Burlington Stores, Inc. (BURL) Q4 2015 Earnings Report, Transcript and Summary

Greetings, and welcome to the Burlington Stores Fourth Quarter and Fiscal Full-Year 2015 Operating Results. At this time, all participants are in a listen-only mode. And a brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Bob LaPenta, Vice President and Treasurer. Thank you, Mr. LaPenta, you may now begin. Robert L. LaPenta - Treasurer & Vice President: Thank you, operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fourth quarter and fiscal full-year 2015 operating results. Our presenters today are Tom Kingsbury, our Chairman and Chief Executive Officer; and Marc Katz, our Chief Financial Officer. 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. We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties. Our remarks and the Q&A that follow are copyrighted today by Burlington Stores. Remarks made on this call concerning future expectations, events, strategies, objectives, trends, or projected financial results are subject to certain risks and uncertainties. Actual results 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 10-K for fiscal year 2014, and in other filings with the SEC, all of which are expressly incorporated herein by reference. Please note that the financial results and expectations we discuss today are on a continuing operations basis. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are included in today's press release. Now, here is Tom. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Thank you, Bob and good morning, everyone. We're excited to share with you our finish to another solid year of growth for Burlington Stores that included many noteworthy accomplishments. Our focus on elevating our off-price model with enhanced execution across all facets of our business continues to pay dividends for our company. This is evidenced by our fiscal 2015 results that included balanced growth across key operating metrics including; net sales exceeding $5 billion, which resulted in a 5.9% increase on top of last year's 8.7% increase; a 2.1% increase in comparable store sales on top of last year's 4.9% increase; a 30 basis point expansion in gross margin and a 20 basis point increase in adjusted EBITDA margin. Our strong cash flow enables us to fund our growth and return capital to our shareholders through our share repurchase program, contributing to our 26% growth in adjusted net income per share. We are certainly pleased to deliver these results while absorbing incremental wage and stock based compensation costs, as well as navigating unfavorable weather in the fourth quarter. We are pleased with our positioning at the start of fiscal 2016. The flexibility of our operating model and the discipline with which we execute has served us well. I want to thank each of our associates for their many contributions during the 2015 fiscal year. Let me share with you some highlights of the fourth quarter. Total sales increased 3.7% and comparable store sales rose 0.1% on top of a 6.7% increase in the same period last year. Comparable store sales were up 4% excluding cold weather categories, which we are defining as coats, sweaters, cold weather accessories and boots. These cold weather categories, which represent 22% of our total sales, generated a minus 11% comp for the quarter. Our ability to achieve a positive comp despite the weather demonstrates the progress we are making toward de-weathering our business, which continues to be a goal for us. In the fourth quarter, top performing businesses were home, beauty, which includes bath, cosmetics and fragrances, youth and missy sportswear. We're also very pleased with the strength of our gift giving businesses. This was our third year of executing our gift strategy and we believe we are getting better every year. As with the prior years, we continued to critique our performance and believe that we have more learnings to apply to next year. In terms of territories, the West was our strongest and the Midwest was the weakest on a relative basis. In addition, we continued to edit our vendor base. Similar to last year, we ended the year with approximately 5,000 vendors. We added approximately 1,400 new vendors and while we had a similar reduction, we believe this is resulting in a higher quality vendor base. Moreover, we continue to increase our better and best in branded unit receipt penetration. With the fourth quarter, we've reported 12 consecutive quarters of positive comp sales. In addition, we've reported comp sales increases in 21 quarters of the last 24 quarters. In addition, we're pleased to report the following accomplishments. We entered 2016 with a more current inventory position and sufficient open to buy to take advantage of the great opportunities we see in the marketplace. The merchandising and planning teams did a tremendous job managing receipts during an unseasonably warm quarter. To this end, inventory aged 91 days and older was $120 million at year-end, representing a 13% reduction from 2014's ending inventory of $138 million. Comparable store inventory decreased by 6% at year-end, even as we accelerated $50 million of Easter receipts into the fourth quarter. This contributed to a 10% faster comparable store inventory turnover during the year. Pack and hold inventory as a percent of total inventory was 25% versus 27% at the end of last year. Throughout the fourth quarter, there was an abundance of merchandise available in the marketplace, enabling us to be more selective than we've been in prior years. We continue to see and react to great opportunities. We repurchased 1.6 million shares of common stock during the fourth quarter for $77 million, fully utilizing our initial $200 million share repurchase program announced in June of 2015. At the start of 2016, we have $200 million remaining on the second authorization approved in November of 2015. I would now like to give an update on our three stated long-term growth strategies, which we continue to focus on in fiscal 2016. Our number one growth strategy remains driving comparable store sales growth. Continued execution of our off-price model is critical in all merchandising areas, with an increased focus on ladies' apparel, home, and beauty. In addition, we will drive comp store sales through our much improved store experience, our marketing testimonial campaign, our merchandise localization initiatives and gift giving strategies throughout our categories. In terms of merchandise category growth drivers, we continue to see opportunity in ladies' apparel. We ended this past year at 24% penetration compared