Speaker 1: Bloomberg Audio Studios, Podcasts, radio news data just.
Speaker 2: Out this hour showing that consumer sentiment hit a three
Speaker 2: month flow as concerns about rising gas prices tied to
Speaker 2: the war and around mounted. For more, we're joined by
Speaker 2: Michael O'Sullivan, CEO of Burlington's Stores. Michael, thank you so
Speaker 2: much for joining us, and I should just point out
Speaker 2: that earnings out yesterday we're really strong for Burlington. I
Speaker 2: wonder what behavior at your stores has been like over
Speaker 2: the past two weeks as the war in Iran broke out. Michael,
Speaker 2: have you seen any change in consumer behavior?
Speaker 1: Well, let me start by saying good morning, thank you
Speaker 1: for having me on the show. It's great, too great
Speaker 1: to be here now. Of course, gas prices are a concern,
Speaker 1: but you know, it's too early for it to really
Speaker 1: have had much of an impact on retailers or consumers.
Speaker 1: I suspect many consumers haven't filled their gas tanks recently,
Speaker 1: so it's going to take a little while before any
Speaker 1: impact really starts to be felt. Now, the long term
Speaker 1: impact of higher gas prices, I think depends upon how
Speaker 1: long the situation in the Middle East lasts. For sure,
Speaker 1: if the situation lasts for a long time. Then consumers,
Speaker 1: if they're spending more on gas, they're going to spend
Speaker 1: less on other categories and that's not good for retail.
Speaker 1: But you know, let me step back and say, look,
Speaker 1: higher gas prices, they're just one more thing. Over the
Speaker 1: last several years, there have been numerous headwinds, you know,
Speaker 1: coming out of COVID. We had increases in freight costs,
Speaker 1: we had higher wage rates, we had port issues and delays,
Speaker 1: we had cost of living inflation, we had and more
Speaker 1: recently tarifs. So just add gas prices to that list.
Speaker 1: You know, as a retailer, we recognize that the key
Speaker 1: thing across all of these events and issues is to
Speaker 1: be nimble and flexible. We can't predict or control what's
Speaker 1: going to happen externally, but what we can do, what
Speaker 1: we have been doing, is making sure that our business,
Speaker 1: our operations, buyers are well positioned to react to whatever happens.
Speaker 3: Well, you also have in Burlington in your brand a
Speaker 3: product that maybe consumers will flock to when gas prices
Speaker 3: do rise. Right, if I'm paying more at the pump
Speaker 3: and then I go shopping, I'm more likely to choose
Speaker 3: a white label, you know, store brand or try and
Speaker 3: buy more efficiently by maybe going to Burlington instead of
Speaker 3: I don't know, some other you know, fancier mall department store.
Speaker 3: Are you seeing that effect?
Speaker 1: Well, certainly if I look at our results in Q four,
Speaker 1: we had very strong performance in the fourth quarter. Our
Speaker 1: total sales growth in Q four was eleven percent, and
Speaker 1: that was on top of ten percent growth the prior year.
Speaker 1: Our comp store growth was four percent, and that was
Speaker 1: on top of six percent the prior year. Now, we
Speaker 1: didn't just grow earning. We didn't just grow sales. We
Speaker 1: also drove earnings. In the fourth quarter, we saw EPs
Speaker 1: up twenty one percent, and for the full year, EPs
Speaker 1: was up twenty two percent. Now, coming back to your point,
Speaker 1: what's driving that. One of the things that's driving that
Speaker 1: is that over the last few years we've focused heavily
Speaker 1: on value. And the one thing I would correct in
Speaker 1: your question is that we don't sell private label. What
Speaker 1: we're doing. What we're selling is for the most part,
Speaker 1: we're selling well known, recognizable brands. We're selling the latest fashions.
Speaker 1: Our proposition to the customer is it's the same item,
Speaker 1: the same brand, the same great fashion, but we're selling
Speaker 1: it at a retail price that's up to sixty percent
Speaker 1: lower than traditional retailers. So that focus on value has
Speaker 1: really helped to drive our business over the last few years.
Speaker 1: And certainly, as you said, if gas prices remain high,
Speaker 1: or if they get worse and the consumers really looking
Speaker 1: for value, we think we could be a beneficiary of that.
Speaker 2: I find that really interesting. Then, last week on the
Speaker 2: earnings you mentioned that it would that you would likely
Speaker 2: raise prices. You tested increases on some items and encountered
Speaker 2: little pushback. Why do you think that is, let's feel
Speaker 2: a little bit contrasting that people are looking for value
Speaker 2: but can also maybe pay a little bit more.
Speaker 1: Yeah, let me clear that up. It's a great question.
Speaker 1: What we saw throughout last year is we were very
Speaker 1: successful at trading the customer up to higher price points.
Speaker 1: Now that does not mean that we raised prices on
Speaker 1: the same item. What we did was we have a good, better,
Speaker 1: best assortment. So we have at lower price points opening
Speaker 1: price points. Maybe the brand is less recognizable. Bit of
Speaker 1: higher price points, the brand would be more recognizable, the
Speaker 1: quality might be better, the fashion might be more up
Speaker 1: to date. What we were very successful in doing last
Speaker 1: year was actually trading the customer up. The customer could
Speaker 1: see that, yeah, it was worth paying an extra dollar
Speaker 1: to get that particular brand or that better quality or
Speaker 1: that more up to date fashion. And that's what caused
Speaker 1: average retail to rise last year. Rather than we took
Speaker 1: prices up, we were very careful on like items, not
Speaker 1: to take prices up.
