Ladies and gentlemen, thank you for standing by. And welcome to the Burlington Stores Inc. Second Quarter 2020 Call and Webcast. 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. [Operator Instructions] I would now like to hand the conference over to your speaker today, David Glick, Senior Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you, operator, and good morning, everyone. We appreciate everyone’s participation in today’s conference call to discuss Burlington’s fiscal 2020 second 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 expressed permission. A replay of the call will be available until September 03, 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 second quarter earnings call. I hope that you are all keeping safe and well in these very challenging and difficult times. We are very glad that you could join us. Before we discuss our business results and outlook, I would like to take a moment to talk about racial justice. The cruel killing of George Floyd in May of this year triggered wide-spread protest and along overdue…

Thank you, Michael and good morning everyone. Let me start with a review of the income statement. For the second quarter, total sales decreased 39%, sales in reopened stores decreased 14%. Sales in re-open stores includes all stores that were open prior to the end of the second quarter of fiscal 2019, and reports of the sales increase or decrease at these stores for the days the stores were opened in the second quarter against sales to the same days in the prior year. As Michael discussed, our sales trends varied across the quarter, driven by the timing of our store re-openings. Generally, as our stores reopen, sales were very strong, driven by pent up demand and our aggressive clearance markdowns. Sales were stronger than we expected during the first weeks after re-opening, and then they weakened significantly, as inventory levels were depleted. It took longer for us to re-establish appropriate inventory levels than we would have liked for the reasons Michael discussed. And this hurt our sales performance. But as inventory levels increased, and began to return to targeted levels we did see sales trends improve. This really began in mid-July and has continued into August. As expected, the sales decline was driven by significant decreases in traffic and AUR reflecting our clearance pricing, which was partially offset by increases in average transaction value and units per transaction driven by the great values we offered. The gross margin rate was 45.8%, an increase of 440 basis points versus last year's rate of 41.4%. The clearance markdowns taken during the second quarter were funded by the markdown reserve we established in the first quarter. Lower levels of clearance in the second half of the quarter resulted in lower markdowns and the increase in gross margin for the quarter. Product sourcing…

[Operator Instructions] Our first question comes from the line of Matthew Boss with JPMorgan. Your line is now open.

Great. Thanks. And, good morning. Michael, so it sounds like things were going well to start the second quarter. And then you ran into logistical rather than merchandise availability issues when you tried to replenish your store level inventories. I guess is that the right way to think about it? And can you elaborate on the issues and to what degree have the logistical issues been resolved at this point? Michael O’Sullivan: Good morning, Matt. Thank you for -- thank you for the question. Yes, that's right. The way that you characterize what happened is accurate. Our performance in Q2 was not driven by merchandise availability. There was plenty of availability. As I described in my remarks, we turned our clearance inventory very rapidly. So in late May, we were able to go back into the market and take advantage of some terrific buying opportunities. We were very pleased with the availability that we saw, and we were able to make some great deals. The problem was that having written the orders having bought the goods, we could not get the receipts to the stores as fast as we needed. Many vendors were struggling with their own warehouse operations and getting them up and running. So we really needed to merchandise that we really needed to flow to stores in June. We weren't able to get to stores until July. That delay in receipts was a matter of weeks, but it meant that inventory levels fell well below where it needed it to be. I would say that since then, it's taken us a lot longer than it normally would to get through the receipt backlog. In the areas where VCs [ph] are located, we've seen staffing shortages. And that has hindered our ability to get our own facilities upto full capacity. [Indiscernible] the last part of your question, when these issues have been resolved. I would say that, yes, largely, they've been resolved. Our vendor’s distribution facilities are up and running. And for some weeks, we've had -- we've been getting a very good flow of receipts. That said, there are lingering issues. To be clear, these issues are not specific to Burlington. I would say they run across the industry, and distribution facilities have ramped up. There have been significant staffing shortages in major distribution hubs like Southern California. Those are -- those issues are subsiding, but they haven't completely gone away. In fact, I would say that there's a risk that they could cause additional problems as retailers start to ramp up in the fall for holiday. I'd also anticipate that those issues are going to lead to an increase in supply chain costs across the retail industry.

