the Q3 and on the strength of our holiday assortments, we are optimistic about our prospects. Thirdly, we feel very good about the progress we are making towards our longer term financial goals.

We will talk more about this progress in our year end call in March. But we are especially pleased with our new store opening program. The early performance of our 2024 stores has been strong and our new store pipeline for 2025 and beyond looks very good. I would now like to turn the call over for your questions.

Thank you so much. We are now opening the floor for question and answer session. Your first question comes from Matthew Boss from JPMorgan. Your line is now open.

Great. Thanks and good morning. So maybe Michael, just to kick off on your cold weather businesses and the sensitivity to warmer weather that you cited. In your remarks, you said that the weather impacted your 3Q comp by 300 basis points. Does this include the impact from hurricanes?

And then just looking forward, do you see risk in the 4th quarter if the weather were to be unseasonably warm? Or just any additional color on November, maybe Q4 to date trends, I think, would be really great.

Well, good morning, Matt. Thank you for the question. Before I answer your question, I would like to make a comment about our cold weather businesses. I realized that in listening to our prepared remarks today, investors might get the mistaken impression that our strong position in cold weather merchandise is somehow a problem. It is absolutely not.

The fact that we are one of the first retailers that shoppers think of when they need outerwear is a huge strength for us and a source of competitive advantage. The outerwear business is a great business. We are very good at it and we will continue to look for ways to build and strengthen that business. But with that said, of course, we know that there will be temperature variations from year to year, especially in a transitional month like October. But those variations tend to even out over time.

After an October like the one we've just had, where temperatures were well above the long term average, the odds are very good that the temperatures next October will be cooler than this year. And that's likely to be a tailwind to our comp in 2025. As that happens, then we'll probably call that out on this call next year. And you can be sure that we will not be complaining about it. The key thing with cold weather categories is to be ready for those fluctuations and to manage the business flexibly so we can react up or down.

I should also add that as an off price retailer, there is a silver lining for us. In years like this, where the season to date has been unusually warm, it's likely that in the coming weeks, we will see a lot of terrific buying opportunities in outerwear that we can put into reserve and bring out next year. So with all that as a preface, let me address your specific question. The three points of comp that we discussed in the prepared remarks relate exclusively to the impact of warm temperatures. Separately, we estimate that major hurricanes in Q3 impacted our comp by about an additional point.

It's not hard for us to estimate that. We can look at local stores that were affected by the hurricanes. We can quantify the impact on their sales during the hurricane period and during any subsequent power outage. Anyway, the bottom line is if you strip out the warmer temperatures and the hurricane impact, then our Q3 comp growth would have been 5%. Now by the way, we our rationale for not calling out that hurricane impact in the prepared remarks is that we recognize that that affects all retailers or at least all retailers with a presence in those areas.

In contrast, the reason that we called out the warmer temperatures or the impact of warmer temperatures is that for all the reasons we've described, those warmer temperatures at this time of year differentially affect us versus other retail companies. Maybe just wrapping up on the last part of your question about weather risk in Q4. Of course, there might be unfavorable or favorable weather in Q4. It's hard to predict. But there are a couple of reasons why we're comfortable with that risk.

Firstly, as I said in the remarks, the quarter is off to a good start with November month to date running ahead of plan. And secondly, it's important to understand that as we get further into the quarter, cold weather selling becomes less important relative to holiday selling and gift giving. In other words, for the next 5, 6 weeks, the customer could come into the store looking for outerwear, but at this point, they're more likely to be looking for toys or gifts or holiday merchandise. Our early selling in those businesses has been strong. So we are optimistic about Q4.

Great. And then a follow-up for Kristen. If you could just elaborate on your comments about inventory levels exiting the Q3, if there's any imbalance with outerwear inventory tied to the slower 3Q sales trend or just any residual markdown risk to consider in the Q4?

Good morning. Thanks, Matt. Regarding inventory levels, we were very pleased with how we manage inventory during the Q3. As Michael described, our merchants were careful not to overreact to the strong back to school selling in the first half of the quarter. We reacted quickly to the warmer temperatures and the resulting challenging sales trends and pull back on receipts.

And as a result, as I mentioned, we ended Q3 with comp store inventories down 2%. Our inventories are clean and current and we do not have a major markdown liability heading into the 4th quarter. And finally, as it relates to reserve inventory, our penetration increased to 32% of total inventory versus 30% last year. We are very happy with the great buys we were able to make. We feel good about our reserve, especially the content and values.

And finally, I should add, as Michael just mentioned, this slow start to outerwear could perhaps translate to great buying opportunities in the category later in the season.

next question comes from Ike Boruchow from Wells Fargo. Your line is now

open. Hey, good morning, everyone. 2 for me. Michael, first, I guess I was wondering if you could share, you've helped us out in the past, just comments on the health of the low income consumer. I know dollar stores have been struggling this year, but this doesn't seem to have affected your business.