to our peer group that is approximately 30%. To strengthen our leadership oversight, we added a sixth Divisional Merchandise Manager to ladies' apparel to focus exclusively on special sizes in maternity, areas we believe warranted additional market coverage. We're very pleased with our home performance in the fourth quarter and fiscal year. The home category continues to be our biggest merchandising opportunity, and we believe we are moving in the right direction. We ended 2015 at 11% penetration rate, up from 9.5% in 2014. Again, our peers average around 26%. We will continue to build this business by increasing our vendor base and adding more nationally recognizable brands, building assortment diversity to improve choice, freshness and value, and investing in improved store presentations. Another merchandising area that we are very excited about is our beauty growth strategy. This includes bath and body, skin care, hair care, accessories, cosmetics and fragrances. We know this is another area in which we are underpenetrated and we're looking to increase our vendor base and add more identifiable brands, improve the quality of our product, and enhance our store presentation. During the fourth quarter of 2015, we accelerated the conversion of our fragrance business, which was previously operated under our licensing arrangement to an owned category. Going forward, we expect to benefit from our ability to directly control this business. We've now anniversaried the start of our web-based customer survey and we are very pleased to see double-digit increase in not only overall customer satisfaction scores, but in the major components including friendliness of associates, speed of checkout, interior cleanliness, and ease of shopping. This year, we completed 12 remodels and 18 refreshes and we will continue to remodel and refresh our store base, as appropriate, in order to continue to provide the best possible shopping experience for our customers. We continue to receive positive feedback about our marketing testimonial campaign. Again, these are real customers in our stores, bragging about the great values they have found. This campaign will continue throughout fiscal 2016 and our overall marketing dollar spend will be in line with last year. We continue to make progress in terms of tailoring our assortments across brands, lifestyle, sizes, and climate. Our localization efforts continue to improve the timing of our seasonal product deliveries by region, allowing us to get the right products to the right location at the right time. Our second growth strategy is expansion of our store fleet, which continues to be an important growth driver for us. We remain pleased with the performance of our new stores as they continue to perform in line with our underwriting assumptions. During 2015, we opened a net of 25 new stores, bringing our total store count to 567 at the end of fiscal 2015. In total, new and non-comp stores contributed an incremental $198 million to our fiscal year net sales. We have a strong store pipeline for 2016, and expect to open 25 net new stores with an average gross square footage of 51,000 square feet. We continue to believe that we have significant white space for growth to reach 1,000 stores over the long term. Third, we expect to enhance our operating margins as we continue to optimize our markdowns, tailor our assortments by store, and remain disciplined managing our receipts. Operating margins are also expected to benefit as we grow our top-line and leverage fixed costs. Now, I'd like to turn the call over to Marc to review our financials and outlook in more detail. Marc D. Katz - Chief Financial Officer & Executive Vice President: Thanks, Tom. And good morning, everyone. Thank you for joining us today. We ended 2015 in a solid position, and are pleased that we exceeded $5 billion in sales, delivered 26% EPS growth, and returned value to our shareholders by repurchasing shares for the third quarter in a row. Turning to a review of the income statement and starting with sales. For the fourth quarter, total sales rose 3.7% and comparable store sales increased 0.1%, which follows two years of strong comp growth, including a 6.7% comp increase in the fourth quarter of 2014 and a 4% comp increase in the fourth quarter of 2013. In terms of comp metrics, our comparable store sales performance was driven by increases in units per transaction and conversion, while average unit retail and traffic were down versus the prior year. Our gross margin rate was 41%, a decrease of 120 basis points versus last year, driven by increases in both shrink rate and markdowns. It was important for us to start 2016 with a more current inventory position and reduced age merchandise, which we accomplished, albeit with a higher markdown rate. Over the years, we have made significant strides at reducing our shrink rate. In 2015, our full-year shrink rate was marginally worse than last year. Since we had been accruing for three quarters based on an excepted slight improvement, unfortunately all of the bad news fell into the fourth quarter. We are confident that we have developed an action plan that will put us back on track for 2016. Product sourcing costs, which include cost to process goods through our supply chain and buying cost, both of which are reported in selling and administrative expenses, were flat to last year as a percentage of sales. Selling, general and administrative expenses, exclusive of product sourcing costs and adjustments consistent with our definition of adjusted net income, improved 100 basis points to 23.3%, primarily driven by a reduction in incentive compensation and workers' compensation and general liability insurance, partially offset by an increase in stock-based compensation. Other revenue and other income decreased $6.7 million from last year to $9.6 million, driven by a reduction in income from third-party fragrance sales within our stores as we transitioned to an owned category. In addition, the fourth quarter of fiscal 2014 included a favorable $3.2 million one-time legal settlement. Adjusted EBITDA decreased slightly to $225 million representing a 60 basis point decline in rate for the quarter. Depreciation and amortization expense, exclusive of net favorable lease amortization, increased by $2 million to $39 million. Interest expense decreased 1% to approximately $15 million, primarily driven by the savings realized as a result of our term loan repayments since January 31, 2015, offset by increased borrowings on our ABL. The adjusted effective tax rate was 36% versus 37.1% last year. The decrease in