Greetings and welcome to the Burlington Stores Incorporated Fourth Quarter Fiscal 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Bob LaPenta, Vice President and Treasurer for Burlington Stores. Thank you, you may begin.

Thank you, operator and good morning everyone. We appreciate everyone’s participation in today’s conference call to discuss Burlington’s fourth fiscal quarter and full-year 2016 operating results. Our presenters today are Tom Kingsbury, our Chairman and Chief Executive Officer; and Marc Katz, our Principal and Chief Financial Officer. Before I turn the call over to Tom, I’d 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 till March 16, 2017. We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties. Our remarks and the Q&A that follows 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 2015, 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.

Thank you, Bob. Good morning, everyone. We are very pleased to report better-than-expected fourth-quarter results that included strong sales growth, positive comp sales, expansion in gross margin, and a 19% increase in adjusted diluted earnings per share. Our performance continued the strong momentum we have experienced throughout the year driven by the successful execution and elevation of our off-price model. This was further demonstrated by our annual fiscal 2016 results that also included steady new records across all key operating metrics. For the year we saw net sales of $5.6 billion, increasing 9.2% from the prior year, a 4.5% increase in comparable store sales on top of 2015’s 2.1% increase, and 80 basis point expansion in gross margin, and 100 basis point increase in adjusted EBITDA margin. We continue to generate strong cash flow, which enabled us to not only fund our growth, but return value to our shareholders through our share repurchase program. The combination of all these factors contributed to a 40% increase in fiscal 2016, adjusted net income per share. The sustained and consistent strength of our business not only highlights our ability to satisfy customers with highly desirable brands, terrific value, and great customer service, but also the successful expansion of our product offerings. I want to thank our entire organization for contributing to our strong 2016 performance, and we remain excited about our business prospects in fiscal 2017 and longer term. Let me share with you some highlights of the fourth quarter. Total sales increased to 9.4%, with comparable store sales rising 4.6%. The fourth quarter marked our 16th consecutive quarter of positive comp sales. Once again we saw positive traffic. Including the fourth quarter, we have now delivered positive traffic in nine of the last ten quarters. Top performing businesses were home, beauty, men's,…

Thanks Tom and good morning everyone. Thank you for joining us today. As Tom mentioned, we are very pleased with our better-than-expected fourth-quarter sales and earnings performance, which completed a strong year of growth and record setting accomplishments towards advancing the priorities we set at the start of the year. Specifically, the fourth quarter and full year saw positive momentum across key metrics, including increased sales, expansion in gross margin, and reduction in interest expense. This combined with a lower share count from share repurchases drove an increase in adjusted net income per share for the fourth quarter and 2016 of 19% and 40% respectively. Turning to a review of the income statement. For the fourth quarter, total sales increased 9.4% and comparable store sales increased 4.6%. This marks our 16th consecutive quarter of positive comp store sales growth. In terms of comp metrics, our comparable store sales performance was driven by increases in traffic, conversion, and units per transaction, while average unit retail was down versus the prior year. We're very pleased that our positive traffic momentum continued as we now have seen increases in traffic in nine out of the last ten quarters. The gross margin rate was 41.8%, an increase of 80 basis points versus last year, driven primarily by improved shortage results. This more than offset a 25 basis point increase in product sourcing cost, which includes cost to processed goods through our supply chain, and buying costs, both of which are included in selling, general, and administrative expenses. As you may recall, our physical inventories during the fourth quarter of 2015 resulted in a higher shortage rate than we had initially expected. Consequently, the full-year negative impact fell into the fourth quarter. As we have mentioned in previous calls, we view this result as a…

Thanks Marc. In summary, 2016 marked another outstanding year of sales and earnings growth, driven by the ongoing success and increasing customer preference for our off-price model. I remain confident in our ability to further evolve our off-price model to drive sales productivity and profitability growth for many years into the future. With that, I like to turn the call over to the operator to begin the question-and-answer portion of the call. Operator?

Thank you. The floor is now open for questions. [Operator Instructions] Our first question today is coming from Ike Boruchow of Wells Fargo. Please proceed with your question.