Great. And then to follow up, Michael, when would you expect inventories to be back to the levels where you would ideally want them? And how will you manage inventories going forward? Michael O’Sullivan: You know, as I -- as I mentioned earlier, if the stores that reopened in May, so just over half of our stores. We’re pretty much already there in terms of getting inventory levels where we want them to be, stores that we re-opened in June, should catch up in the next couple of weeks. To be clear, though, even at that point, we're going to manage our inventory levels in our stores conservatively. As you'll probably recall, when we came into the year, our inventories were down about 15% on a comp store basis. And that was deliberate. We've historically carried more inventory than our peers and we believe that we have the opportunity to turn our inventories faster than we have in the past. And as a reminder, before the pandemic hit in mid-March, we were running about 3% comparable store sales growth. And that was with our inventories down 15%. At that point, we had said that we would, we would manage our inventories down low double-digit throughout the year. But with all the uncertainty that we now face, we're going to manage them slightly more conservatively than that. And of course, we'll be ready to flex up or flex down as best we can, depending on the trend. Final point to make about inventory though is that apart from the level, the content of our inventory is very different to last year. And, because of what happened in Q2, we have very little aged inventory left in our assortment, we have -- we have hardly any spring merchandise left in our assortment, and hardly any clearance left in our assortment. It's all fresh, seasonally, appropriate merchandise. So if the customer wants to shop computery we feel that she's going to -- what you’ll find in our stores is pretty good. The trend is there, which we should do, we should do well.

Great. Best of luck. Michael O’Sullivan: Thank you.

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

Hey, everyone thanks so much for all the detail. My first question, Michael, could you give us an update on the off price for potential strategy that you've laid out in the past? And then I'm just really curious has the pandemic changed the way you're thinking about the opportunities or the strategy, and has it in any way kind of slowed down your ability to make progress on that strategy? Michael O’Sullivan: Good morning, Ike. Thank you for the question. It's a good question. As I described in my earlier remarks, we believe that the COVID-19 pandemic is likely to create an even stronger consumer need and desire for value. And it's also likely to increase the number and the pace of competitive store closures. So if both of those things turn out to happen, then the pandemic could actually increase the longer term market share opportunity for off-price. But let me transition from talking about off-price generically to talking about Burlington specifically. As we've discussed on previous calls we’re the smallest and least profitable of the major off-price retailers. And because of this, we believe that by executing the model more effectively, we can drive significant growth in sales and profitability over the next several years. In other words, we believe, we have significant upside potential. I and the rest of the executive team recognize that it would be very easy in the current environment to focus only on the short term challenges that we face. But that would be a mistake. The important goal here is to come out of all this much stronger than we went into it. So it's important that we build and prepare for the longer term and for the significant opportunity that we see ahead of us, and that I had articulated…

Got it. Thanks, Michael. That's helpful. And then just a quick follow up for John. Any details, I know it's a unique quarter. But any details of some inputs and takes of operating margin that took place in the second quarter? And then if there's anything we should keep in mind, going forward in the back half would be great?

Yes. Good morning, Ike. Thanks for your question. Yes, there was a lot of stuff going on, lots of puts and takes during the quarter. So I'll try and walk you through how we think about it as we plan and manage our expenses. So, biggest thing that happened in the quarter was the reduction in our sales volume. And obviously, that drives deleverage on our fixed cost base. So that's the single biggest driver, and that's probably kind of the way you might expect it to be. But normally, you would expect all of our volume related expenses to flex kind of in line with sales. But for a number of reasons, that wasn't really the case in the second quarter. So let me just talk about some of those things. So first, our sales decrease included huge clearance markdowns, which helped us to successfully clear our inventory and which was our primary objective. But it also meant we had more units per dollar, which of course drove worst leverage than you would normally expect in processing the units, particularly in selling costs. As I mentioned earlier, in our prepared remarks, COVID related costs and reopening costs added about $37 million to our expenses in the second quarter. So COVID related costs would include the cost of personal protective equipment, additional cleaning, additional store staffing, including front door ambassadors, signage, supplies and other costs to support social distancing procedures within our stores. And you have to kind of support our most important priority, which was ensuring that our customers and our associates would have a consistently safe welcoming and comfortable place to work or to shop. The store reopening costs include everything related to preparing our stores to open back up after the extended closures. And that includes training,…

Got it. Thanks, guys. Thanks a lot.

Thank you.

Thank you. Our next question comes from the line of John Kernan with Cowen. Your line is now open.

