Ladies and gentlemen, thank you for standing by. And welcome to the Burlington Stores First Quarter 2020 Earnings Webcast and Conference Call. At this time, all participants' lines are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. David Glick, Senior Vice President of Investor Relations and Treasurer. Thank you. Please go ahead, sir.

Thank you, operator, and good morning, everyone. We appreciate everyone’s participation in today’s conference call to discuss Burlington’s fiscal 2020 first quarter operating results. Our presenters today are Michael O’Sullivan, our Chief Executive Officer and John Crimmins, Chief Financial Officer. Before I turn the call over to Michael, I would like to inform listeners that this call may not be transcribed, recorded or broadcast without our express permission. A replay of the call will be available until June 4, 2020. 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 2019 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’s Michael. Michael O’Sullivan: Thank you, David. Good morning, everyone and thank you for joining us on this morning's first quarter earnings call. I hope that you are all safe and well in these challenging times. We are very glad that you could join us. On this morning's call, we would like to structure the discussion as follows. First, I will begin with a discussion of the first quarter. I will focus my remarks on where we ended the quarter with regard to our inventory levels…

Thanks Michael, and good morning, everyone. Let me start with the review of the income statement. For the first quarter total sales decreased 51%, comparable store sales through the first week of fiscal March increased about 3%. As Michael mentioned earlier in the call, our decision to close all of our stores on March 22nd due to the COVID-19 pandemic drove the sales decrease. The gross margin rate was 2.0% versus last year's rate of 41.0%. The gross margin decrease was driven primarily by a $272 million inventory charge taken in the first quarter. This charge was taken to account for an increase in inventory aging which was caused by our extended store closures, and in anticipation of a very promotional environment in the coming weeks and months. Under the retail method of accounting, we have adjusted our inventory valuation to reflect our best estimate of the markdowns that we plan to take to liquidate aged inventory. We expect most of these markdowns will be taken in the second quarter. The inventory charge creates a reserve to provide for the anticipated markdowns. So, at this point we do not expect any additional markdown expense on this aged inventory in the second quarter. Product sourcing costs which included the cost of processing goods through our supply chain and buying costs were $76 million in the first quarter of 2020 versus $79 million last year. Adjusted SG&A, excluding management transition costs was $390 million versus $428 million last year. The dollar decrease was primarily due to a reduction in store payroll. Adjusted EBIT excluding management transition costs decreased by $617 million to a negative $499 million, driven primarily by the $272 million inventory charge and the decrease in sales. Depreciation and amortization excluding favorable lease costs increased $4 million to $54 million.…

[Operator Instructions] Our first question comes from Matthew Boss with JP Morgan. Your line is now open.

Thanks. And congrats on a nice pace of initial reopening. Michael, could you share any color on sales levels that you're seeing with the initial stores that you've reopened? And any thoughts on the potential implications for the sales trend going forward? Michael O’Sullivan: Good morning, Matt. Great to hear from you. Thank you for the question. Let me start by prefacing my answer by saying that the dataset that we have is very limited, and covers a short period of time. In fact, the way to think about this dataset is that there are about 250 stores that have been open for approximately two weeks. And there are about another 80 stores that have been open for just a week. So that's the dataset that we have. As I said in my remarks, the sales levels in these stores have been strong, running ahead of the comparable period last year. We've seen this strong sales performance in every market where we've reopened. And all our major businesses in these stores apparel, accessories, footwear and home have experienced sales trends that are above the comparable period last year. Moving on to the second part of your question, what are the potential implications for the trend going forward? I have to say that at this point, we just don't know. But there are a few reasons to be to be cautious. Firstly, there's clearly pent-up demand, the customer has been cooped up over the past eight weeks. Finally, if you have a chance to get out. It's difficult to know how long this pent-up demand will last. A second reason for caution is that as we reopen stores, we're marking down our aged inventory. So, we're offering very compelling values. And as we sell through this clearance, the trend should naturally moderate. The final point I would make is that the promotional environment is only just warming up. Even after we've sold through our clearance, other retailers will still be promoting I imagine for the next several months. Especially retailers that are closing stores and liquidating stock. This is likely to be a significant headwind for us for some time. Look, as I said in my remarks, we are surprised and pleased with the trend. We're very happy to returning our inventory and creating open to buy But we're being careful not to read too much into this early trend. It's great but we do not know how long it will last. And so the action implication for us is to remain nimble, flexible. Our merchants know that there is plenty of merchandise available. So, if it turns out that the sales trend in the coming months is very strong then we'll be ready to chase it. And if not, we will hold back.

