Greetings, welcome to the Burlington Stores, Incorporated Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host Mr. Bob LaPenta, Treasurer. Thank you, Mr. LaPenta. You may now begin.

Thank you, operator, good morning everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's third quarter fiscal 2014 operating results. Our presenters today are Tom Kingsbury, our Chairman and Chief Executive Officer and Todd Weyhrich, our Chief Financial Officer. Tom will begin with a brief overview of the quarter's financial results and update you on the progress we've made towards the goals we outlined in our IPO. Todd will then review our financial results and future outlook in more detail before we open the call for questions. Before I turn the call over to Tom, 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 for seven days. Remarks made on this call concerning future expectations, events, strategies, objectives, trends or projected financial results are forward-looking statements and are subject to certain risks and uncertainties. Actual results or events 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 S1 and in our other filings with the SEC all of which are expressly incorporated herein by reference. Now let me turn it over to Tom.

Thank you, Bob and good morning everyone. I am thrilled to share with you another quarter of great results as we continue to make significant progress toward our long-term goals. Yet again, we performed at a very high level. Our top and bottom lines exceeded our guidance and compared very favorably in a difficult retail environment. Our consistent strength demonstrates the continuing improvement in execution of our off price model and the successful implementation of our growth strategies by our team. We continue to believe we are in the early stages of realizing the full benefits of our model with considerable runway ahead of us. Let me share with you some specific highlights of the third quarter. We reported strong sales of total sales rising 8.7%, comparable store sales rose 5.2% on top of a 3.9% increase in the third quarter last year. Our comp growth was driven by higher transactions based on increased traffic in a higher average basket based on more units per transaction. We saw positive traffic demonstrating our success and attracting more customers to our stores. We believe this is partly due to a new testimonial marketing campaign, which features our customers and our stores, explaining why they love and shop at Burlington. In addition, we continue to satisfy our customers once in store, as evidenced by our slightly higher conversion rates. With the third quarter, we recorded our seventh consecutive quarter of positive comp sales and we have delivered comp sales increases in 16 of the last 19 quarters. With the great sales performance, we leveraged our SG&A and adjusted EBITDA grew 16% versus last year and adjusted net income per share was $0.16, a dramatic increase from a loss per share of $0.05 last year. In addition, I'd like to point out the following…

Thanks, Tom, good morning, everyone. Thank you for joining us today. We are extremely pleased with our third quarter performance. We meaningfully surpassed our top and bottom line expectations and saw progress across our key operating metrics. We are obviously very happy with the performance so far this year. I will begin with review of our operating results. For the third quarter, as Tom indicated, total sales rose 8.7% and included a comparable store sales increase of 5.2%. Our gross margin rate was 39.6%, a 60 basis point increase versus last year, which was offset by a 70 basis point increase in product sourcing cost which included cost to process goods through our supply chain and buying costs, both of which are reported in SG&A. The deleverage on products sourcing cost in the quarter was driven by DC cost of processing receipts in Q3 for inventories that will be sold in the fourth quarter. Consistent with previous quarters, the continued improvements in the freshness of our inventory and localization efforts has helped to drive our strong sales results and deliver good margin expansion year-to-date, very much in line with our plans. As a percentage of net sales, SG&A expenses exclusive of advisory fees and product sourcing costs decreased 40 basis points to 29.4%. Leveraging was achieved primarily in store payroll and advertising, due somewhat to a planned shift of some fall investments to the fourth quarter. This was offset somewhat by higher incentive compensation accruals. Adjusted EBITDA increased by 16.1%, or $10.1 million, to $72.5 million, representing a 40 basis point increase in rate for the quarter. Depreciation and amortization expense, exclusive of net favorable lease amortization increased by $1.9 million to $36.1 million. As we previously disclosed on August 13, we refinanced and replaced our existing term loan facility…

In summary, we're very proud of our year-to-date results and as our raised guidance suggests, we continue to expect fiscal 2014 to represent a strong year and another period of significant accomplishments toward our long-term goals. We remain confident in our ability to continue our positive momentum in future years given our dynamic operating model, our disciplined execution in the significant runway ahead. Operator, we’re ready for questions.

[Operator Instructions] Your first question comes from the line of John Morris with BMO Capital Markets. Please go ahead with your question.

Thanks. Good morning everybody congratulations on a good performance in a tough environment.

Thanks John. Good morning.

Question on the gross margin and the product sourcing cost. Gross margin up really nicely, as you fairly point out the product sourcing cost touch more. And generally Todd, you said you wanted – the goal is for gross margin gains to exceed increases in the sourcing cost. Were there any timing issues in those cost increases and I guess more importantly how should we expect them to trend go forward - still committed to that goal. And then also little more color on maybe what's driving those increases and the return that they expect to get for you?

