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Burlington Stores' Business Model & Sturdy Comps Bode Well

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Burlington Stores, Inc.’s (BURL - Free Report) strong comparable sales (comps) performance, robust margins, store expansion plans and other long-term strategies bode well. Backed by such upsides, the company delivered better-than-expected top and bottom lines for the fourth straight time when it reported third-quarter fiscal 2018 results. However, higher freight costs and stiff competition are concerns.

A Sneak Peek

Burlington has made multiple changes to its business model to adapt to the ongoing changes in the industry. The company, which started business as a coat-focused off-price retailer, is now focusing on “open to buy” off-price model. The current model is helping customers to get nationally branded, fashionable, high quality and right-priced products. Further, over the years, the company has increased vendor counts, made technological advancements, initiated better marketing approach and focused on localized assortments.

Moreover, the company’s solid top-line performance also bodes well. The company’s revenues have outpaced the estimates in nine out of the 11 trailing quarters. In the third quarter of fiscal 2018, the top line improved 13.7%, following an increase of 9.9% in the preceding quarter. We note that comps rose 4.4% in the reported quarter, following an increase of 2.9% in the preceding quarter. Management projects comps growth of 3.4-3.7% for fiscal 2018. Also, it expects total sales to increase 10.9-11.2%. For the fourth quarter, sales are expected to increase 8-9% with comps growth of 2-3%.

The company witnessed margin improvement, driven by its efforts toward managing inventory along with effective cost management and higher merchandise margins. Gross margin increased about 20 basis points during the third quarter of fiscal 2018, following an expansion of 70 basis points in the preceding quarter. Adjusted operating margin grew 80 basis points on account sturdy sales, leverage on fixed expenses, effective cost management and higher merchandise margins.

Notably, shares of this Zacks Rank #3 (Hold) stock rallied 33.8% in the past year, significantly outperforming the industry’s growth of 7.5%.



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