That's great color. John, as a follow-up, you ended the first quarter with roughly $1.5 billion in cash and over $1.6 billion in liquidity. What's the best way to think about your cash burn rate as well as your ability to generate positive cash flow as stores reopen? And hopefully begin to ramp up in incremental volume?

Hi, Matt. Thanks for your question. Yes, cash burn is kind of a tricky question to answer just because our operating environment is so dynamic and under these conditions. As the environment changes, the way we think about preserving or using our cash continues to change. So back when our stores were closed and we were putting our new financing deal together we shared a few things that are probably worth revisiting now. At that time we said, with the $400 million ABL drawdown that we had done. Plus, our year-end cash balance about $400 million that gave us the ability to operate for several months without revenue given the steps that we take in to preserve liquidity. We also said that pro forma after the transaction that was going to give us enough cash to last us beyond the end of fiscal 2020 without revenues. Thankfully, the operating environment looks quite different now. Our stores are reopening, that's giving us some positive cash flow. And as that happens we're also stepping up our store payroll and our DC payroll, bringing furloughed associates back as we need them. In addition, if our stores continue to reopen and stay open generating enough positive cash flow we would plan on bringing back our furloughed corporate associates. And would also restore some of the temporary pay reductions we put in place. But over the last several weeks, we had been catching up on our temporarily deferred accounts payable and we're now fully current with our accounts payable. With the uncertainty around the future, we're going to continue to manage cash very prudently. You've heard Michael describe how we plan to manage our inventory in this environment. We're going to continue to carefully manage every element of our cash flow through the same filter. Looking to leverage our cash with great opportunities. But being careful not to get too far ahead of ourselves. While we learn just what the new normal is going to look like.

Thank you. Our next question comes from Ike Boruchow with Wells Fargo. Your line is now open.

Hey, good morning. Michael, John and David. Hope you all are doing well. I guess Michael, first one for you. I mean I think we talked a lot about ’08, ‘09 and the off-price channel being able to take advantage of a really strong buying environment, gaining a lot of share. I guess, I'm curious your thoughts on the current situation. How does it compare to ’08, ’09 do you think things could play out the same way? Are there put and takes, I'm just kind of curious your high-level thoughts are. Michael O’Sullivan: Sure, good morning, Ike. Thank you for the question. The underlying circumstances in 2008-2009 were quite different. But I do think it's a valid comparison. The aftermath of the pandemic may well create many of the same conditions that followed the financial crisis of 2008, specifically I think those likely could be huge availability of off-price merchandise great values compared with weakness in the department and specialty store channels and a strong consumer need for value over the next couple of years. Those conditions should be very good for off-price. But for the next several months, there's a lot of uncertainty and some major risks and challenges. The rest of the year is going to be very tricky to navigate and there's one other point to keep in mind when comparing our current situation with 2008-2009. I think that the pivotal moment in the financial crisis was really when Lehman Brothers declared bankruptcy in 2008. After that the economy and retail sales had to fall apart; the third and fourth quarters of 2008 as I recall were very difficult for all retailers including off-price and the spring of 2009 that wasn't great either. It wasn't until the back half of 2009. So a whole year later that the off-price retailers really started to post very strong high single-digit even low double-digit comp store sales growth numbers. And from that point onwards really began to take market share. If you apply that same timing to the current situation, it takes us to late spring or even summer of 2021. So, yes, I actually agree. I think it's a valid a comparison. I think this could turn into a big opportunity for off-price, but one of the lessons from 2008 I think is important is it could take some time before the opportunity really materializes.