Okay. Thanks for the question. It actually is very much timing. As we look at the full year, as we have talked, we have a very flexible buying model and our supply chain is built to be able to handle the goods the way our merchants buy them. And basically what we have happening is caused in the third quarter are a little bit higher. If we go back and look at the same thing last year, the cost in the third quarter last year was little higher also. And it really just has to do with the flow of freight as it comes in for the third quarter due to support the fourth quarter sales and a combination of just how we happen to buy goods during the quarter. So the way to think about it, is it's really timing between the quarters our full year projection is literally dead on with our original expectation. So, you should be thinking about it that way that its - the timing shifts a bit during the quarter depending upon on how we buy goods but overall the merchants manage to make sure that the overall margins comes out to our expectations and we’ve done a great job with that over lot of quarters now.

Great. Thanks.

Our next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Thank you. Good morning. Was just hoping for an update on cold-weather categories, specifically how you're inventoried for the season and any update on performance to date?

Hi Lorraine, this is Tom. I will address that. Obviously as the weather cools, our cold-weather performance obviously improves. I really can't give you a lot of information so far on the fourth quarter overall. But let me just go back to the third quarter and address in that manner. Our cold-weather businesses from the third quarter were not big contributors to our overall performance. We've done a really nice job or the merchants have done a very nice job of expending other categories. Our growth in our missy sportswear business, that has helped deweather our business, the home with the significant growth that we've had there, that also helps in that pursuit. The accessory businesses, the bath-and-body business, the fragrance businesses, all of these businesses really have helped us when there is deviations in the weather overall. But, collectively the third quarter performance was more related to the growth in the categories that we spelled out in the prepared remarks.

Thank you very much.

Thank you.

Our next question is from the line of Kimberly Greenberger with Morgan Stanley. Please go ahead with your question.

Great, thanks. A really terrific third quarter. Tom, I think you talked about positive traffic when you were going through your top metrics. I don't remember over the last sort of seven or eight quarters, has traffic been consistently positive or is this sort of new level of acceleration. And within the third quarter, do you think it's the advertising that's the primary traffic driver? What do you think is the key turn on given the rest of the industry seems to be struggling with traffic?

Well overall, prior to this quarter, our traffic has been flattish to slightly up. This quarter we've experienced one of our best increases in traffic overall. You know it's really a combination of a lot of things that are really improving our traffic. I think our in-store experience is really helping us in that pursuit. The customers really enjoy shopping at Burlington's, so they're coming back more frequently. The other aspect is the fact that we've really worked hard on the treasure hunt aspect of our business. And by expanding our assortments, adding more brands, putting more better and best in our assortments overall, and then of course the marketing. The marketing approach we took in the third quarter versus last year is really resonating with the customers. So we are getting a lot of benefit on that because our marketing spend was fairly comparable to last year but obviously we had a 5.2% comp. So, it leverage very nicely overall. So, it's a combination of everything that we've been doing. The increase in pack and hold, it's multiple things that have contributed to the increase in traffic but it was - it what one of our biggest - not the biggest traffic increase we've had.

Great, thanks.

Thank you.

Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please go ahead with your question.

Good morning, everyone, and congratulations. As you think about the changes in marketing that you've done, what helped the third quarter? What's changing for the fourth quarter? And how do you see it next year in addition to any changes in medium in terms of how you’re dealing with the marketing and the spend? Thank you.

Okay. Well, I think what's really helping us is the content of our marketing approach. That is one of the key things - our messaging is just really terrific, it’s our customers in our stores talking about the great values that they’re getting. So, as I mentioned before, it's just really resonating, it's really resonating, it's really exciting to see the results of that, and it’s contributing obviously to our comp store increase. And our marketing team has worked really hard to make sure that we're getting the most out of the money we spend through more efficiencies overall in terms of try and get as many GRPs as possible. As far as media's go, we’re shifting more into online and digital overall. It’s not material at this point in time, but we’re doing a lot of testing and experimenting with it. And candidly, what we've seen so far, we're pleased with the kind of returns we’re getting.

Congratulations. Thank you.

Thanks.

Our next question is from the line of Paul Lejuez with Wells Fargo. Please go ahead with your question.

Hey, thanks guys. I think you mentioned an SG&A shift maybe into fourth quarter. Can you just frame that - quantify that for us? And then, I was also curious about comp performance of urban versus suburban locations and also curious if you've seen any impact from gas prices, and if you normally consider that a tailwind for your business? Thanks.