Hi, good morning everyone and congrats on a really strong quarter in a tough environment. I guess, first for Marc, Marc can you maybe provide more color on the Q4 gross margin, it sounds like shortages drove most of the improvement, so just kind of curious if you expect more good news there, going forward and maybe if you could talk to IMU and markdowns for the quarter as well, and what’s baked into 2017 guide, and maybe also just headwinds related to share-based comp going forward, you know you guys have been doing well, it’s been increasing with 5 million to 6 million a year, just kind of curious if you can help us there.

Sure Ike, good morning. Let's start with the Q4 gross margin question. As we mentioned last year, we have and continue to have a lot of confidence in our asset protection team and knew they will review 2015's shortage result as a major call to action. Our asset protection team and the stores organization implemented a number of specific actions throughout the year. We were very pleased to see our encouraging results from our summer inventories carry forward to our January inventories as well. So, we took about 400 physicals in January, we saw improvements across all four of our major territories in just about every merchandising area. Specifically shortage ended up being about 65 basis points of that 80 basis point improvement in margin, and given that that was better than our plan, what we had planned in 2016, we’re really only planning a very minor improvement in shortage for 2017 to a few basis points. In terms of the other components of gross margins, yes, as it has been all year, our IMU was higher than last year and that more than offset the increase that we had in our mark down rate. The net of those two Ike was the other 15 basis points. It was really important for us to be as clean as possible from an inventory point of view as we started the spring season. As Tom mentioned in his prepared remarks, our comp store inventories were down 9%, and our good aged 91 days and older were 85 million versus a 120 million the year before at 29% reduction. So the flip side of reducing that 91 day in older bucket is that we increased the freshness of our inventory. So, we pay a lot of attention to those goods aged 0 to…

Got it, thanks Marc and then if I can just follow-up for Tom, so it is related to Easter this year, I think a few years ago when Easter shifted around you guys had a few execution issues that popped up, maybe Tom can you just talk about the guardrails that got bought back on the business back then and how that may be protects you this year and how you are kind of thinking about the Easter shift this year and how compare this to what happened a few years ago? Thank you very much.

Hi, Ike. I think you’re referring to what happened in 2015. We had a lot of receipt issues in some of the key businesses for Easter, one of which was ladies dresses. It was more about the trying to time the receipts than we had the West Coast port strike, there are other out some outside factors that contributed to that, but we’ve - we're not concerned about receipts this year, we have the right things in place to ensure that the goods get on the floor and at the right time. So, we are in good shape there. That was a one-off, I don't think we really talk about that anymore after that one-time deal, so we are in good shape.

Got it. Congrats guys.

Thanks Ike.

Thanks Ike.

Thank you. Our next question is coming from Matthew Boss of JPMorgan. Please proceed with your question.

Hi, nice quarter guys.

Thanks Matt.

Thanks Matt.

So 4 to 5 comps up 6X cold weather, it clearly points to market share gains, I guess can you just talk about the tone that you are getting from the buying organization, are you fielding calls from new brands out there, are you seeing better quality of the assortments that you are getting, I guess I'm just thinking about this in the larger context of all of the lateral brick and mortar disruption that’s happening out there?

Matt I will take it. Yes, we feel really good about the relationships that we're building with the vendor community. We have been doing this over a long period of time and there is people that really want to do business with us and they see the results that we’re getting and there is things that are coming at their level to us, our buying organization is getting much more mature in terms of executing the off-price model. They are getting better and better every season and there is a lot of positive, obviously a lot of positives around what’s happening here at Burlington.

That’s great. And then just a follow-up Marc on the SG&A front, any change to 10 to 20 basis points of leverage at a 2 to 3 comp and then 15 basis points incremental expansion for each comp point about just kind of thinking about this year and multi-year.

Yes, so let me take that. So for 2017 we talked about EBITDA expansion of 40 to 50 basis points. So, 40 of that’s going to come from reported margin less product sourcing cost. So product sourcing costs, just like that in the last couple of years, we are expecting some the deleverage there and we’re expecting it to be more than offset with gains and reported margins. So that’s 40 basis points. 40 to 50 is just the difference between the two and the three. So at 2% comp rate to 40, it is 3% comp that is obviously 10 basis points of leverage from SG&A and that's what gets us to 50. And it is still the same thing beyond three years, we go 3 to 4, we would expect another 15 basis points.

That's great. Thanks for the help.

You got it.

Thank you, our next question is coming from Brian Tunick of RBC. Please proceed with your questions.