effective tax rate was a result of an increase in federal hiring credits and a decrease in state tax rate. Combined, this resulted in adjusted net income of $109 million for the quarter, roughly flat to last year. Diluted adjusted net income per share increased to $1.49 versus $1.43 last year. And our fully diluted shares outstanding were 73.4 million compared to 76.3 million outstanding last year. For the full year of fiscal 2015, total sales rose 5.9% and included a comparable store sales increase of 2.1%, following a 4.9% comparable store sales gain last year. Gross margin was 40%, representing an increase of approximately 30 basis points versus last year, which was primarily driven by a reduction in markdown rate. This improvement was offset by a 30 basis point increase in product sourcing costs, primarily driven by increased supply chain costs. As a percentage of net sales, selling, general and administrative expenses, exclusive of product sourcing costs and adjustments consistent with our definition of adjusted net income, improved 50 basis points to 26.7%, primarily driven by a reduction in incentive compensation, store payroll and advertising, partially offset by an increase in stock-based compensation. Other revenue and other income decreased $9.1 million from last year to $36.8 million, driven by a reduction in income from third-party fragrance sales within our stores as well as the impact of last year's favorable $3.2 million one-time legal settlement. Adjusted EBITDA increased by 8% or $36 million to $484 million, representing a 20 basis point increase in rate for fiscal 2015. Depreciation and amortization expense, exclusive of net favorable lease amortization, increased by $6 million to $148 million. Interest expense decreased approximately $25 million to $59 million, driven by the August 2014 refinancing and debt repayments since January 31, 2015. The adjusted effective tax rate was 37% versus 37.8% last year. The decrease in the effective tax rate was primarily driven by a decrease in state tax rate and the benefit of federal hiring credits. Combined, this resulted in an adjusted net income of $175 million versus $139 million of adjusted net income last year, an increase of 26%. Adjusted net income per share was $2.31 versus $1.83 last year and our fully diluted shares outstanding were 75.4 million shares versus 75.9 million shares last year. Turning to our balance sheet, at year-end, we had $21 million in cash, borrowings of $167 million on our ABL and have unused credit availability of approximately $335 million. We ended the year with total debt of $1.3 billion. Merchandise inventories were $784 million versus $789 million in the prior year. The decrease is primarily driven by the decline in the comparable store inventory of 6% despite an accelerated $50 million of Easter receipts into Q4. This decrease was partially offset by new store inventory at our 25 net new stores. Cash flow provided by operations increased $25 million to $327 million, primarily related to our improved operating results. For 2016 and beyond, we expect to generate the necessary free cash flow to fund all of our capital expenditures, business initiatives and to support any potential opportunistic capital structure enhancements. Capital expenditures, net of landlord incentives, were $160 million for fiscal 2015. This included approximately $61 million net for store expenditures and approximately $50 million to support continued distribution facility enhancements. We continue to return value to our shareholders through our share repurchase program. During the quarter, we repurchased 1.6 million shares of stock for approximately $77 million completing our initial $200 million share repurchase program. Our board approved an additional $200 million share repurchase program in November. We are pleased to report that our debt leverage at the end of 2015 was 2.7 times. Given our strong financial positioning, we were able to maintain our leverage ratio while also returning capital to shareholders as we opportunistically utilized our recent repurchase authorization. We ended 2015 with 567 stores including 25 net new stores for the year. Turning to our outlook for the full year 2016, we expect net sales growth in the range of 6.5% to 7.5%, comparable store sales to increase 2.5% to 3.5%, our comp sales guidance reflects an increase of 0.5% related to the transfer of our fragrance business from a lease to an owned category. Consequently, we expect other revenue and other income to decrease 15 basis points from the loss of lease income. Adjusted EBITDA margin expansion of 20 basis points to 30 basis points, interest expense to approximate $62 million and adjusted tax rate of approximately 37.8%, a share count of approximately 73.2 million shares, and net capital expenditures are expected in the range of $145 million to $150 million, and depreciation and amortization to approximate $158 million. This results in adjusted net income per share guidance in the range of $2.62 to $2.72 versus 2015 actual adjusted net income per share of $2.31. In terms of hourly wages, our SG&A reflects the impact of last year's decision with regard to $9 an hour for the February through June time period. In addition, we have incorporated all appropriate stake minimum wage increases, which includes certain states to $10 an hour. Finally, we performed a market-by-market review of our hourly pay practices and made further adjustments that we deemed necessary. All-in, our 2016 plan reflects approximately $7 million of increased hourly wages versus 2015. For the first quarter of 2016, we expect net sales to increase in the range of 6.2% to 7.2%, comparable store sales to increase between 2.5% and 3.5%, and adjusted net income per share is expected to be in the range of $0.44 to $0.48 versus $0.41 per share last year, utilizing a fully diluted share count of 72.9 million shares. Now, I would like to turn the call back over to Tom for concluding remarks. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: In summary, we're proud of our 2015 results, which represented another year with many accomplishments. We remain focused on utilizing our significant open-to-buy to deliver great brands and great value to our customers. We remain well positioned to continue our positive momentum in future years, given significant runway ahead to further enhance the performance as we expand underpenetrated categories, grow new stores and maximize the power of our off-price model. And now, I would like to turn the call over to the operator to begin the question-and-answer portion of the call.