I guess just what are you seeing in your customer research, your underlying trends within that segment would be great?

Well, good morning, Ike. Thank you for the question. Yes, as you know, the lower income customer is a very important customer to us. We tend to index much higher among this demographic than our retail peers. We're very focused on offering great value to that customer.

And I would say that we're more tuned in now, more tuned in than we ever were before into what is happening with that customer demographic. I can't really comment on what's happening with dollar stores. Their business is so different to ours given their focus on consumables. But instead, let me describe what we are seeing with the data we have around the lower income customer. One of the things that we track very closely is the performance of our stores based on the demographics of their local trade area.

So we segment our stores based upon the demographics of the local trade area and we look at their sales trend. Some of our highest volume and most productive stores are in lower income trade areas. And 2 years ago in 2022, those stores were underperforming the chain. Now because they are relatively high volume, that had a big impact on our overall comp trend. If I fast forward to today, our stores in lower income trade areas are outperforming the chain.

Based on comments that we've heard from other discretionary retailers that are focused on lower income customers, we think that may be part of a general trend. We think that customer is looking for great value and maybe for the first time since 2021, it looks like their real incomes are finally edging up. I should also add that in that analysis of store performance by trade area demographic, we are seeing healthy performance in other income bands as well. And we see that as evidence that shoppers from moderate to higher income bands may be trading down. But coming back to the lower income customer, as we've discussed previously, that customer really bore the brunt of cost of living increases in 2022.

Unlike other income groups, those shoppers don't have savings or debt capacity that they can use to cushion the impact of higher rental grocery prices. So in 2022, that customer had to pull back sharply on discretionary spending. Over the past year or so, what we're seeing is that as their real incomes have stabilized and started to pick back up, they're spending more and we think that's helping to support the strength of our underlying trend.

Got it. Super helpful. And then maybe follow-up for Kristen. Just on margin expansion, can you maybe give us additional color on the drivers of the margin in Q3? And maybe just some details on the Q4 guide, what's embedded in your plan for Q4 margin?

Great. Good morning, Ike. Thanks for the question. I'll start with the Q3. We were pleased to deliver the 80 basis points of operating margin expansion, especially on a 1% comp.

I'll provide a little bit more color on those drivers. Within the gross margin line, merch margin was up 50 basis points. This was driven by lower markdowns as we had strong regular price selling and fast returns. We also got a bit of help from higher markup driven by better buying. And then in gross margin freight as a percentage of sales also improved by 20 basis points.

Moving down on product sourcing costs, as we mentioned supply chain leveraged by 50 basis points. This was driven by our continued progress on our efficiency initiatives. These are primarily productivity improvements in distribution centers. And then excluding the impact of Bed Bath and Beyond leases last year, adjusted SG and A was higher by 10 basis points due to deleverage of fixed costs on a 1% comp and the balance of the P and L delevered by about 30 basis points including depreciation and other income. So that was kind of the Q3.

If we turn now to the Q4, we're maintaining our previously issued guidance. So that was a 5% to 7% total sales growth, a flat to 2% comp growth and a 50 to 80 basis point decline in EBIT margin. And there are several drivers of the lower projected EBIT margin in Q4 that I want to talk through. First, we have a few transitory headwinds in gross margin in the 4th quarter. There's some incremental ocean freight cost and merch margin that we referenced on last quarter's call with the exposure to the spot market and clearance levels are expected to be more similar to last year's levels that will provide less merch margin benefit than we've seen year to date.

Secondly, we're accruing a higher year over year shortage rate compared to last year. We will, course, true this up with our physical inventory at the end of the fiscal year. Thirdly, we're lapping the cost savings in our supply chain that we started to benefit from in the Q4 last year. So there are less supply chain productivity benefits we expect in Q4. And the final point on the Q4 is, as we discussed on last quarter's call, there is an impact for us with the 53rd week calendar shift.

We're about 1 week ahead of last year when we compare the quarters year over year. So for comp store sales, we shift or we adjust for this and we line up the weeks. But for total sales growth, there's an impact on sales, margin and earnings. Essentially, we lose a high volume, higher margin week in November and then we gain a lower volume, lower margin week in January. And this translates into lower total sales growth in Q4 versus last year and we experienced more fixed cost deleverage.

So those are really the drivers of Q4 EBIT margin outlook. But one final note I want to make. I wouldn't extrapolate that Q4 margin trend into 2025. There are several transitory and timing factors impacting EBIT margin in Q4. And as we shared in the prepared remarks, we would expect modest operating margin expansion in 2025 on a 2 comp.

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

Thank you. Good morning. Michael, I realize there's a lot of external uncertainty, but what impact do you think the policies of the new administration might have on your business over the next few years? And how are you preparing for this?

Burlington Stores (BURL) Q3 2025 Earnings Call Transcript

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