Okay, this is Todd, I'll take the leverage point. We called out in the prepared remarks, we’ve been getting good leverage from both payroll and advertising all through the year so far. That's slightly more pronounced in the third quarter. As we go into the fourth quarter, we have on a comparative basis to last year shifted a little bit more of the investment, it’s not a huge dollar amount of both store payroll and marketing spend to Q4 as we gave in the initial guidance with our increase in comp store sales, we're still guiding to a number that is in the three to four range and given the comp performance we've had so far this year, just by that comp being guided slightly lower than we have on a year-to-date basis, that affects the leverage partly and the = the flow through for the fourth quarter. But I think, the thing to really focus on is as we think about the gross margin delivery and how the expense structure is working in the fourth quarter, we raised our guidance for adjusted EBITDA expansion to 45 basis points. So, when we talk about the shift between the quarters, it's a relatively negligible impact on the fourth quarter.

I'll address the suburban versus urban, candidly, we’re doing well in it. And most markets obviously based on a 5.2% comp. And as we stated many times before, the results by location really based on what happens within the four walls of the particular building, and the customer service scores are really good, if the store has very good operational efficiencies, and have put together really good team, that's where the performance really improves overall. But, suburban versus urban, we're pretty much good across the board. Gas prices of course they help. Obviously our customer has not a lot of disposable income and obviously gas could lead into that and hopefully what they're saving, they’re spending in our stores.

Thanks guys. Good luck.

Our next question is from the line of Ike Boruchow with Sterne Agee. Please go ahead with your question.

Hi, good morning everyone. Thanks for taking my question, and congrats on a great quarter. I guess this one is for either Todd or Bob, the debt you guys currently have on the balance sheet, I don’t believe there’s any prepay penalties. Is it safe to assume that you’ll continue to use your free cash flow in the coming years to pay down the balance? And, how should we think about it, is it a minimum cash cushion? Is it a leverage ratio in terms of where you balance paying down debt or potentially starting to give cash to shareholders through dividends or repurchases?

Hi Ike, this is Bob. I'll address that question. As we have said for a while now, our priority is going to be to use free cash flow to pay down debt. We haven't set any targets for specific leverage targets and - I would expect for the near term, we would use free cash flow and to the extent possible some additional borrowings on the ABL to pay down debt. And I don’t see that changing. And as we true up specific plans to do so, we’ll share that with you.

Great. Thanks.

Our next question is from the line of David Glick of Buckingham Research. Please go ahead with your question.

Thank you. Good morning, and my congratulations to the team. Tom, I was wondering if you could talk about your fleet of new stores and how they differ in terms of four wall economics, the types of locations versus your more mature store base? I am just wondering what the profile looks like - what the productivity you're shaping up in your new stores? Because obviously if you look out potentially in the long term to a 1,000 stores, you've got a base of existing stores where you’re making good productivity improvement, and then obviously you are opening new stores. It’ll be helpful to understand how those new stores are performing? How the economics differ from a productivity rent perspective and other types of locations?

I’ll start answering the question and then I’ll let Todd finish. First of all, we’re pleased with our new store performance overall. We really feel that we can operate - lot of stores are around 60,000 square feet. We really feel comfortable operating 50,000 to 60,000 square foot store. The smaller square footage stores, the productivity is better overall. But what we’re really excited about is, what the stores look like, what the environment is in the new stores, and actually it's not just our new stores this year, it’s the new stores that we’ve opened since 2012, and we've touched a lot of our stores actually over the last five years, a high percentage of our stores now have either been remodeled or refreshed. So, we really feel good about overall in terms of long term improvement in productivity, but the smaller stores are more productive. So, I'll let Todd, continue to answer the question.

So, as we’ve talked about numerous times in the past, we’ve made a lot of improvements to our underwriting model over the last several years, and really the thing that's important I think for us like it is for any retailers to be able to project what the revenue base of the store is going to be, and as we’ve been able to do a better job of that and have less variation around the underwriting model in any year's portfolio stores that we had historically, that just increases our confidence in opening new stores. From an economic standpoint as Tom indicated, we were really pleased with the performance in the new stores overall, the economic model for a smaller footprint store is really no different than it is for any other store. We look at the revenue base that we believe we can produce in a location and ultimately what the flow through, the payback, the net present value is. So regardless of the store footprint, the underwriting model is the same. So the economics are not meaningfully different for the new stores, it's just we’re doing similar volume in a slightly smaller footprint.

And is the nature also you compete within those and your newer locations, is it any - is it different than in your more mature stores?

I think if we look at the stores that we’ve underwritten most recently, we are more often with a number of other folks that help drive traffic. As Tom indicated before, what's indicative of how our stores - what is predictive of how our stores perform, is really how well we do within the four walls of the store. We buy for the whole chain, we allocate according to the parameters, the customers that come into an individual store. And so how they perform has an awful lot to do with things that we can control, what we buy, how we allocate, how we execute in four walls. But as we’re underwriting new stores, we are undoubtedly going into a lot of locations where we have other people who drive traffic and actually we look at those as a positive in our underwriting model because maybe different then, may have been in the case many years ago we believe what we offer our customer and how it present itself is very favorable to the competition. And when we are with our competition, we believe we are going to get our fair share of the business.