Thanks. Good morning. I'll add my congrats as well guys.

Thanks Brian.

Thanks Brian

So, two quick ones, obviously a lot of and angst around the warm weather trends we have been seeing, so was curious regarding the Q4 results, if there was any color you could share with us regarding the monthly sales cadence, or was it pretty consistent throughout the quarter as you, I guess you're changing the mix a little, and then sort of along the same question, on the real estate side, particularly on the smaller store format your opening now, I guess as outerwear comes down as a percentage of the mix, can you maybe talk about what you're doing inside the store, which categories are gaining floor space and how you're looking at sort of these new smaller stores with the opportunity as outerwear continues to shrink? Thanks very much.

Okay. Hi, Brian. During the quarter all the months in the fourth quarter were positive. December is a little bit higher, because of those two days between two days between Thanksgiving and Christmas this year. So but overall it has been pretty consistent. As far as the news stores go, the smaller footprint we are going to add more-based home and beauty, accessories areas that we feel we can grow and as we reduced our outerwear penetration as we de-weather our business, these are natural categories that will grow. We're going to continue to push throughout the year our gifting business, which was very successful in the fourth quarter, but just simply we're going to continue to reduce our overall square footage in our apparel areas and outerwear is out of that as I've mentioned before on other calls, so that we can increase our penetration in home and beauty as I mentioned. I guess

I guess when you look at your competitors that have square footage close to the 35,000 square feet per box, are there specific categories that you think are so important to Burlington that you guys couldn't do that in that kind of box?

Well we have some categories that take a more square footage. The baby depot business that takes up more square footage and that’s a business that’s a differentiator for us overall. We are still big believers in the tailored clothing business in men's and the furnishings business that takes up additional square footage. Even though outerwear has come down as a percent of total, it’s still a pretty big penetration relative to other retailers so that takes up space. We are very proud of our ladies dress business that takes up space. So the big drivers I would say would be the baby depot, the men’s tailor clothing business, and still our coat business.

Super. Thanks very much. Good luck.

Thanks Brian.

Thanks Brian.

Thank you. Our next question is coming from Lorraine Hutchinson of Bank of America. Please proceed with your question.

Thank you. Good morning. I wanted to follow-up on ex gross margin question, it sounded like fourth quarter markdown rates were higher, how are you thinking about that going forward into 2017 and then when you talk about the 40 basis point of increased reported margin, is that still driven by higher IMU any you expect the markdown rate to continue to trend up? Thank you.

Yes it’s really driven by both. We think about gross margin over the course of the year and our reported margin is going to offset product sourcing to be a net of 40, Lorraine, but we think it could come from a combination of both IMU and markdowns. Over the course of the year, as we continue to reduce our comp store inventories as we continue to turn faster, I would expect to start to see more good news come from that markdown rate. Our IMU’s were strong all quarter long during 2016, so that’s going to be a piece of it as well. So, I could see it potentially coming from both places, over the course of the year in 2017.

Okay. What was the driver of the higher markdown rates in 4Q?

Just our desire to be very clean from an inventory position point of view.

Okay, great thank you.

Thank you. Our next question is coming from Lindsay Drucker Mann of Goldman Sachs. Please proceed with your question.

Thanks, good morning guys.

Good morning.

I wanted to ask about your first quarter guidance and the more subdued outlook and the discussion of really attributing it to delayed tax receipts, a lot of companies talked about it, but I am just curious about from your perspective what you are seeing on the ground that gives you confidence that the softer start really is a function of these delayed tax receipts.

Well last year the income tax refunds started in week two February, so in this year it was in week four February, so we can just see how it impacted our business when we are up against last year's income tax refunds and we saw how, what happened once the income tax refunds got in the customers hands in terms of our business. So, yes fundamentally we feel very, very good about our business and the way we are operating the business and we are taking a conservative view on the first quarter from a comp perspective, but the tax refund thing, it’s all built into our guidance that we supplied and we really feel that comfortable with our 2% to 3% for the year.

So is that to say that between weeks two and four business really softened because of the comparison, but as you sit now business are strong as you had hoped it would be?

It’s come back once the income tax refund has got into the customers hands, yes.

Yes, they are stable.