Thank you. At this time, we'll be conducting a question-and-answer session Thank you. Our first question comes from the line of Lorraine Hutchinson, Bank of America Merrill Lynch. Please go ahead with your question.

Thank you. Good morning. Can you quantify the impact of shrink on the quarter and talk about any initiatives in place to fix this? And then, also, how are you accruing for this in 2016? Will it be a headwind in the first three quarters as you move through this higher shrink rate? Marc D. Katz - Chief Financial Officer & Executive Vice President: Hi, Lorraine. It's Marc. I'll take that question. In terms of Q4, the 120 basis point reduction we had in total in gross margin, about 70% of that was shrink. So shrink was clearly the bigger piece, more so than markdowns. And as we mentioned, I just want to reinforce that our loss prevention team has made significant reductions literally over the last five years at reducing these shortage through 2014. We really have tremendous confidence in this team. What happen to us this year was that we had been accruing for the first three quarters at a rate that was slightly lower than last year. So when the full year rate came in, it was slightly higher. All of that bad news fell into the fourth quarter. And, quite frankly, we're looking at this is a call to action. Our LP team is focused on enhancing our store audit plan, reviewing all of our merchandise protection standards, refining our LP staffing models and really there is a key focus on 3 regions, 3 regions out of our 31 regions represented a third of the storage increase. So, clearly, focused on those 3 regions. So, yeah, we feel we're well on our way to course correct what happened. Again, as I mentioned, a lot of confidence in this team. And quite frankly, Lorraine, we actually view shortage as a slight opportunity for 2016. In terms of by quarter, the accrual rate for the first three quarters of the year will be slightly higher than last year.

Thank you.

Our next question comes from the line of Kimberly Greenberger with Morgan Stanley. Please go ahead with your question. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Hi. Thank you. Good morning. And I wanted to just check on the 22% of sales in cold weather categories improved the headwind. I just wanted to make sure the 22% was a fourth quarter number, not a full year number, is that correct? Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Yes. That was a fourth quarter only. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Okay, great. Thank you. The inventory levels are looking extremely clean. And I would have thought just given all of the available product out in the market, we would have seen potentially a higher pack and hold number this year than last year. Are you holding the buyers back? Is your view that perhaps even in February, March, the buying opportunities get even better? And then, thinking about the future in-store inventory levels, Tom, is there an opportunity to continue to turn your inventory even faster, and do you think that could potentially reduce your markdown rate over time even further? Thanks. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: As far as pack and hold goes, we really – as we stated many times, we really don't target where we want to be. We really let the deal speak for themselves. Last year, there was more urgency to buy pack and hold because there was less product out there to pack and hold. This year, since there is so much product out there that some of it is going to slip into the first quarter in terms of what we would be buying overall but the quality of the pack and hold is so much better than prior years and we're – it's not a rush for adding as much pack and hold as possible. We just want the best pack and hold that we possibly can get because we also look at pack and hold as an upfront buy and the more we pack and hold, the less we have to react to the business in season. We really think the beauty of the off price model is really being able to react to what the customer is buying in any given season. So, we really don't want to have too much pack and hold, but this year the quality is much better. As far as inventory turns go, yeah, we feel we still have a lot of opportunity there. We're looking at comp store inventory to be down mid-single digits, at the high-single digits for the foreseeable future. Actually, as we've reduced our inventory and we have cleaner inventory, less aged goods, obviously our business gets better. So that's our plan for the future. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Great. Well, congratulations on a nice 2015 and good luck to you for 2016. Thanks. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Thank you. Marc D. Katz - Chief Financial Officer & Executive Vice President: Thank you.

Our next question is from the line of Matthew Boss with JPMorgan. Please go ahead with your question.

Hey, good morning. So, as we think about 2016 you kind of laid out home, ladies' apparel and beauty as opportunities. What's the best way to rank them? Any changes you've made under Jennifer's merchandising leadership, I know we lap the first full year in May. And then, near-term, just what are you seeing quarter-to-date versus that 2.5% to 3.5% comp guide that you laid out for 1Q? Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Well, home is our biggest opportunity, as we've stated before. Obviously, at our current penetration with our known competitors at a significant higher rate we really feel that that's a big opportunity. Ladies' apparel still big opportunity at 24%, we should be 30%. So that's a big opportunity. And our beauty business, obviously, as percent of total it doesn't represent as much as those other categories, but there is still ramp up there. Jennifer has done a very, very nice job in terms of helping us understand with her experience in off-price, understand many of the tenets of off-price, help us fine-tune what we're doing, a lot of things we're doing in pack and hold now she's really helped us think it through. There's no really major changes because we really feel confident in the model that we have. She's just helping us get better at executing the model that we have right now. And, as far as the quarter-to-date business, all that is incorporated in the guidance that we gave for the first quarter, the 2.5% to 3.5%.

