1 00:00:02,520 --> 00:00:08,440 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news data just. 2 00:00:08,520 --> 00:00:11,119 Speaker 2: Out this hour showing that consumer sentiment hit a three 3 00:00:11,160 --> 00:00:14,480 Speaker 2: month flow as concerns about rising gas prices tied to 4 00:00:14,520 --> 00:00:17,360 Speaker 2: the war and around mounted. For more, we're joined by 5 00:00:17,480 --> 00:00:20,959 Speaker 2: Michael O'Sullivan, CEO of Burlington's Stores. Michael, thank you so 6 00:00:21,040 --> 00:00:23,080 Speaker 2: much for joining us, and I should just point out 7 00:00:23,160 --> 00:00:27,640 Speaker 2: that earnings out yesterday we're really strong for Burlington. I 8 00:00:27,720 --> 00:00:31,000 Speaker 2: wonder what behavior at your stores has been like over 9 00:00:31,040 --> 00:00:34,080 Speaker 2: the past two weeks as the war in Iran broke out. Michael, 10 00:00:34,320 --> 00:00:36,839 Speaker 2: have you seen any change in consumer behavior? 11 00:00:38,159 --> 00:00:40,040 Speaker 1: Well, let me start by saying good morning, thank you 12 00:00:40,080 --> 00:00:42,240 Speaker 1: for having me on the show. It's great, too great 13 00:00:42,280 --> 00:00:46,640 Speaker 1: to be here now. Of course, gas prices are a concern, 14 00:00:47,240 --> 00:00:49,480 Speaker 1: but you know, it's too early for it to really 15 00:00:49,520 --> 00:00:52,360 Speaker 1: have had much of an impact on retailers or consumers. 16 00:00:52,400 --> 00:00:56,480 Speaker 1: I suspect many consumers haven't filled their gas tanks recently, 17 00:00:56,920 --> 00:00:59,000 Speaker 1: so it's going to take a little while before any 18 00:00:59,040 --> 00:01:02,320 Speaker 1: impact really starts to be felt. Now, the long term 19 00:01:02,360 --> 00:01:05,280 Speaker 1: impact of higher gas prices, I think depends upon how 20 00:01:05,280 --> 00:01:08,600 Speaker 1: long the situation in the Middle East lasts. For sure, 21 00:01:08,760 --> 00:01:12,199 Speaker 1: if the situation lasts for a long time. Then consumers, 22 00:01:12,240 --> 00:01:14,160 Speaker 1: if they're spending more on gas, they're going to spend 23 00:01:14,200 --> 00:01:18,720 Speaker 1: less on other categories and that's not good for retail. 24 00:01:18,920 --> 00:01:21,920 Speaker 1: But you know, let me step back and say, look, 25 00:01:22,000 --> 00:01:26,600 Speaker 1: higher gas prices, they're just one more thing. Over the 26 00:01:26,640 --> 00:01:29,760 Speaker 1: last several years, there have been numerous headwinds, you know, 27 00:01:29,800 --> 00:01:34,360 Speaker 1: coming out of COVID. We had increases in freight costs, 28 00:01:34,400 --> 00:01:37,840 Speaker 1: we had higher wage rates, we had port issues and delays, 29 00:01:38,280 --> 00:01:40,759 Speaker 1: we had cost of living inflation, we had and more 30 00:01:40,760 --> 00:01:45,200 Speaker 1: recently tarifs. So just add gas prices to that list. 31 00:01:45,400 --> 00:01:48,440 Speaker 1: You know, as a retailer, we recognize that the key 32 00:01:48,520 --> 00:01:51,720 Speaker 1: thing across all of these events and issues is to 33 00:01:51,760 --> 00:01:56,160 Speaker 1: be nimble and flexible. We can't predict or control what's 34 00:01:56,200 --> 00:01:58,680 Speaker 1: going to happen externally, but what we can do, what 35 00:01:58,720 --> 00:02:01,480 Speaker 1: we have been doing, is making sure that our business, 36 00:02:01,640 --> 00:02:07,080 Speaker 1: our operations, buyers are well positioned to react to whatever happens. 