Alright, good morning. Michael, I have a question just on merchandise availability beyond some of the logistical headwinds you face. It sounds like there was a lot of inventory availability early on in the quarter. Has that changed at all? We have heard some other retailers and authorizers talk about tightening up supply. So how do you characterize this merchandise availability now? Michael O’Sullivan: Yes, thank you, John. Good morning. Nice to hear from you. When we started buying again in May, there was there was strong availability, I would say, in almost all areas. You know, physical retail stores have been shut since March. So, so vendors, many vendors were sitting on a lot of cancelled orders. We were able to take advantage of that situation. And we made some really, really great deals. As I explained in my prepared remarks, the issues that we ran into in Q2, were driven by logistics for want of a better word, they had nothing at all to do with availability of merchandise, at least nothing to do with availability in the sense that we normally think of it. Anyway, just to come back to your question, we're now in late August, so three months on, and I would say that there's still a plentiful supply of merchandise, but there are pockets where we're tightened. And I would probably point at two areas where that happened. First of all, businesses where consumer demand has been the strongest, specifically, certain categories, not all but certain categories in home. And secondly, in some seasonal businesses where factory shutdowns earlier this year back in February, March means that there’s now limited inventory of that in those categories. You know, other than those two areas, I would say there's still plenty of merchandise available. The important…

Got it. Maybe just a quick follow up. You mentioned that [Indiscernible] that still sounds pretty difficult from availability standpoint, how are the other categories affecting your business and just the general buying decisions? Michael O’Sullivan: Yes, it's a really good question. Clearly, since we emerged from the lockdown, the customer has not allocated her spending evenly across merchandise areas. This is different to what's happened in the past. For example, in the period after the financial crisis, as the consumer started spending again, the increase in spending was much more evenly across categories and across businesses. This time, more so than any period I can remember. There's been a massive shift in spending between categories. So what does that shift look like? Well, you've heard from other retailers and obviously I already just talked about a very strong consumer demand for many home related businesses. In terms of the rest of the store, within ready-to-wear there's been a significant shift, towards more casual and active classifications. And therefore away from more formal structured dressier businesses. Now, I think those trends make intuitive sense, at least in the short term. You know, people are working from home, maybe they're sheltering at home, but they're certainly going out a lot less. Now for us, those trends represent those category trends represent a challenge and an opportunity. Some of the areas that have experienced the strongest growth in demand or businesses where frankly, we're less developed than some of our competitors and the best example being home, but also some casual classifications within ready-to-wear. And so ever since we’ve been buying again, ever since May and certainly, as we've been building back our inventories, we've been aggressively going after those businesses. So we feel like we have an opportunity to grow those undeveloped categories, but we would acknowledge that we're starting from a -- from a weaker position relative to some of our peers.

Excellent. Thank you. Michael O’Sullivan: Thanks, John.

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

Thanks. Good morning. John, how should we think about your operating margin and financial model going forward? Have there been any structural changes to your expenses?

Well, good morning, Lorraine. Thanks for your question. Yes, I think the quick answer to that is no. We don't really see any permanent structural changes to expense to our expense base, or how we think about our operating margin expansion opportunity going forward. But I guess the biggest impact to our operating margin that we've seen, has been driven by the just big decline in sales that we've experienced so far. We do expect that post pandemic, sales are going to normalize. And we expect like a terrific opportunity to add to our market share driving comp sales. And we're going to continue to aggressively expand our fleet of stores. Most of the additional expenses that we've seen -- I’ve talked about this a little bit to your next question. They're transitory. They are caused by pandemic related events. We don't expect them to continue, but it should be behind us when the pandemic is behind us. Maybe the one exception there is the wage pressure for DC labor. To this point, much of what we've done to kind of attract more workers in our DCs has been more of temporary short term and hedge, short term incentives. But there's likely to be a component of this that's permanent. It's not yet clear how significant it's going to be. But as you know, we face wage headwinds every year, and we've had a pretty good history of finding ways to offset their impact and deliver operating margin expansion. So, when this thing is behind us, we do expect to have the kind of same type of operating margin opportunity that we had prior to it.

Thanks. And just a follow up. I know you suspended guidance, and there's a lot of uncertainty. That said, can you give us some direction or color on how we should think about margins in the second half of fiscal 20?