Okay great. And then just separately just on comp store inventory, I was hoping you could give a little bit more color on how you're thinking about how much you can reduce these numbers, how much comp store inventories can decline, you had significant reductions in calendar 2016, what you're thinking about for 2017 and what the real drivers are of the reduced inventory going forward?

Well, we still feel we have more inventory than we would like to have. We feel that we can experience mid-high single digit decreases in comp store inventory for the foreseeable future. We just, you know we are getting better in terms of selecting product, our turns are getting faster and the real driver is really, as we grow home, beauty, and the non-apparel areas we can take our inventories down in apparel and we're going to do what we have been doing. We're going to work on reducing the amount of inventory. We have that in the older buckets, as we've talked about in the prepared remarks, we are down 29% in terms of 91 days and older, but that’s it. We just want to have faster turnovers and we really feel that we can continue to reduce our inventories.

Great, thanks very much.

Thank you.

Thank you. Our next question is coming from David Glick of Buckingham Research Group. Please proceed with your questions.

Thank you. Good morning and I add my congratulations to the team. Marc I wanted to follow-up on your new store performance, obviously as the size shrinks and locations improve the productivity side I think that was up 17%, how does that translate to four-wall profit, now that you have more of these smaller footprints stores and how do we think about how that impacts the return on invested capital and then I have a follow up on supply chain? Thanks.

With our smaller stores David, especially given that they are more in the retail hubs, if you will, we’re playing more EBIT sides, it is less because from a size point of view they are smaller, but it is more because we are more in the retail hub. So, occupancy is higher for these new stores, but to your point given the fact that the sales productivity is 17% higher, it is making sure that we achieve an EBIT that we're very comfortable with. So, we’ve been very happy with our new stores both from a sales point of view an EBIT contribution point of view. As Tom mentioned, we are ratcheting it up a net 25 to 30 next year and we’ve been very comfortable with how they’ve been performing.

Thank you. And if I could follow up on supply chain, I think you said you are investing another $25 million, could you give us a little bit of color on what you're investing and how that might help your product sourcing cost and how that might drive some future returns or cost savings? Thanks.

Yes, the two areas that we continue to invest in for this model are merchant organization and our supply chain. So, as we mentioned about 47 million in capital will be spent in 2017, it is 25 higher. The majority of that incremental amount is two things, one is it a storage for pack and hold and two it is incremental processing in our distribution centers, which is primarily conveyor, but it is just to move all units to the system, a little bit more on the fragile side, and putting in more lanes that require a little bit more of the manual intervention where we have to touch more.

Thank you. I have one more follow-up, you mentioned storage on pack and hold, now that Jennifer has been aboard for a while, coming from Ross where they obviously have higher pack and hold penetration, just wondering the impact she’s had on the organization in terms of your approach to pack and hold and your effectiveness in buying that category?

Jennifer has done a very nice job in terms of helping the buyers and the divisional merchandise manager's and the merchandise managers, understand you got to operate more effectively in terms of selection of pack and hold. She sits down with each merchant and talks to them about what type of product we should be packing and holding, what other manufacturers we should be packing and holding. The other thing she has helped us with is terms of timing of when we bring the pack and hold goods in, now we are using pack and hold to set the setup some of those seasons, we use it for, you know in the second and fourth quarter, deliver more value on to the selling floor, so she’s really helped us to really look at pack and hold in a more sophisticated way then we did prior. So, our levels coming out, little bit lower, but the quality is better.

Thank you very much, good luck.

Thank you.

Thank you. Our next question is coming from John Morris of BMO Capital Markets. Please proceed with your question.

Congrats to everybody as well.

Thanks John.

You bet. Couple of quick ones here. Thanks for giving us a little bit of the color on the tax refunds, posing a little bit of that headwind in Q1 and you guys able to over cement that, I am wondering with the Macy's closings and thinking about the liquidation sales that would be happening if you have any experience looking at the stores that are in this close proximity to those Macy's closings, what kind of an impact you have seen from that and then my follow-up really would be given the regional performance and you call that some of the outperforming regions, was there anything that you saw from a regional perspective with the patterns that was a learning, why west outperformed as opposed to some of the other ones underperformed kind of what was going on there? Thanks.

Hi, John. I will take the first one and then if Marc wants a way on the second one. So in terms of the Macy's closures, it’s really too early to talk about the 2017 closure, but I can talk to you about some of the findings related to the 2016 closings, if that helps you?