Okay. And then, just longer term, you guys have cited 500 basis points to 600 basis points of EBIT margin opportunity. I think over 400 basis points of this is really the SG&A expense leverage opportunity. Can you just help bucket some of the multi-year SG&A efficiency opportunities? And more near-term, what kind of comp do you need to leverage the SG&A this year? Marc D. Katz - Chief Financial Officer & Executive Vice President: To leverage SG&A mid-to-high 2%s, Matt. And in terms of going forward, I talked about it before; profit improvement continues to be the number one goal and objective for all of the sales support teams here at Burlington. Yeah, we understand the 500 basis points to 600 basis points of operating margin improvement that's out there between us and our peers. We still think 100 basis point to 150 basis points of that's in margin, which to your point; the rest is in SG&A. But it's every line of our P&L. I mean, one of the items that we had this year, Matt, that we called out in the press release was our risk management team has been working for two years on a safety program for both our stores and our distribution centers and we've had such great reductions in the number of incidents within our stores, as well as the cost per incident, that it resulted in significant good news in Q4 because we were able to reverse those reserves. That's just one example of things that we've done to help the P&L. But, as I said, it's every line item and it's going to continue to be our focus going forward.

Great. Best of luck. Marc D. Katz - Chief Financial Officer & Executive Vice President: Thank you.

Our next question comes from the line of Stephen Grambling with Goldman Sachs. Please go ahead with your question. Stephen Grambling - Goldman Sachs & Co.: Hey, good morning. Thanks for taking the question. Marc D. Katz - Chief Financial Officer & Executive Vice President: Good morning. Stephen Grambling - Goldman Sachs & Co.: So, on the vendor reduction, is that outright cutting off some of these vendors or you're simply not buying from them this year and were those cuts in specific areas? And, I guess, a related question, as you look at home and beauty, where do you feel you are in the evolution of those vendor relationships? Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: As far as vendor reductions, it was really broad based. It was across the board, and those are vendors that we haven't done business with – we didn't do business with within 2015. So, as far as the home business, I think we've done a really nice job. Obviously, we had really good growth there. But we're still in the beginning stages of developing the relationships that we need to have in both of those categories but they've made a lot of great progress and it will continue to improve over time. Stephen Grambling - Goldman Sachs & Co.: And then a quick follow-up on shrink. Was that actually isolated to certain categories or was that also something that was just broad-based across the store? Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: It was pretty broad based. I'd say one area that probably got hit a little bit harder was the entire ladies' accessories area. Marc D. Katz - Chief Financial Officer & Executive Vice President: But, again, it was... Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Go ahead. Marc D. Katz - Chief Financial Officer & Executive Vice President: I was just going to reinforce 3 of our 31 regions with a third of the increase. Stephen Grambling - Goldman Sachs & Co.: All right. That's helpful. And then one last one, if I can sneak it in. Just as we think about the capital allocation priorities, how are you thinking about the appropriate kind of debt ratio for the business going forward, and how is that going to dictate how you think about the buyback? Thanks. Robert L. LaPenta - Treasurer & Vice President: Yeah. I'll take that one, this is Bob. So, as we've said in the past, we're comfortable with the leverage rate that we're currently at. We think it will continue to go down just on EBITDA growth alone, and we'll continue to evaluate debt pay down and share repurchase for 2016. If its share repurchase, we'll do it opportunistically like we did in 2015 at the end of each quarter. We'll certainly share that activity with you. But the guidance we gave for 2016 currently doesn't have any additional share repurchase in it. Stephen Grambling - Goldman Sachs & Co.: Great. Thanks so much. Best of luck. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Thank you. Robert L. LaPenta - Treasurer & Vice President: Thanks, Gramb.