Great, Michael. Super helpful and followed up on pack and hold and just curious you're thinking about your pack and hold business going forward in the off-price volume environment over the next several months is going to be strong. Is there any opportunity to buy up more merchandise now, defend the stores next year just overall your pack away strategy would be helpful? Michael O’Sullivan: Sure. Actually, it's a very timely question. At Burlington, pack and hold historically has been a relatively small, I would say been a relatively small part of our business. Certainly compared with some of our peers but even before the pandemic, we've been looking at strategically increasing how forward level of pack and hold go, making it a bigger part of our mix. We're actually planning to gradually do this, to gradually grow our pack and hold balanced over the next few years. But we're now thinking that we should accelerate this increase. If the off-price buying environment is as attractive as we expect it to be then the next several months could be the perfect time to strategically increase our technical levels. And to be clear, we would only pack away the very, very best deals. The very, very best values. So, yes, we do think there's a significant pack and hold opportunity. We're working on the details and the specifics on how to go after that. I would expect that we'll have more to say on this topic in the second quarter call in August.

Our next question comes from John Kernan with Cowen. Your line is now open.

Hey. Good morning, Michael, John and David. Good to see the excitement from your core customers of the stores reopen. Michael, in your remark you talked about the inventory reserve you took at the end of the quarter. I know you put quite a bit of emphasis since you joined on the full potential strategy plan. And then operating with leaner inventories per store was obviously a big part of that strategy. Just can you provide more details on the strategy behind the markdown reserve now? And then what that sets you up for the second half of the year strategically and financially? Michael O’Sullivan: Great. Yes, well, good morning, John. Thank you. I actually like how you bring the question because the reserve as I'll explain the reserve does tie directly to our strategy. But let me start by describing what the reserve is and then I'll talk about our clearance strategy and underlying rationale for that strategy and how it links to full potential. First of all, the reserves we've taken are intended to cover the cost of the markdowns that we expect to take on our existing inventory in the second quarter. As John mentioned in his remarks, we're on the retail method of accounting so this reserve is expected to cover the entire cost of those future markdowns. This is an important point when comparing with other retailers. Some retailers just reserve for a portion of the future markdown they expect. In contrast, our inventory reserve covers the full cost of the markdowns that we expect taking Q2. But let me take a step back and talk about our clearance strategy. And let me start with the obvious point that any inventory whether it's in a retail store, kept away at a warehouse or at a…

That's helpful, Michael. I think a logical part would be just how long do you think it'll be before you start buying fresh merchandise that you can flow to the stores and what should we expect for back-to-school and holiday? Michael O’Sullivan: Sure. Yes. It's a good follow-up. Of course, it depends on trends but for those stores that we, for those stores that we will reopen in May that would be about 400 stores. We anticipate that we will have sold through the majority of that clearance by the second half of June. So three to four weeks from now. For the remaining stores, in other words stores that will open in June, it's obviously a little harder to say before when they actually reopen but if these stores follow a similar pattern earlier openings then we sell through the majority of their clearance in the second half. So in terms of buying fresh merchandise. We are in the market. We have opened but I would say Jennifer and her team are being thoughtful, patient and surgical. We're only going to be buying the very best deals, but we know our vendors know and the off-price customers certainly know that all the previous reference points for value need to be thrown out. Whatever value the merchandise had at the beginning of March is not the value that it has now. And that principle is going to be top of mind for our merchants to go back into their -- into the market.

Our next question comes from Lorraine Hutchinson with Bank of America. Your line is now open.

Thanks. Good morning. John, can you just spend a minute walking us through the first quarter P&L with the focus on what these results mean, if anything for your future performance?

