Burlington Beat Earnings Estimates, But Not Investor Expectations

Key Points

• Burlington Stores reported adjusted EPS of $2.01, a 26% increase year over year, marking its 14th consecutive quarter of double-digit earnings growth.
• Despite beating estimates and raising full-year guidance, BURL shares initially fell nearly 8% after the report, reflecting elevated investor expectations.
• Burlington's post-earnings decline contrasted with peers TJX and Ross Stores, whose shares rose more than 5% and 8%, respectively, after their own strong results.

Burlington Stores Inc. NYSE: BURL delivered another better-than-expected quarter on May 28, marking its 14th consecutive quarter of double-digit earnings growth.

The company also raised its full-year outlook as off-price retailers continue to benefit from demand among budget-conscious consumers seeking bargains. Still, it wasn't enough to satisfy investors, as shares fell sharply following the report.

Burlington Earnings Beat Expectations 

For the quarter, the company reported adjusted earnings per share (EPS) of $2.01, an increase of 26% from year-ago earnings of $1.60 and well above Wall Street’s expectations of $1.77 per share. Revenue rose 14% year over year (YOY) to $2.86 billion, topping analyst estimates by more than $57 million.

Comparable-store (comp) sales increased 6% YOY, above the company’s guided range of 2% to 4%, while gross margin expanded 30 basis points to 44.1% of net sales.

On the earnings call, Chief Executive Michael O’Sullivan noted, “These results add to an already very impressive track record of consistently converting sales growth into strong margin expansion and earnings flow-through,” noted Chief Executive Michael O’Sullivan on the earnings call.

Burlington Raises Full-Year Guidance on Strong Off-Price Demand

The company also issued second-quarter guidance and raised its full-year sales and earnings outlook. For Q2, Burlington expects comp sales growth of 1% to 3%, with total sales increasing 10% to 12%. Operating margin is expected to expand 30 to 60 basis points YOY, while adjusted EPS is forecast to be between $2.05 and $2.20.

For the full year, Burlington now expects comp sales growth of 2% to 4%, up from prior guidance of 1% to 3%. Total sales are expected to rise 9% to 11%, up from the prior outlook of 8% to 10%, while adjusted EPS is projected between $11.45 and $11.80, above the previous forecast of $10.95 to $11.45. The company also noted it now expects its net new store openings to be 115, up from 110.

O’Sullivan also discussed how higher oil prices and the conflict in the Middle East have influenced the company’s outlook since the previous earnings call. Burlington remains optimistic about the second half of the year, though management is taking a more cautious view than it did in March because of higher gas prices and the potential impact on inflation.

Even so, O’Sullivan said a tougher consumer backdrop could work in Burlington’s favor if shoppers become more focused on value. "In fact, as a value retailer, it could turn into an opportunity," he said.

Shares Tumble Despite Strong Quarter and Better Outlook

Burlington may have cleared Wall Street’s estimates, but not necessarily the market’s expectations. After the report, BURL stock initially fell nearly 8%, trading near $300, before recovering much of that decline in subsequent trading.

Ahead of the earnings release, the stock had been on a major multiyear run. After normalizing from pandemic-era highs, Burlington shares were trading around $110 in September 2022. Since then, the stock has surged roughly 175%, including a gain of more than 25% over the past year, leaving investors with a higher bar for another beat-and-raise quarter.

The post-earnings sell-off comes shortly after Burlington shares hit a 52-week high above $351 in April, potentially signaling some profit-taking following the stock’s multiyear run. It may also indicate that investors were looking for stronger comp sales growth and a more robust outlook for comparable-store sales.

During the earnings call, one analyst questioned whether Burlington’s focus on earnings may have caused it to miss opportunities to drive additional comp growth in Q1. In response, O’Sullivan said, “I do think that we may have an opportunity to loosen our belts a notch and get slightly more aggressive on sales.”

Burlington Sell-Off Contrasts With Off-Price Peers

The reaction to Burlington’s earnings was very different from some of its off-price peers, whose shares moved higher following their own better-than-expected earnings reports.

Shares of TJX Companies Inc. NYSE: TJX rose more than 5% after the company's recent earnings and revenue beats on May 20, while Ross Stores Inc. NASDAQ: ROST gained more than 8% two days later following its strong Q1 report.

In terms of valuation, the three stocks have similar price-to-earnings (P/E) ratios, with Burlington trading around 34x earnings, TJX at 30x, and Ross Stores at roughly 32x. The broader retail industry is trading at an average P/E ratio of 25x.

Despite Burlington’s post-earnings decline, Wall Street analysts remain largely bullish on the stock.

Ahead of the report, the average 12-month price target stood around $357, implying more than 18% upside from current levels.

The stock currently carries a Moderate Buy consensus rating, based on 16 Buy ratings and five Hold ratings. The $351 analyst consensus price target implies about an 8% potential upside.

While Burlington’s latest quarter highlighted the continued strength of the off-price sector, the market reaction suggests investors may have been hoping for more signs of strength in comparable-store sales.

Still, with consumers remaining focused on value amid economic uncertainty, Burlington could be well-positioned if bargain hunting continues to drive retail spending.