Our next question is from the line of John Kernan with Cowen & Company. Please go ahead with your question. John Kernan - Cowen & Co. LLC: Hey, good morning everybody. Thanks for taking my question. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Good morning. John Kernan - Cowen & Co. LLC: So, I think you talked about the average store size been around 51,000 square feet this year. Can you talk about the difference in the box economics on a sales productivity and four-wall basis on these smaller stores that you've been focusing on in past couple of years? Marc D. Katz - Chief Financial Officer & Executive Vice President: Yeah. As part of our underwriting model, John, there is two really financial metrics that we need to check the box on. One is new stores needs to produce an IRR that far exceeds our cost to capital and two needs to produce an EBIT margin that's accretive to our overall company EBIT. So, that's all built into our underwriting models. As far as the smaller stores, they still, from a sales productivity point of view, they are still exactly where they were and how they've been trending all year. We do have a little bit of a different stat. Right now, our stores less than 60,000 square feet are about 16%. They produce sales per square foot about 16% higher than the chain average. And the only reason that that's dropped from 20% to 16% is because our base has increased. We loaded into our databases at the end of the year, all of our latest selling square footages by store. So, as I think we've mentioned in the past in some of our much bigger stores, to make a better shopping environment for our customers we've put up some dry walls and shrunk the space and made it again a more pleasant shopping experience. We loaded all that in, so our base went up and that's what's creating the 16% difference now between our stores less than 60,000 square feet. But, again, we're very happy with our new stores. They continue to operate in line with their underwriting milestone both at sales and an EBITDA margin point of view. John Kernan - Cowen & Co. LLC: Okay. Thanks. That's helpful. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Let me expand on that just for a second because I will just give you a flavor in terms of what we're thinking about in terms of size of box. We're going to continue to get smaller. That is our goal overall. As you can tell, I mean, we've gone – we were going down significantly in terms of our new stores that we're opening. In 2015, I think it was 54,000 square feet; this year 51,000 square feet; two years ago, I think it was 60,000 square feet average. And we actually – this year, we opened a store in East Hanover, New Jersey that was around 30,000 square feet gross. So we're moving in that direction. We really feel based on the inventory reductions that we've had – comp store inventory reductions we've had over time that we can operate and have all categories represented in the smaller box going forward. So we're really excited about the strategy in terms of reducing the size of our stores. John Kernan - Cowen & Co. LLC: Okay. That's helpful. And then, Marc, just two kind of housekeeping questions. Did you give implied guidance for what's embedded on product sourcing costs this year within SG&A? And then... Marc D. Katz - Chief Financial Officer & Executive Vice President: Yeah – go ahead, John. John Kernan - Cowen & Co. LLC: ...can you help us understand where CapEx is going to land this year? I think there's been some fairly big expenses – expenditures in that related to the headquarter expansion. So where does CapEx shake out this year? Marc D. Katz - Chief Financial Officer & Executive Vice President: Okay. I'll take the first one and I'll let Bob take the second. In terms of product sourcing cost, John, we do realize that we were flat for the last two quarters of 2015. We think that 2016 is going to be a little bit of a different story. Obviously, we continue to invest in our merchandising and planning teams. So there is going to be some head count added in that world. And in addition to that, looking at our 2016 receipts, we think that we're going to have more units going through Put to Light in our fragile areas, which are going to drive those costs up a little bit. With that said, we still believe that, in 2016, we're saying 20 basis points to 30 basis points of expansion in EBITDA margin. We think our gross margin, net of our product sourcing costs, will also expand by 20 basis points to 30 basis points. So that net loaded number will expand 20 basis points to 30 basis points and a piece of that's coming from shortage, a small piece of that's coming from freight. Also within 2016, John, hopefully you caught that, our other revenue and other income is going to decline by 15 basis points. And that's because of the switch from fragrance from a leased to an owned business. So you can work the math there on what we're expecting SG&A to do. John Kernan - Cowen & Co. LLC: That's helpful. Thanks. Robert L. LaPenta - Treasurer & Vice President: And, John, this is Bob. I'll take your question on CapEx. So the guidance that Marc gave earlier, I think we said $145 million to $150 million is the range for the CapEx spend for 2016. About $90 million of that will be stores, which is everything from new stores, remodels, refreshes, and maintenance that we will do during the year. Supply chain dropped a lot in 2015 from $50 million to $20 million. And the balance will be in IT and other business case investment. So no significant spend in home/office facilities, that's all behind us now. John Kernan - Cowen & Co. LLC: All right. Great. Best of luck. Marc D. Katz - Chief Financial Officer & Executive Vice President: Thank you. Robert L. LaPenta - Treasurer & Vice President: Thanks.

Our next question is from the line of Brian Tunick with Royal Bank of Canada. Please go ahead with your question.

Thanks. Good morning, everyone. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Good morning.

Two questions. I wasn't quite sure if I understood what you were saying about the Q1 trend. I know there has been some noise about tax refunds for other retailers shifting between January and February. But I know I think last Easter, there were some category disruptions, there was port strike disruptions. Can you maybe talk about what are you doing different this year around Easter and how you're planning the business? And then, second question on the de-weatherizing side, obviously, coats has been such a major staple in the business, you have been shrinking that as a percentage. But how do you look at holiday next year and think about coats either as a percentage of sales or inventory on the floor? How do you continue to keep moving in that direction? Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Okay. As I stated, the Q1 trend is incorporated in the guidance that we're giving for the first quarter, the 2.5% to 3.5%. As far as working on Easter, as we mentioned in the prepared remarks, we advanced about $50 million worth of Easter product into the fourth quarter because last year we failed to deliver the goods on time. So we feel really good about how we're prepared for Easter versus last year based on what I just said. In those categories that we had problems with last year are trending very well. So we feel good. We feel we're in a really good position to – obviously, it's a 2.5% to 3.5% guidance. As far as next holiday season goes, one of the things that's really the beauty of our model is the fact that we react to the business throughout the season. And we'll probably look at these categories basically, let's say, flat to last year, and we'll react to the business as they materialize, as we do with everything. I mean, I can't tell you how proud I am of our coats team in terms of how they reacted to the warmer weather than last year. They basically reacted by reducing receipts. We came out of the fourth quarter with less inventory than the prior year. And so we'll do the same. I mean, we don't buy the goods up – we don't buy all of our goods upfront, as we spoke about before, and we'll react to what's happening in the business and what the forecast of the weather is, et cetera. Again, it's a great thing about the model that we operate in. Hello? Marc D. Katz - Chief Financial Officer & Executive Vice President: Hello. Operator, we think we're ready to go to the next question.

Yes. The next question is from the line of Paul Lejuez with Citigroup. Please go ahead with your question.