So its fair to say, in these newer locations higher - higher revenue, little higher rent but comparable four wall economics?

It's really location-by-location but conceptually yes. The point is, if the rent is higher it takes a higher revenue base to make it work.

Thank you very much for clarification. Good luck in the holiday quarter.

Thanks David.

Our next question is from the line of John Kernan with Cowen & Company. Please go ahead with your question.

Good morning, everyone. Congrats on a nice quarter. Just to follow up on the productivity of the newer stores. How early are we in the cycle of lower inventory per store and increasing your open to buy and how much faster you can actually or how much farther you can lower your inventory per foot and boost inventory turns it still seems you are well above inventory per foot relative to some of your other larger peers. Thanks.

Overtime, we've done a really nice job of reducing our comp store inventory. Over the time that I have been in Burlington, it's well over 50% reduction in the amount of inventory that we have in our stores, in our comp stores. But with that said, we really feel for the foreseeable future we can continue to have the kind of decreases that are inline with some of the decreases we have recently just because we need to return faster I think that's a very good point that you made. Even though we have done a really nice job of improving our turns, we still have a lot of opportunity to continue to do that. So, we are seeing very liquid in terms of how we approach the business. We wait until we have to in order to place good so that we don’t have a lot of inventory tied up or receipts that we really don't want to have. But to answer your question, we really feel we have a lot more opportunity in terms of reducing our inventory levels.

Okay. Thank you.

Our next question is from the line of Stephen Grambling with Goldman Sachs. Please go ahead with your question.

Thanks. Good morning. And maybe if I can sneak a quick follow-up to that last question on inventory improvement. As you look at gross margin, how much more opportunity you see there relative to some of your peers and better markdown in that inventory management?

This is Todd, I will take that one. I think we've made a lot of progress over as Tom indicated a number of years in terms of the level of inventory we have, the quality of the inventory we have, the freshness of the inventory we have, the level of clearance that's on the floor, and we've constantly made improvements quarter-over-quarter and we're going into the fourth quarter of this year very clean and very well positioned on the inventory. And I think the way we think about it and the way we'd like you to think about it is, we're always looking at what does the customer need first. So as we're thinking about margin expansion, and we’re talking about how we price our goods, the key is first and foremost to make sure that we're competitively priced on the floor on product that our customer cares about. And I think we've demonstrated now over a number of quarters in a row that our merchant team has done a great job of continually improving the brands, and the quality of the goods that we have on the floor, what that initial pricing is, we've been able to sell more goods at the initial cost, on markdown optimization and our allocation improvements have gotten the goods to the right store and changed the pricing more quickly to make sure that we sell on the first markdown. And as we've gone through all of that, we're making sure we’re giving value to the customer and that is our priority. We've indicated that, we do expect margin expansion after product sourcing cost to continue to grow as we go forward but we're looking at that very carefully with the customer in mind first, and I think we've shown a very good ability to strike the right balance. So, as we cut through on all of that, what it's done is, we do believe there is additional opportunity for margin expansion. But we're going to air on the side of making sure we have great value and there isn’t anything about how our business has progressed over the time frame since the IPO to change our long term thinking, other than we've just delivered one more great quarter and we feel really good about the fourth quarter.

Thanks. And if I can speak one other one in there, as you look at that longer term framework, can you just provide us with a little bit more color on how you’re thinking about 2015? And is there any unique items we should be thinking about? Thanks again.

We haven’t really given any guidance for 2015, yet. We're very happy with the performance so far this year, and we’re well into our planning process as it relates to 2015, from a merchandising standpoint and financial standpoint. But it's appropriate for us to talk about that as we get our year end call.

Okay, great. Best of luck.

Thank you.

Our next question is from the line of Pam Quintiliano with SunTrust. Please go ahead with your question.

Good morning, this is, [David Rowan] [ph] for Pam Quintiliano. Thanks for taking my question. Could you provide an update on e-commerce? And also, if you’re seeing any benefits from the purchase options in terms of goods in the marketplace?

E-commerce is a really good business for us. We've seen some really nice growth over time. But candidly as a percent of our business, it’s still really small overall and really not really material, but we feel good about it. We can continue to grow and we’re going to grow over time there. We've added more product to our site over time. We’ve improved the navigation of our site. We've built our management team there. We feel good about it and we expect some nice growth in the future overall. Whenever there is a disruption in the marketplace we always - it always benefits us. Goods are laid, we can take advantage of it. Big weather differentials, we take advantage of it. So, when there is a disruption, it’s very favorable to us overall.

Thank you.

Thank you. At this time, I’ll turn the floor back to management for closing comments.

Thank you for joining us today. We wish all of you a happy and healthy holiday season, and look forward to speaking with you when we report our full year results in March. Thanks again.

This concludes today's teleconference. You may disconnect your lines at this time. We thank you for your participation.