Burlington Stores' Q2 2025: Contradictions Emerge on Sales Trends, Tariff Impacts, and Inventory Strategies

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 28, 2025

Financials Results

• EPS: Adjusted EPS $1.72, up 39% YOY; $0.42 above the high end of guidance
• Gross Margin: 43.7%, up 90 bps versus last year (60 bps merchandise margin, 30 bps freight)
• Operating Margin: 6% adjusted EBIT margin, up 120 bps YOY; above guidance (down 30 bps to flat)

Guidance:

• FY25 comparable store sales +1% to +2%; total sales +7% to +8%.
• FY25 adjusted EBIT margin up 20–40 bps YOY.
• FY25 adjusted EPS $9.19–$9.59.
• Q3 comps flat to +2%; total sales +5% to +7%; operating margin down ~20 bps to flat YOY; EPS $1.50–$1.60; excludes ~$10M bankruptcy lease costs.
• Q4 comps flat to +2%; total sales +7% to +9%; EBIT margin -10 bps to +30 bps YOY; EPS $4.30–$4.60; excludes ~$7M bankruptcy lease costs.
• Back-half risks: tariffs and weather; plan to chase demand if trends strengthen.

Business Commentary:

* Strong Financial Performance: - Burlington Stores reported a 10% increase in total sales and 5% growth in comp store sales for Q2 2025. - The earnings per share (EPS) of $1.72 exceeded the high end of their guidance range by $0.42. - This performance was driven by market share gains, strong merchandise margins, and expense efficiencies.

• Impact of Burlington 2.0 Initiatives:
• Burlington highlighted several initiatives under Burlington 2.0, including Merchandising 2.0 and Stores 2.0, which contributed to their strong results.

• These initiatives enabled the company to rapidly respond to tariff disruptions, pivoting into categories with less tariff impact, and improved customer service scores and operational metrics in stores.

• Weather and External Risks for Q3:

• Despite the strong Q2 performance, Burlington maintained cautious guidance for Q3 and Q4, expecting 0% to 2% comp growth each quarter.

• This is due to potential impacts from seasonal weather variations on outerwear sales, which are particularly sensitive in Q3, and broader external macroeconomic risks.

• Effective Tariff Offset Strategies:

• The company successfully offset some tariff pressure by remixing their assortment, adjusting retails, and implementing savings initiatives.
• These strategies helped mitigate margin pressure, contributing to a merchandise margin expansion of 60 basis points.

Sentiment Analysis:

• Management reported an exceptional Q2: total sales +10%, comps +5%, gross margin +90 bps, EBIT margin +120 bps, and adjusted EPS $1.72, $0.42 above the high end of guidance. They raised full-year guidance (comps, total sales, EBIT margin, EPS). While noting external risks (tariffs, weather), the tone emphasized strong execution, market share gains, and confidence to chase demand.

Q&A:

• Question from Matthew Boss (JPMorgan Chase & Co.): Why does back-half guidance imply a slowdown versus the 5% Q2 comp—conservative playbook or specific concerns?
  Response: They are using their standard cautious plan and will chase demand; risks like weather and tariffs drive the conservative outlook.

• Question from Matthew Boss (JPMorgan Chase & Co.): Walk through tariff impacts, offsets, and why Q3 vs. Q4 operating margin differs.
  Response: Guidance assumes higher tariffs mostly offset by mix, pricing, and savings; Q3 faces merch margin pressure, while Q4 sees more tariff impact but greater leverage, yielding higher EBIT expansion.

• Question from Ike Boruchow (Wells Fargo Securities): What is happening with industry pricing, and will you raise AURs to offset tariffs?
  Response: Competitors are selectively raising prices; Burlington will move carefully given price sensitivity and adjust after seeing broader industry pricing.

• Question from Ike Boruchow (Wells Fargo Securities): What drove the Q2 margin outperformance versus guidance?
  Response: Lower shortage and markdowns from faster turns, plus freight and SG&A savings, offset tariff pressure and drove 120 bps EBIT expansion.

• Question from Lorraine Hutchinson (BofA Securities): Any notable trends by demographic segments such as lower-income and Hispanic customers?
  Response: Comps were broad-based; lower-income stores ran slightly above chain; high-Hispanic (ex-Puerto Rico and border) also slightly above chain.

• Question from Lorraine Hutchinson (BofA Securities): How is off-price merchandise availability and what is the tariff impact on supply and margins?
  Response: Availability is strong with sizable pre-tariff reserve; tariffs pressure markup but identified offsets and savings support the back-half outlook.

• Question from John Kernan (TD Cowen): Can you elaborate on comp-store inventory down 8% and reserve at 50% of total?
  Response: They intentionally lowered in-store inventory to drive turns and reduce markdowns; built pre-tariff reserve to ensure value and flexibility to chase.

• Question from John Kernan (TD Cowen): Detail balance sheet actions and interest expense outlook.
  Response: Raised $500M term loan (fund DC purchase, retire converts), upsized ABL to $1B (2030), hedged $300M; expect ~$50M interest expense; no ABL borrowings expected.

• Question from Alexandra Straton (Morgan Stanley): What specific improvements were made to store standards and conditions?
  Response: New leadership, tools, and accountability raised service and productivity while reducing shortage, delivering higher standards with lower payroll.

• Question from Alexandra Straton (Morgan Stanley): How sustainable is the shortage favorability seen in Q2?
  Response: Q2 physical inventory showed better shortage; another physical inventory in Q4; ongoing investments aim to sustain improvements.

• Question from Brooke Roach (Goldman Sachs): How are back-to-school trends in July and August?
  Response: July was especially strong; August is solid; multiyear gains reflect a deliberate value-focused market share strategy.

• Question from Brooke Roach (Goldman Sachs): Which regions and categories outperformed or lagged in Q2?
  Response: Southeast and Northeast led; Midwest lagged; beauty, accessories, and shoes led; apparel in line; home trailed.

• Question from Mark Altschwager (Baird): Update on the elevation strategy and traction with younger consumers.
  Response: Elevated assortment (fashion, quality, brands) is boosting comps and margins; strong value proposition resonates with young families and youth categories.