Hey. Thanks, guys. Just curious on some of these smaller boxes that you're opening. What sort of rent per foot are you seeing on those locations versus some of the larger locations that you've opened in the past? Is there anything about where those boxes will be located that's any different from previous strategy from where you look to open a box? And then second, just curious about the traffic versus ticket assumption to get to your F2016 comp? Thanks. Marc D. Katz - Chief Financial Officer & Executive Vice President: Okay, Paul. Paul, I'll take that. Really, it's not so much that the store size is, is a lot of our new stores is in more of the retail hubs, so to speak. So, yes, they're coming with higher rents than our more historical stores, again just based on where they are. But I keep coming back to the rents, obviously, are all part of our underwriting models. And again, we have to have an IRR in a store that far exceeds our cost of capital, and the store needs to produce an EBIT margin that's going to be accretive to overall company EBIT. So it all fits into that equation. In terms of the driver, yeah, I mean, in Q4, yeah, we saw increases in units per transaction in conversion. AUR and traffic were down. To be honest with you, Paul, we don't plan those components in 2016. I guess – I could guess that AUR has been down for a while and probably will continue to be down slightly. But outside of that, we don't plan those components. Too many moving pieces.

Got you. Thanks. Is there any – were there any execution issues maybe other than the Easter product flow last year? Any execution issues that you look at as kind of low-hanging fruit to improve upon this year? Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Not really. The big issue we had in execution was really in the first quarter of last year. We had a very good second quarter and we had a very good third quarter. So it was really that. I think we – maybe a little bit in terms of the Baby Depot business that I've spoken about before, where we really cut back the inventory there too much. I've worked personally – worked very, very hard on correcting the Baby Depot situation. The trend was better in the fourth quarter. We anticipate the trend will be getting better throughout 2016 based on the strategies we're putting in place right now. It's a business we're proud of it, drives people into our stores, and I am personally taking it on to make sure that we can correct it going forward.

Got you. Thanks. Good luck, guys. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Thanks.

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

Hi. Good morning, everyone. Thanks for taking my question. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Good morning, Ike.

Good morning. I guess, Marc, this one's for you. Just curious, as we think about Q1 and the variability of the model for 2016. So, as I remember, last year you came in with record lows on aged inventory. I think it was down about $120 million, and it sounds like it's down again this year, if I heard you guys right. So, I'm just curious, I know there's the shrink accrual that we have to consider, but gross margin seemed abnormally high last year in Q1 and given that dynamic with the aged goods, should there be a normalization, do gross margins need to come down a little bit this year in Q1 or given that aged good dynamic's still going down, would you expect it to continue to be flat to up? Marc D. Katz - Chief Financial Officer & Executive Vice President: Yeah. Well, all your numbers were right, Ike. And you said it, we headed into Q1 of last year with significantly reduced aged goods, and that impacted both sales and our gross margin as a matter of fact. But, even though we were more moderately down this year, obviously nothing to the magnitude of what we were down last year. So, yeah, I would view it as last year would be the more typical, not the year before, I would not read into that that our gross margins are going to be down in Q1.

Great. Thanks so much. Marc D. Katz - Chief Financial Officer & Executive Vice President: You got it.

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

Good morning, everyone. Can you talk a little bit more about the wage impact on SG&A and how you're thinking about that for 2016? And then also marketing spend, how we should see that develop this year and is there anything different that we should be watching for as compared to last year? And just lastly, any other leased businesses besides the beauty business to note? Thank you. Marc D. Katz - Chief Financial Officer & Executive Vice President: Okay. I'll take two of those. No other leased businesses to convert. This was the last one. As far as wages, Dana, we've got $7 million baked into our 2016 plan as it relate to wages. The first piece of that was, last year as you know, we made the decision to go to $9 an hour and we still have the February through June impact of that, so that's about half of the $7 million. And then, obviously, we incorporated all of the state minimum wage increases. There was a number that were effective January 1 of 2016, then a couple more that trickle in throughout the year, that was the second thing. And then the third thing, quite frankly we spent the most amount of time was our HR team and our stores team really performed a market-by-market review and went through all of our pay practices and we made a number of adjustments that we deemed necessary. In some cases, we went to $10 when the state minimum was lower, and in some cases we went beyond $10, where we thought we needed to. And all of those things are baked in and that's what makes up to $7 million. And in payroll practices, as you know, Dana, there are a dynamic process for us and for all retailers. We'll continue to monitor it. If at any point in time, this year, we get some data points that tell us that we need to make a different decision, then we'll obviously quantify that and we will look to offset that, just as we did the $5 million last year and just as we did with the $7 million that's currently baked into our plan. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: The marketing... Marc D. Katz - Chief Financial Officer & Executive Vice President: Her middle question on marketing. Go ahead. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: I'll take that one. As I said in the prepared remarks, our dollar spend will be comparable to last year. So, obviously, we will leverage our marketing spend. We're really pleased with our approach to marketing. The testimonial campaign is resonating very well with our customers overall. Any tweaks really was, we'll keep shifting dollars into digital because obviously that's where a lot of the eye balls are now. So – but, overall, it's going to be fairly comparable to what we've done in the past.

Thank you. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Thank you. Marc D. Katz - Chief Financial Officer & Executive Vice President: Thank you.