Thanks Lorraine. That's a good question. It really was a crazy quarter and yes it is difficult to kind of get some context around our -- the results that we report today. I think it might be helpful just if I can walk through how they compare to, how we had planned the quarter. Yes, our guidance was based on how we had planned it and obviously things came up quite different from the way we expected. Lots of puts and takes but I think there's a high level way of kind of putting the appropriate context around it. So our EBITDA for the quarter were about $600 million below what we had originally planned. And there were some big pieces head in both directions. If we start with sales, our total sales were down about 51% from our plan which is about a $1 billion to take a kind of a normal gross margin flow through rate that hurt or EBIT by about $430 million. We also took $272 million hit for our markdown reserve, which restated the value of our inventory and as we've explained that charge is based on the estimated markdowns we expect to take over the next few months to liquidate our aged inventory. So the combination of the sales miss and the gross margin impact from our store closures is about $700 million negative of EBIT dollars. Offsetting this EBIT reduction we had about $110 million in expense savings, more than half of the expense savings were from the furloughs and the salary reductions that affected our store, DC and corporate associates. The remainder of the save came from managing the other components of SG&A expenses and from some Covid related tax credits. These savings were partially offset by about $10 million of incremental Covid related expenses costs of personal protective equipment, additional cleaning and some assistance we provided to furloughed associates. So to do a quick recap, we lost about $430 million from sales. $270 million from the inventory aging reserve. We had expense savings of $110 million; incremental expenses of $10 million reducing the net expense save to $100 million that gets you to the EBIT impact of $600 million that we saw in the quarter negative impact. As far as future performance, there's just so much uncertainty. There's not a lot I can say about that as our sales rebuild it's certainly our intent to get back to our previous performance levels as quickly as we can. And I really don't think the first quarter results would be much of an indicator of future performance. I certainly hope they won't be but I can say that by recording our aged inventory reserve in the first quarter, we don't expect to incur additional markdowns in the future to clear that inventory. I hope that's helpful.

It is. Thanks. And I just wanted to follow up on John's question. It sounds like you'll be buying fresh goods for the majority of the fleet -- in time for back-to-school. How would you expect the mix of your business to change to reflect this new post Covid environment? Michael O’Sullivan: Sure. So the right way, as you'd expect we're looking very closely at these trends that we're seeing in the stores that we've reopened. I mentioned earlier, we're actually seeing trends for businesses but as you'd expect when you dig below the surface you see specific styles that it types specific category that are growing faster than others. And those are the things that our merchants are really focusing on as we get back into the market. For competitive reasons I won't get into a lot of detail but you can expect the pricing and dicing sales data that we're seeing to figure out which categories to go after.

Our next question comes from Kimberly Greenberger with Morgan Stanley. Your line is now open.

Great. Thank you so much. And thank you for the very comprehensive comments and thoughts, Michael and John; I thought they were very helpful. I wanted to ask about your distribution centers and your second off- price full potential strategy. The increase in the operational flexibility at getting merchandise and sales force faster. First, are all the DC's open and operational at this point and are they able to replenish store inventory as its selling down? And then I have a follow-up to that. Michael O’Sullivan: Sure, Kimberly. Thank you for your question. Good morning. The short answer to your question is the DCs, our distribution centers are open and also all at this point and they are flow to merchandize to the stores that have reopened. Now there are a handful or actually a dozen stores that we've reopen that started so strongly out of the blocks, their sales trend was so strong as we reopen them that they're running very low on inventory and it's taking a little bit of time just for those couple of dozen stores to cash back up. So the answer to your question is yes. We are now back to our stores.

Okay. Great. That sounds like a high-class problem, Michael. And in terms of the follow-up, I'm wondering if you could just expand a little bit on the timing that you had initially planned with being able to pursue the end-to-end strategy of getting the merchandise to the sales floor faster. You obviously talked about the economic slowdown is impacting the freight industry and you might be able to get to this goal faster than you thought. So I'm just wondering if you can talk about the blocks, the building blocks of executing this strategy and if you have, if you think you might be able to see any sort of early results later on in 2020. Thanks so much. Michael O’Sullivan: Sure. So, yes, as you said we back in the call in March we have identified more flexible, more operational flexibility as a key component of our full potential strategy. Obviously, a key part of that is the supply in our distribution centers, the transit time scores et cetera being able to sort of reflect that actually move the goods fast that kind of thing. Now we were become-- we actually -- we were passing a couple of pilots that we were going to be doing in 2020 that we're going to be testing a number of different ways to speed up the supply chain makes it, make it more flexible. We were looking at a number of -- a number of things that we were going to test as part of those pilots. We're still planning to pursue pretty much everything that within those pilot programs. But we're now thinking in more ambitious tests this year. One of the things falling us back before was just the cost of retention specifically the cost of speeding up over the couple of years, we and other retailers have talked about capacity issues in transportation whether it's in rail or trucking or whatever. And how the cost of transportation has gone up. As a result of their current economics work, we're fortunate we were expecting that costs, everything we're seeing, health, the costs allows [Indiscernible] occupation, and we think that's going to provide us with the opportunity to make much more progress than we previously thought. So that's what we're looking at right now as the details of that. But the key point is that we're -- we've really been thinking about this there's something we're going to pilot and discover what different -- best to do for us --we're actually now being much more ambitious in terms of try and accomplish.