Sure, it's really hard to forecast anything, so I'm going to stay away from numbers, but we do have some color that, I think might be helpful. So for gross margin, we think that's going to be relatively stable in the second half of the year. If you think about merch margin, our inventories are really clean coming out of the second quarter as clean as we have ever seen them. So any markdowns going forward are going to be based on how well we were able to balance the flow of inventory with the sales trends, same challenge we have all the time, just a little bit more volatile this year. SG&A in the second half is going to continue to be impacted by COVID related expenses in a similar way to the second quarter, but not exactly the same. We expect COVID related costs to be higher, kind of moving along the sales volume and increased traffic that we expect and hope to see in our stores in the second half. But, we don't expect to be incurring the store re-opening costs, at least we hope we won't be, at least to the degree that we have them in the first half of the year when all of our stores were closed and then reopened. So we're not going to give up a number expected for the COVID related costs in the second half, because it's really difficult to project, but there would be some, kind of deleverage pressure as we continue with the costs related to keeping our stores safe and comfortable for shoppers and associates. Product sourcing costs as a percentage of sales, we do expect a little bit of deleverage pressure in the second half, for a few reasons. You already mentioned the DC labor shortage, which slightly is likely going to drive some incremental costs. We're also going to see, we believe, some downward pressure on AUR. Part of that's driven by better buying, allowing us to pass more value to our customers. And some of it is going to be related to category of mix changes. And there could be some other pressure as we continue to improve, work on improving our ability to get goods to our stores faster and keep inventory at the right levels. Obviously, the sales volume in Q3 and Q4 is going to have an impact on our product sourcing costs leverage, so it's difficult to pinpoint. But directionally that's kind of how we're thinking about it. Overall, given our conservative inventory planning and the potential for continued depress sales levels, we’re going to expect continue deleverage on expenses. The magnitude is obviously dependent on our ability to perform as well as we can on the sales line. But as I said earlier, we think that most of the deleveraging factors we face this year are temporary. And then post pandemic, our model is going to turn back to what it was prior to the pandemic.

Thank you. Our next question comes from the line of Daniel Hofkin with William Blair. Your line is now open.

Good morning, gentlemen. Thanks for taking my question. Michael, if I could just asked one. First question then a quick follow up. My first question is I think your description of how you're thinking about the third quarter makes a lot of sense. I was just curious, though, do you think there is a risk of being potentially too conservative? And, in the process, possibly missing a sales opportunity? If you have to chase, too much. Michael O’Sullivan: Good morning, Daniel. I would say that the short answer to your question is, yes. There is absolutely a risk with that. You follow off-price for a while so you'll know that the playbook, off-price is to plan sales conservatively, but be liquid and ready to chase the trend. That approach has worked very effectively, very well historically. And it's given off-price retailers significance over other retail formats. But I would say that the current environment presents a couple of important challenges to executing that playbook. Firstly, the range of possible outcomes over the next month is much wider than we've had to deal with in the past. At the extremes, I could describe a scenario where there's a further resurgence in COVID-19 in the fall, and potentially that could lead to further local or even regional lockdowns. And then perhaps the other extreme, I could, I could describe a scenario where the number of COVID-19 cases declines over the next few months. And also, as part of that scenario, perhaps the federal government reaches a compromise and passes a stimulus package that drives consumer spending. My point is that we need to be ready to either of those scenarios, so a very wide range of outcomes. Add to that, there may be external constraints, like, some of the industry supply chain…

It's really helpful Thank you. And then just a very quick follow up as you know, anything, any updates, especially maybe insights related to the pandemic in problems that you're seeing and some full price retail of different types that is updating you are thinking on the real estate strategy or opportunity for you guys and in the right size store, etcetera overtime. Thank you very much. Michael O’Sullivan: Yes, that's a good thing. It kind of feeds into making sure that we keep an eye on the longer term because key part of our Burlington 2.0 strategy over the next few years is to continue to expand our stores, and continue to right size our stores so we can drive store power activity, we can drive new store economics. So we've been over the last few months, we've been doing a lot of work. Our real estate team has done some terrific work, sort of planning out the next few years from a real estate point of view. And I think what you're alluding to and I agree with you, is I feel like, given what's happening in broader retail, we are likely to see significant additional real estate opportunities open up, which we will be able to take advantage of maybe as soon as late 2021. But certainly, we would hope in 2022, 2023. So that's absolutely something we are looking at, and actually excited about.

Thanks so much. Best of luck for everything.

Thank you. This concludes today's question-and-answer session. I would now like to turn the call back to Michael O’Sullivan for closing remarks. Michael O’Sullivan: Thank you for joining us on the call today. We appreciate the questions. We look forward to speaking with you all again at the end of November to discuss our third quarter results. Thank you.

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