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

Thank you. A couple of questions. Just one follow-up on the fourth quarter gross margin. Just wanted to get a better understanding, obviously, shrink was, I guess, about 85 basis points or so. Based on your remark, Marc, on the shrinkage impact, but was the balance of the gross margin from some of these seasonal classifications that were down to last year, so that's the first question? And then secondly, free cash flow looks like it's poised to substantially increase based on the decline in capital expenditures, increase in net income and assume working capital will not be a big headwind. Just wanted to – if you could give us a sense where you see the free cash flow in 2016, Marc, and obviously you have some flexibility on whether you pay down debt or buyback shares, but I assume you're not going to be building cash here? Thank you. Marc D. Katz - Chief Financial Officer & Executive Vice President: Okay, David. Yeah, Q4 – yeah, you're right about your shortage modification and the rest was markdowns, and yeah. It was – we have a markdown optimization system and a lot of those seasonal categories where the markdowns kicked up based on sales and those were the markdowns that we took. It was very important for us to end the year clean and with reduced aging, and we did that. Robert L. LaPenta - Treasurer & Vice President: Yeah. So, hi, David, it's Bob.

Yes. Robert L. LaPenta - Treasurer & Vice President: I'll take the question on free cash.

Sure. Robert L. LaPenta - Treasurer & Vice President: So, yeah, we – this model throws off a lot of free cash with the increased guidance around bigger EBITDA and a decrease in CapEx spend. We would expect to see more free cash flow generated in 2016. And again, after we fund the needs of the business, we'll look at debt repayment and we'll look at share buyback. And as we make those decisions, we'll share them with you throughout the year.

Right. Is it fair to say working capital will be a – at least a slight benefit? Robert L. LaPenta - Treasurer & Vice President: We don't see a significant one way or the other from working capital and cash flow in the year.

Okay, great. And one more if I could... Robert L. LaPenta - Treasurer & Vice President: And just the one wildcard to that, David, is why we really don't quote anything is, we – like Tom said earlier, we don't plan the pack and hold inventory builds. We let the deals speak for themselves. So, where there's more opportunity to add pack and hold, we'll certainly fund that first.

Okay. And then... Robert L. LaPenta - Treasurer & Vice President: Go ahead, David.

Sorry, just one last one if I could squeeze it in here. On the supply chain side, you said your CapEx was coming down on that front. How would you sort of self-assess your supply chain versus peers and the ease of doing business with Burlington with your suppliers at this point? And what future investments do you think you need to make down the road? Thank you. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Well, we've been working very hard on our supply chain. As we mentioned, we spent $50 million in 2015 to improve our supply chain. We continue to add more capability in terms of Put to Light, meaning, we have to open every box and we have to sort it out and ship it to the stores. And we're making it easier to work with us, so it's something that I've been focused on for since I started with Burlington and I think we've made a lot of progress there. Obviously, we need to continue to do it. I mean it's a day-to-day thing. But, I'm proud of what our team has done in terms of building strong relationships throughout the marketplace.

Okay. Thank you very much. Good luck. Marc D. Katz - Chief Financial Officer & Executive Vice President: Thanks. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Thank you.

Our next question is from the line of John Morris with BMO Capital Markets. Please go ahead with your question.

Thanks. Congratulations on a good year, and good finish to the year. So, couple of quick questions just to clarify. Tom, would you say that the open-to-buy this year is – where is it versus last year at this point? And the vendor relationships, the new ones, obviously there's been some consolidation in these newer vendor relationships. I'm just wondering, if you can talk about what you're seeing there? I know it's a move-up to the better relationships. I mean, could these be new ongoing relationships, or do you think these were things that were a little bit more one-time in nature because of the weather disruption last year. So, I'm wondering, what kind of recurring potential benefit there could be there? And then, finally, any comments about what you are seeing with new customer acquisition, and if you track that and how you track that, because it seems like the brand is really evolving here, and I'm wondering if you can kind of put some metrics around that? Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Okay. As far as open-to-buy goes, we had a lot of liquidity throughout the spring season. We still have liquidity for April. I mean, we're really working hard to making sure that we have adequate open-to-buy, so we can buy product every single week, if we need to. So, we're in as good a shape or better shape than we were when we were last year. So we feel very good about that. The relationships that we're building throughout the marketplace, they're really ongoing relationships. It's not just because of the weather in the top business, these are people that want to do business with us, and they see all the great things that we're doing here at Burlington, and they want to be part of it. And so, we look at the relationships as a future relationship and ongoing relationship. As far as new customer acquisition, we really haven't talked about that. Obviously, based on the way our stores look today, the way the product we're carrying, we continue to increase our branded penetration, our better and best penetration. We continue to obviously get more and more customers, and one of the areas where we're experiencing growth is really in customers that make more money. Our household income bracket is $25,000 to $75,000 per year. And we're seeing the biggest growth come out of customers that make over $75,000, and the biggest decrease coming out of customers that make less than $25,000. So now we feel good, and we feel good about everything that we've done, and obviously we're getting new customers in our stores every day.

Great. Thanks. Marc D. Katz - Chief Financial Officer & Executive Vice President: Thanks, John. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Thank you.

Thank you. At this time, I'd like to turn the floor to Tom Kingsbury for closing remarks. Thomas A. Kingsbury - President, Chief Executive Officer & Chairman: Thanks, again, for joining us today, and for your interest in Burlington Stores. We'll speak to you again in May for our first quarter call and have a great day. Thank you very much.

This concludes today's conference. Thank you for your participation. You may now disconnect your lines at this time.