37 00:02:07,600 --> 00:02:13,960 Speaker 3: Well, you also have in Burlington in your brand a 38 00:02:14,040 --> 00:02:18,480 Speaker 3: product that maybe consumers will flock to when gas prices 39 00:02:18,520 --> 00:02:21,480 Speaker 3: do rise. Right, if I'm paying more at the pump 40 00:02:21,560 --> 00:02:24,239 Speaker 3: and then I go shopping, I'm more likely to choose 41 00:02:24,320 --> 00:02:29,880 Speaker 3: a white label, you know, store brand or try and 42 00:02:29,919 --> 00:02:33,640 Speaker 3: buy more efficiently by maybe going to Burlington instead of 43 00:02:33,919 --> 00:02:38,919 Speaker 3: I don't know, some other you know, fancier mall department store. 44 00:02:39,160 --> 00:02:40,400 Speaker 3: Are you seeing that effect? 45 00:02:41,840 --> 00:02:45,080 Speaker 1: Well, certainly if I look at our results in Q four, 46 00:02:45,560 --> 00:02:48,400 Speaker 1: we had very strong performance in the fourth quarter. Our 47 00:02:49,160 --> 00:02:52,000 Speaker 1: total sales growth in Q four was eleven percent, and 48 00:02:52,040 --> 00:02:54,960 Speaker 1: that was on top of ten percent growth the prior year. 49 00:02:55,200 --> 00:02:57,800 Speaker 1: Our comp store growth was four percent, and that was 50 00:02:57,840 --> 00:03:00,720 Speaker 1: on top of six percent the prior year. Now, we 51 00:03:00,760 --> 00:03:03,360 Speaker 1: didn't just grow earning. We didn't just grow sales. We 52 00:03:03,440 --> 00:03:06,720 Speaker 1: also drove earnings. In the fourth quarter, we saw EPs 53 00:03:06,919 --> 00:03:10,119 Speaker 1: up twenty one percent, and for the full year, EPs 54 00:03:10,200 --> 00:03:12,959 Speaker 1: was up twenty two percent. Now, coming back to your point, 55 00:03:13,480 --> 00:03:15,919 Speaker 1: what's driving that. One of the things that's driving that 56 00:03:16,360 --> 00:03:18,760 Speaker 1: is that over the last few years we've focused heavily 57 00:03:18,840 --> 00:03:21,040 Speaker 1: on value. And the one thing I would correct in 58 00:03:21,040 --> 00:03:23,960 Speaker 1: your question is that we don't sell private label. What 59 00:03:24,000 --> 00:03:26,720 Speaker 1: we're doing. What we're selling is for the most part, 60 00:03:26,760 --> 00:03:32,040 Speaker 1: we're selling well known, recognizable brands. We're selling the latest fashions. 61 00:03:32,280 --> 00:03:35,240 Speaker 1: Our proposition to the customer is it's the same item, 62 00:03:35,480 --> 00:03:38,640 Speaker 1: the same brand, the same great fashion, but we're selling 63 00:03:38,640 --> 00:03:42,120 Speaker 1: it at a retail price that's up to sixty percent 64 00:03:42,240 --> 00:03:46,160 Speaker 1: lower than traditional retailers. So that focus on value has 65 00:03:46,240 --> 00:03:49,040 Speaker 1: really helped to drive our business over the last few years. 66 00:03:49,160 --> 00:03:52,880 Speaker 1: And certainly, as you said, if gas prices remain high, 67 00:03:53,360 --> 00:03:56,000 Speaker 1: or if they get worse and the consumers really looking 68 00:03:56,000 --> 00:03:58,240 Speaker 1: for value, we think we could be a beneficiary of that. 69 00:03:58,560 --> 00:04:01,800 Speaker 2: I find that really interesting. Then, last week on the 70 00:04:01,880 --> 00:04:04,400 Speaker 2: earnings you mentioned that it would that you would likely 71 00:04:04,480 --> 00:04:08,200 Speaker 2: raise prices. You tested increases on some items and encountered 72 00:04:08,240 --> 00:04:11,080 Speaker 2: little pushback. Why do you think that is, let's feel 73 00:04:11,280 --> 00:04:13,520 Speaker 2: a little bit contrasting that people are looking for value 74 00:04:13,560 --> 00:04:15,280 Speaker 2: but can also maybe pay a little bit more. 75 00:04:16,279 --> 00:04:18,440 Speaker 1: Yeah, let me clear that up. It's a great question. 