Burlington Stores (NYSE:BURL) reported second-quarter results on August 27, and the numbers make clear that the off-price retailer’s growth engine is still running hot. Adjusted earnings per share jumped 38% to $2.37, once you strip out a $55 million tariff refund the company chose to plow back into customer prices rather than pocket. Total sales climbed 11% to $2,998 million, and the company is opening new stores at the fastest pace in its history.
A Store Growth Machine With Room To Run
The headline number is the earnings flow-through. Adjusted EBIT margin expanded 100 basis points to 7.0%, driven by a 70 basis point gain in merchandise margin and 20 basis points of savings on product sourcing costs, which fell to $226 million. Adjusted SG&A improved 50 basis points to 26.2% of sales. Net income reached $184 million, or $2.88 per diluted share, while adjusted net income rose to $151 million from $110 million a year earlier.
New stores are doing the heavy lifting on the top line. Burlington opened 51 gross new stores in the quarter, 45 net, pushing its total to 1,287 locations. Over the trailing 12 months the company opened 178 gross new stores and 149 net new stores, the highest such total in company history, with two thirds of this year’s openings front-loaded into spring. The new Savannah distribution center, the company’s largest and most automated facility, has begun outbound flow, while the Logan facility is delivering productivity gains in its third year.
Management also pointed to the Home business outcompeting the chain average in July and August after prior supply constraints were resolved, and noted that stores in lower median household income trade areas continue to outperform the chain average. The balance sheet backs up the growth story, with total liquidity of about $1.6 billion, including $704 million in cash, and $87 million in share buybacks during the quarter.
Cannibalization And A Weather-Dependent Fall
Comp store sales rose just 2% in the quarter, a 7% two-year stack, and the rapid pace of new store openings pushed cannibalization up to 1.5 percentage points of comp, above the typical 1 point headwind. Comp store inventory climbed 11% year over year on investments in beauty and accessories and a pull-forward of back-to-school receipts. Management flagged that shoppers are under a lot of pressure, pointing to weak comparable sales across much of retail and persistent high gas prices. The weather pattern from late September on was called out as a critical swing factor for Q3 comps, especially outerwear, with a potential super El Niño posing a risk.
Guidance also shows the cost of the tariff refund reinvestment: third quarter adjusted EPS is guided to $1.60 to $1.70, down from $1.80 a year ago, with operating margin expected to fall 80 to 60 basis points as 40% of the refund gets spent in the quarter. Management also acknowledged that larger competitors could respond with their own price cuts, potentially muting the benefit. Total debt stood at $1,914 million, including a $1,712 million term loan.
Market Sentiment: Funds Add While Shorts Stay Modest
Hedge fund ownership of Burlington rose to 49 funds from 47 in the prior quarter, suggesting institutional interest is building rather than fading. Short interest sits at 6.36% of float, enough to signal a real, if not dominant, bear camp. As of August 31, the stock trades at a forward price to earnings ratio of 23.81, pricing in continued growth rather than a slowdown. That combination leaves little room for a soft fall season to go unnoticed.
Conclusion
Burlington’s underlying earnings power, evident even after stripping out the tariff refund, is hard to argue with, but the next two quarters ride heavily on cannibalization trends and a fall weather pattern the company cannot control. For the growth story to hold, new stores need to keep converting into profit at the current pace despite the cannibalization drag. For the skeptics, a colder or milder-than-expected fall, or a rival matching Burlington’s price cuts, could take the shine off guidance that already bakes in a temporary margin hit.
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