Burlington Stores Faces Setback in Q3 as Warm Weather Cools Sales Momentum
2min read Burlington Stores (BURL) saw its stock drop by 3% to $283.41 after releasing its third-quarter earnings report. Following a standout second quarter that featured strong beats on EPS, comps, and adjusted EBIT margins, the Q3 results appeared underwhelming in comparison. With a stock price that had rallied leading up to this report, investor expectations were high, but warm weather and cautious guidance for Q4 tempered enthusiasm.
Comps and Weather Challenges
Burlington’s Q3 comparable sales grew by 1%, aligning with the company’s guidance of 0-2%. While this might seem consistent, Burlington has a history of issuing conservative guidance, so the flat performance was viewed as a disappointment. A key challenge for the quarter was the unseasonably warm weather from mid-September onward, which affected sales momentum.
Cold weather categories account for approximately 15% of Burlington’s Q3 sales and a full quarter of annual revenue. The significantly warmer fall in 2024 compared to 2023 led to a sharper slowdown in demand for seasonal outerwear. Excluding cold weather categories, comparable sales would have risen by 4%, highlighting the significant impact of weather on Burlington’s performance.
Additionally, Burlington's reliance on cold weather merchandise, a legacy of its origins as Burlington Coat Factory, sets it apart from peers like Ross Stores (ROST) and TJX Companies (TJX). The company’s broader product assortment is also sensitive to changes in foot traffic, which declined alongside cooler weather-related demand.
Margins and Operational Metrics
Burlington's adjusted EBIT margin in Q3 was 5.6%, improving by 80 basis points year-over-year and reaching the upper end of the company’s guidance range. While this performance was solid, it paled in comparison to Q2’s exceptional 160-basis-point improvement. For Q4, Burlington projects an adjusted EBIT margin decrease of 50-80 basis points, signaling potential challenges ahead.
Despite the margin gains, the Q3 improvement lacked the magnitude needed to counterbalance softer sales. This highlights the ongoing pressure on profitability amid weather-related challenges and a competitive retail landscape.
Outlook for Q4 and the Holiday Season
Looking ahead, Burlington reaffirmed its Q4 comparable sales guidance at 0-2%, expressing optimism about the holiday season. Early November sales have reportedly exceeded expectations, providing a glimmer of hope. However, the company faces a more compressed holiday calendar due to a late Thanksgiving, which could limit overall holiday sales.
Burlington’s Q4 performance will also hinge heavily on weather conditions. A colder-than-average November through January could provide a tailwind for the retailer, particularly as it laps a relatively mild winter from last year. Conversely, continued unseasonable warmth could dampen sales during what is typically its busiest quarter.
Context Within the Retail Sector
Burlington’s Q3 results come on the heels of strong performances from off-price peers Ross Stores and TJX Companies. Both reported robust growth in recent weeks, elevating expectations for Burlington’s results. However, Burlington’s unique sensitivity to weather leaves it more vulnerable to fluctuations in temperature compared to its competitors.
While some retailers often cite weather as a scapegoat for poor performance, Burlington’s reliance on cold weather merchandise lends credibility to its claims. With cold weather categories accounting for a quarter of its annual sales, weather patterns are a legitimate factor in forecasting the company’s performance.
Final Thoughts
Burlington’s third-quarter results underscore its vulnerability to external factors like weather, which can disproportionately affect its performance relative to peers. While the company managed to achieve modest comps growth and a solid margin improvement, the results fell short of the high expectations set by its exceptional Q2 and the strong reports from competitors.
Investors should pay close attention to weather trends in the coming months, as colder temperatures could provide a much-needed boost to Q4 performance. With holiday sales and seasonal demand playing a critical role in Burlington’s success, the company’s fortunes may hinge on whether it can leverage its historical strengths in cold weather categories to drive growth in the final months of the fiscal year.