76 00:04:19,560 --> 00:04:22,640 Speaker 1: What we saw throughout last year is we were very 77 00:04:22,680 --> 00:04:26,120 Speaker 1: successful at trading the customer up to higher price points. 78 00:04:26,160 --> 00:04:28,800 Speaker 1: Now that does not mean that we raised prices on 79 00:04:28,839 --> 00:04:32,719 Speaker 1: the same item. What we did was we have a good, better, 80 00:04:32,800 --> 00:04:36,880 Speaker 1: best assortment. So we have at lower price points opening 81 00:04:36,960 --> 00:04:39,720 Speaker 1: price points. Maybe the brand is less recognizable. Bit of 82 00:04:39,800 --> 00:04:42,680 Speaker 1: higher price points, the brand would be more recognizable, the 83 00:04:42,720 --> 00:04:44,800 Speaker 1: quality might be better, the fashion might be more up 84 00:04:44,800 --> 00:04:47,240 Speaker 1: to date. What we were very successful in doing last 85 00:04:47,320 --> 00:04:50,440 Speaker 1: year was actually trading the customer up. The customer could 86 00:04:50,480 --> 00:04:53,960 Speaker 1: see that, yeah, it was worth paying an extra dollar 87 00:04:54,080 --> 00:04:56,960 Speaker 1: to get that particular brand or that better quality or 88 00:04:56,960 --> 00:04:59,840 Speaker 1: that more up to date fashion. And that's what caused 89 00:05:00,080 --> 00:05:02,880 Speaker 1: average retail to rise last year. Rather than we took 90 00:05:02,920 --> 00:05:05,680 Speaker 1: prices up, we were very careful on like items, not 91 00:05:05,880 --> 00:05:06,880 Speaker 1: to take prices up. 92 00:05:07,080 --> 00:05:10,560 Speaker 3: So have you not been increasing prices on even if 93 00:05:10,600 --> 00:05:14,920 Speaker 3: something that I buy at Burlington is less expensive than 94 00:05:14,960 --> 00:05:21,280 Speaker 3: something I would buy from a retailer like I don't know, Bergdorf, 95 00:05:21,279 --> 00:05:26,200 Speaker 3: Goodman or Varney's, have you not taken price at all? Because, 96 00:05:26,480 --> 00:05:30,120 Speaker 3: as you mentioned, you've got tariffs coming into effect, We've 97 00:05:30,120 --> 00:05:34,920 Speaker 3: got inflation coming through from now the oil spike. Aren't 98 00:05:34,920 --> 00:05:37,839 Speaker 3: you going to have to to protect margins move prices 99 00:05:38,160 --> 00:05:38,880 Speaker 3: at some point? 100 00:05:39,720 --> 00:05:42,640 Speaker 1: Well, we really try, going back to your earlier question 101 00:05:42,680 --> 00:05:46,440 Speaker 1: about the consumer looking for value, that's our focus. We're 102 00:05:46,480 --> 00:05:49,240 Speaker 1: really trying to make sure we're offering terrific value. We 103 00:05:49,279 --> 00:05:51,600 Speaker 1: know if we offer great value to the customer, whatever 104 00:05:51,640 --> 00:05:54,240 Speaker 1: happens in the external environment, we're going to things are 105 00:05:54,279 --> 00:05:56,920 Speaker 1: going to work out for us if we're offering trific value. Now, 106 00:05:56,960 --> 00:05:58,640 Speaker 1: let me take tariffs, because that was part of your 107 00:05:58,680 --> 00:06:02,320 Speaker 1: question I think tariffs we're a terrific example of what 108 00:06:02,360 --> 00:06:04,840 Speaker 1: we do when we're faced with, you know, a sudden, 109 00:06:05,600 --> 00:06:10,000 Speaker 1: unexpected event. Last April, we were basically faced with tariffs 110 00:06:10,000 --> 00:06:13,159 Speaker 1: at levels that no one had