Yeah, great.

Okay. In terms of the short-term impact, we did notice a small drop in the first three weeks of the liquidation, after that it really leveled off and over the course of 12-week period was really not material. So then after the post liquidation impact, the Burlington stores that were collocated with the Macy's saw a drop in sales, most likely due to the overall traffic drop in that area, but the Burlington stores that were between 0.5 and 5 miles away, we saw a slight pickup. So, assuming the 2017 stores react, somewhere in the 2016, we wouldn't really see a material pickup overall, but with that said, there is going to be other closures to. So, we feel that if we can execute the up rights model, and deliver value or going to continue to experience market share gain.

Tom, right before it gets to Marc, Tom can I ask, I think there is so far been enumerated about 65 of the Macy's closures this year, I think our count, on top of my head was that there was about 40 Burlington stores that were within about, I think a 5 mile radius, does that sound about right, I mean do you have those numbers handy, so we can think about it?

Yes, I thing for us, it is closer to 51 John.

Okay good. So, you would expect a longer term once those liquidation sales wrap up within say of 5 mile radius you would expect to see kind of a nice pickup in market share, I take it on a net basis?

Well we experienced a slight pickup, really not material in 2016, but as I mentioned, it’s more than Macy's, there is a lot of other brick and mortar closures, so again, if we can execute our off-price model and deliver great value as we have been we should experience some market share gain, but it’s beyond just the Macy's closures.

Excellent. And Marc?

Yes John. So when you have a quarter were 27 out of 29 regions comp, you got to feel pretty good about that.

Yes, exactly.

And to be honest with you, one of the regions was minus zero. So, we just didn't call that comp. The other region was really impacted by taxes and I think there were some unique things going on in Texas. So, I don't think there’s anything.

Yes, Texas. I think everyone knows was the strength of the dollar and obviously the oil business and I think, a lot of other retailers have been impacted by those factors.

Okay great, thanks guys.

You got it John.

Thank you.

Thank you. Our next question is coming from John Kernan of Cowen and Company. Please proceed with your question.

Good morning everyone. Congrats on a great quarter.

Thanks, John.

So it sounds like IMU is moving in the right direction, helping offset some of the markdowns, can you talk about the drivers that higher IMU?

Yes, it is clearly coming from, at least you look at it across the year, it is really coming from all buy types. It is not just coming from pack and hold up front; it is literally across the board. So, I would tell you then I will let Tom way in here if he disagrees, but I would tell you it is just more maturity within the buying team and better negotiating across the board.

Yes, what you said Marc is really accurate. I think the better we get at executing our price, the markup has improved.

Okay and then just some model questions. Is there any embedded share buyback this year, I know there is some moving pieces with the incentive compensation, and Bob is there any debt pay down this year's?

We don't project any of that John. So, we will continue to just report any share repurchases at the end of each quarter and update you on what the new share accounts will be going forward and we don't predict any additional debt pay down in any of our interest expense modeling. As you remember from the script, there is 200 million available on the latest authorization for share repurchase, but we will look at it opportunistically every quarter.

Okay thanks. Best of luck guys.

Operator, we have time for one more question.

Thank you. Our next question is coming from Christian Buss of Credit Suisse. Please proceed with your question.

Yes congratulations on a nice quarter. I was wondering if you could talk a little bit about availability of inventory from vendors. We’ve heard from some vendors that they are trying to dial back their availability of goods and see off-price channel, what are you seeing from an inventory standpoint and an availability standpoint?

We’ve seen a lot of availability. I mean it has been pretty consistent. Throughout 2016 there was really a lot of good to choose from. So far in 2017 there hasn’t been a lack of inventory. There are some manufacturers that have stated that they are going to cut back on our prize, but there is lot of other manufacturers that are going to aggressively go after our prize just because obviously we’re gaining market share and our performance is very good. So - but in general there is plenty of product out there. And we're not concerned about it, whatsoever, we have been hearing over and over again that there is going to be less and less goods, but it doesn't really manifest with that. So, we're comfortable with the supply that we’re going to have for 2017.

So it helps. Thank you so much and best of luck.

Thank you.

Thank you.

Gentlemen, do you have any closing comments?

Yes, I do. I just want to thank everyone for joining us today. We look forward to speaking with you when we report first quarter results in May. Thanks again.

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day.