Speaker 3: So have you not been increasing prices on even if
Speaker 3: something that I buy at Burlington is less expensive than
Speaker 3: something I would buy from a retailer like I don't know, Bergdorf,
Speaker 3: Goodman or Varney's, have you not taken price at all? Because,
Speaker 3: as you mentioned, you've got tariffs coming into effect, We've
Speaker 3: got inflation coming through from now the oil spike. Aren't
Speaker 3: you going to have to to protect margins move prices
Speaker 3: at some point?
Speaker 1: Well, we really try, going back to your earlier question
Speaker 1: about the consumer looking for value, that's our focus. We're
Speaker 1: really trying to make sure we're offering terrific value. We
Speaker 1: know if we offer great value to the customer, whatever
Speaker 1: happens in the external environment, we're going to things are
Speaker 1: going to work out for us if we're offering trific value. Now,
Speaker 1: let me take tariffs, because that was part of your
Speaker 1: question I think tariffs we're a terrific example of what
Speaker 1: we do when we're faced with, you know, a sudden,
Speaker 1: unexpected event. Last April, we were basically faced with tariffs
Speaker 1: at levels that no one had expected, and those tariffs
Speaker 1: throughout the summer remained uncertain and very volatile. So what
Speaker 1: we did in response to that, rather than taking prices up,
Speaker 1: which we knew our customer wouldn't react well to, was
Speaker 1: we went back and we looked at our assortment and
Speaker 1: we said, well, let's understand which categories we sell are
Speaker 1: the most impacted by tariffs, whether the margin pressure is
Speaker 1: the greatest from tariffs, and let's actually plan those business down,
Speaker 1: businesses down, and then there are other businesses that maybe
Speaker 1: are sourced in lower tariff countries or sourced domestically that
Speaker 1: we can plan up. Now, that kind of sort of
Speaker 1: remixing mid year is very complex for a retailer, and
Speaker 1: only certain retailers who are very nimble, very flexible, and
Speaker 1: actually I think the off price retailers in particular have
Speaker 1: that kind of ability, and it's a it's a capacity,
Speaker 1: and it's a strength that we've been investing for several
Speaker 1: years now. So in twenty twenty five, we really put
Speaker 1: that muscle to work. We remixed our assortment. Now, it
Speaker 1: did mean that when we got into the back half
Speaker 1: of the year, there were some categories that we'd planned
Speaker 1: down where we could have done more sales, but those
Speaker 1: sales would have been unprofitable because of the tariff impact.
Speaker 1: But we still ended up based upon the remixing of
Speaker 1: our business, driving total sales by nine percent for the
Speaker 1: four year last year and more importantly, driving earnings per
Speaker 1: share by twenty two percent. So what we did. What
Speaker 1: we did was basically pivot away from the impact of tariffs,
Speaker 1: rather than saying, oh, taris to here, let's take up prices,
Speaker 1: because we know our customer would not react well to that.
Speaker 3: So, Michael, you had strong sales growth and your boosting
Speaker 3: earnings as well in the fourth quarter. But if I
Speaker 3: look at the stock over five years, it's relatively little changed,
Speaker 3: actually down four percent, whereas TJ max is up one
Speaker 3: hundred and thirty three percent, And I would put you
Speaker 3: in a similar category. What are they doing that you
Speaker 3: are not or why do you think there's that massive difference?
Speaker 1: No, I think it's a great question. I think there
Speaker 1: are two aspects of that question I'd like to get at.
Speaker 1: The first is that we share similar characteristics to the
Speaker 1: other major off price retailers, but there are also some differences,
Speaker 1: and I would say our core customer base is somewhat
Speaker 1: different to the other off price retailers. Our core customer base,
Speaker 1: which actually over the long term has been a source
Speaker 1: of strength. Our core customer base tends to be younger,
Speaker 1: tends to have a larger family size, tends to be
Speaker 1: more ethnically diverse, tends to be low to moderate income.
Speaker 1: That particular customer really struggled in twenty twenty two as
Speaker 1: the cost of living spite it was a really difficult
Speaker 1: time for them, and we saw that in our business
Speaker 1: we offered better value to try and support our salves,
Speaker 1: but it was hard. Our core customer was really under pressure.
Speaker 1: Now in the last few years, I think if you
Speaker 1: looked at our stock price over the last two or
Speaker 1: three years, you'd see a different story. In the last
Speaker 1: two or three years, that core customer has really been
Speaker 1: fairly resilient. We've seen pretty good strength and that's continued
Speaker 1: through the fourth quarter of last year now. And I
Speaker 1: think you've heard you've heard other retailers recently talk about
Speaker 1: how they're seeing some pullback of the low end. We're
Speaker 1: not seeing that. Now, let me pivot to the second
Speaker 1: part of my answer, which is compared with the other
Speaker 1: off price retailers, There's something that's particularly unique about Burlington
Speaker 1: from an investment point of view, and that's what we're
Speaker 1: much smaller. We have twelve hundred stores, about half less
Speaker 1: than half of what our off price paers have, so
Speaker 1: we have huge growth potential ahead of us. We're opening
Speaker 1: many more stores than they are, and we also, I
Speaker 1: would say, have some catch up in terms of operational
Speaker 1: and execution capability. That's also driving our operating margin.
Speaker 3: Sorry, Michael, I got to excite you off there. Unfortunately
Speaker 3: we're running up aga to heartbreak. Michael O'Sullivan, the CEO
Speaker 3: of Burlington Stores,