expected, and those tariffs 111 00:06:13,240 --> 00:06:17,320 Speaker 1: throughout the summer remained uncertain and very volatile. So what 112 00:06:17,360 --> 00:06:19,919 Speaker 1: we did in response to that, rather than taking prices up, 113 00:06:19,960 --> 00:06:22,760 Speaker 1: which we knew our customer wouldn't react well to, was 114 00:06:22,800 --> 00:06:25,000 Speaker 1: we went back and we looked at our assortment and 115 00:06:25,040 --> 00:06:28,920 Speaker 1: we said, well, let's understand which categories we sell are 116 00:06:28,960 --> 00:06:32,520 Speaker 1: the most impacted by tariffs, whether the margin pressure is 117 00:06:32,560 --> 00:06:36,240 Speaker 1: the greatest from tariffs, and let's actually plan those business down, 118 00:06:36,320 --> 00:06:39,200 Speaker 1: businesses down, and then there are other businesses that maybe 119 00:06:39,200 --> 00:06:42,600 Speaker 1: are sourced in lower tariff countries or sourced domestically that 120 00:06:42,640 --> 00:06:44,839 Speaker 1: we can plan up. Now, that kind of sort of 121 00:06:45,080 --> 00:06:49,480 Speaker 1: remixing mid year is very complex for a retailer, and 122 00:06:49,560 --> 00:06:52,640 Speaker 1: only certain retailers who are very nimble, very flexible, and 123 00:06:52,680 --> 00:06:55,200 Speaker 1: actually I think the off price retailers in particular have 124 00:06:55,360 --> 00:06:58,440 Speaker 1: that kind of ability, and it's a it's a capacity, 125 00:06:58,440 --> 00:07:01,159 Speaker 1: and it's a strength that we've been investing for several 126 00:07:01,240 --> 00:07:04,919 Speaker 1: years now. So in twenty twenty five, we really put 127 00:07:05,000 --> 00:07:08,359 Speaker 1: that muscle to work. We remixed our assortment. Now, it 128 00:07:08,400 --> 00:07:10,000 Speaker 1: did mean that when we got into the back half 129 00:07:10,040 --> 00:07:12,600 Speaker 1: of the year, there were some categories that we'd planned 130 00:07:12,600 --> 00:07:15,040 Speaker 1: down where we could have done more sales, but those 131 00:07:15,080 --> 00:07:17,679 Speaker 1: sales would have been unprofitable because of the tariff impact. 132 00:07:17,960 --> 00:07:20,360 Speaker 1: But we still ended up based upon the remixing of 133 00:07:20,360 --> 00:07:24,240 Speaker 1: our business, driving total sales by nine percent for the 134 00:07:24,280 --> 00:07:27,600 Speaker 1: four year last year and more importantly, driving earnings per 135 00:07:27,640 --> 00:07:31,280 Speaker 1: share by twenty two percent. So what we did. What 136 00:07:31,320 --> 00:07:34,960 Speaker 1: we did was basically pivot away from the impact of tariffs, 137 00:07:35,040 --> 00:07:37,680 Speaker 1: rather than saying, oh, taris to here, let's take up prices, 138 00:07:37,800 --> 00:07:40,120 Speaker 1: because we know our customer would not react well to that. 139 00:07:40,240 --> 00:07:44,679 Speaker 3: So, Michael, you had strong sales growth and your boosting 140 00:07:44,720 --> 00:07:48,320 Speaker 3: earnings as well in the fourth quarter. But if I 141 00:07:48,320 --> 00:07:51,680 Speaker 3: look at the stock over five years, it's relatively little changed, 142 00:07:51,720 --> 00:07:55,080 Speaker 3: actually down four percent, whereas TJ max is up one 143 00:07:55,200 --> 00:07:58,760 Speaker 3: hundred and thirty three percent, And I would put you 144 00:07:58,880 --> 00:08:03,800 Speaker 3: in a similar category. What are they doing that you 145 00:08:03,840 --> 00:08:07,760 Speaker 3: are not or why do you think there's that massive difference? 