Our next question comes from Michael Binetti with Credit Suisse. Your line is now open.

Hey, guys. Congrats on the reopen here and thanks for all the detail today. Very helpful, John, I guess just maybe a little help with from the near term first. You mentioned a couple times the inventory reserve you've taken should largely cover the cost of the inventory that you had on hand at the end of the quarter. We've heard from some of the other retailers you can't take reserves against inventory, it's inbound or anything that might have been coming in after the cutoff of the quarter. So I'm just -- I'm curious, you look, you seem to compartmentalize that pretty well for us, but what are the major puts and takes you see that influence the accounting on the gross margin in the second quarter now that you have that, I guess, I'd call it the bottom bucket of the inventory isolated and already accounted for. What do you anticipate will be the major puts and takes broad brush strokes?

Sure, Michael. Let me see what I can do is that, yes, so as you mentioned from a merch margin perspective, we believe we recognized age inventory markdown liability that was caused by the store closings that we've experienced. So go forward merch margins will largely be driven by our ability to properly balance our inventory levels with demand just like any other quarter really, but much more volatile. So a lot trickier to do it. So we're going to try and manage it the way we always do but you can expect the results to be more volatile just because we don't have a clear signal. Our bias of course is going to be to manage inventory conservatively and chase sales if demand exceeds our expectations. We expect as Michael described, there's going to be tremendous values out there to buy. So overall we would expect our merch margins to not be materially impacted if we buy the appropriate level of inventory. It's easier said than done, but we're going to manage it conservatively. EBIT margin is a little bit of a different story. It's a little harder question to answer because our margins going forward are going to be driven by our sales levels and it's really hard to forecast that right now as I'm sure you can imagine. So given the likely depressed sales levels we would expect deleverage on expenses to potentially more than offset the gross margin that we're going to generate. Yes, how much the expense deleverages will impact our profitability beyond the second quarter? That's dependent on our ability to get back closer to last year's sales levels. It's really difficult to put numbers or ranges around any of this just because of the uncertainty. Yes, I guess the only other thing that is, yes, we're -- we typically do a really good job of managing our kind of our store payroll to our sales levels that's going to be particularly challenging in the second quarter partly because of the volatility around demand and uncertainty around what this our sales forecast or what our actual sales are going to be. But also because there are going to be some incremental expenses at the stores. We've talked about safety and the comfort of our first store associates and also our customers being the most important thing and there are some costs, incremental costs related to doing that particularly during the store opening period that we're going to incur to ensure that customers as a coming to our store are comfortable shopping at our stores.

Okay. Let me and thank you for that. Michael, let me ask you, usually the off-price industry is defined with very fast terms normally you wouldn't have much visibility very far out like I don't think at this point you'd really know what's available for holiday yet, but I'm sure you're thirsty for visibility as many. And based on the comments you've made on inventory availability being a step change higher than normal here, what we've heard from some of the major vendors that are public companies the levels of inventory cancellations they're planning to the back half can go from aggressive to staggering in some cases. So I'm just -- I'm curious what gives you some visibility a little further out than what would be the normal, they're fairly short term period for off-price. There's going to be a duration of good inventory availability and then as a follow-up giving your tenured space at one of your competitors and before that I think as a consultant to off-price in McKinsey, there's thousands and thousands more off-price stores in the world and there was and the obvious source of market share has been going backwards for 10 years here. So with more of you as a trough trying to speed on the inventory available in the space relative to the last recession, I think off-price merchandise margins went up 200 to 300 basis points in '07 to '0. Are the economics of the buys as good today given how competitive it is, what you would consider the best buys out there of distressed inventory that needs to come out during periods like this? Michael O’Sullivan: Yes. Good question. Let me actually break the question in two pieces. First of all, in terms of visibility or merchandise availability. I guess I…

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. So now I'd like to turn the call back over to Michael O'Sullivan, CEO, for any closing remarks. Michael O’Sullivan: I'd like to thank everyone for joining us on the call today. We appreciate your questions. We look forward to speaking with you again at the end of August to discuss our second quarter results. Thank you. And have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.