146 00:08:08,960 --> 00:08:11,280 Speaker 1: No, I think it's a great question. I think there 147 00:08:11,320 --> 00:08:14,600 Speaker 1: are two aspects of that question I'd like to get at. 148 00:08:14,800 --> 00:08:20,120 Speaker 1: The first is that we share similar characteristics to the 149 00:08:20,160 --> 00:08:23,720 Speaker 1: other major off price retailers, but there are also some differences, 150 00:08:23,760 --> 00:08:26,840 Speaker 1: and I would say our core customer base is somewhat 151 00:08:26,880 --> 00:08:30,920 Speaker 1: different to the other off price retailers. Our core customer base, 152 00:08:31,120 --> 00:08:34,480 Speaker 1: which actually over the long term has been a source 153 00:08:34,480 --> 00:08:38,680 Speaker 1: of strength. Our core customer base tends to be younger, 154 00:08:38,840 --> 00:08:41,000 Speaker 1: tends to have a larger family size, tends to be 155 00:08:41,040 --> 00:08:44,360 Speaker 1: more ethnically diverse, tends to be low to moderate income. 156 00:08:44,800 --> 00:08:49,320 Speaker 1: That particular customer really struggled in twenty twenty two as 157 00:08:49,360 --> 00:08:52,280 Speaker 1: the cost of living spite it was a really difficult 158 00:08:52,320 --> 00:08:54,840 Speaker 1: time for them, and we saw that in our business 159 00:08:54,880 --> 00:08:57,679 Speaker 1: we offered better value to try and support our salves, 160 00:08:58,160 --> 00:09:00,920 Speaker 1: but it was hard. Our core customer was really under pressure. 161 00:09:01,280 --> 00:09:03,400 Speaker 1: Now in the last few years, I think if you 162 00:09:03,480 --> 00:09:05,800 Speaker 1: looked at our stock price over the last two or 163 00:09:05,840 --> 00:09:08,320 Speaker 1: three years, you'd see a different story. In the last 164 00:09:08,360 --> 00:09:11,200 Speaker 1: two or three years, that core customer has really been 165 00:09:11,240 --> 00:09:14,119 Speaker 1: fairly resilient. We've seen pretty good strength and that's continued 166 00:09:14,320 --> 00:09:17,640 Speaker 1: through the fourth quarter of last year now. And I 167 00:09:17,640 --> 00:09:21,760 Speaker 1: think you've heard you've heard other retailers recently talk about 168 00:09:21,880 --> 00:09:24,880 Speaker 1: how they're seeing some pullback of the low end. We're 169 00:09:24,920 --> 00:09:27,319 Speaker 1: not seeing that. Now, let me pivot to the second 170 00:09:27,360 --> 00:09:29,760 Speaker 1: part of my answer, which is compared with the other 171 00:09:29,880 --> 00:09:34,760 Speaker 1: off price retailers, There's something that's particularly unique about Burlington 172 00:09:34,760 --> 00:09:37,240 Speaker 1: from an investment point of view, and that's what we're 173 00:09:37,320 --> 00:09:41,640 Speaker 1: much smaller. We have twelve hundred stores, about half less 174 00:09:41,679 --> 00:09:44,800 Speaker 1: than half of what our off price paers have, so 175 00:09:44,840 --> 00:09:48,000 Speaker 1: we have huge growth potential ahead of us. We're opening 176 00:09:48,040 --> 00:09:50,520 Speaker 1: many more stores than they are, and we also, I 177 00:09:50,520 --> 00:09:53,599 Speaker 1: would say, have some catch up in terms of operational 178 00:09:53,640 --> 00:09:56,680 Speaker 1: and execution capability. That's also driving our operating margin. 179 00:09:56,960 --> 00:09:59,240 Speaker 3: Sorry, Michael, I got to excite you off there. Unfortunately 180 00:09:59,280 --> 00:10:02,480 Speaker 3: we're running up aga to heartbreak. Michael O'Sullivan, the CEO 181 00:10:02,840 --> 00:10:04,160 Speaker 3: of Burlington Stores,