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Burlington Stores, Inc. BURL looks well poised for growth, given the company's robust business model, successful execution of Burlington 2.0 strategy and strong growth prospects. The company is smoothly progressing with its Burlington 2.0 initiative, which aims at improving the execution of the off-price model. Recently, management raised its long-term store target to 2,000 stores from 1,000, given the smaller store format enabled by the Burlington 2.0 strategy coupled with the accelerating retail disruption and industry-wide store closures.
Impressively, these factors have been fueling the Zacks Rank #3 (Hold) stock, which has surged 54.4% in the past six months and surpassed the industry’s 12.3% rally. Additionally, analysts look optimistic for the upcoming quarter. The Zacks Consensus Estimate for first-quarter fiscal 2021 earnings, which is currently pinned at 83 cents, has increased about 66% in the last 30 days.
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Amid the competitive retail landscape, Burlington Stores has made multiple changes to its business model to adapt to the changing industry. Over the years, the company has increased vendor counts, made technological advancements, initiated better marketing approach and focused on localized assortments. Through the Burlington 2.0 strategy, the company focuses on three aspects – marketing, merchandising and store prototype. Under the marketing aspect, the company looks to communicate a stronger and more direct off-price value message, and hence deliver this communication in a more cost-effective manner.
With respect to merchandising, management expects investing in the merchandising capabilities to better execute the off-price model and boost growth. This includes a blend of external hires and the development of internal talent. This initiative is focused on offering great customer value by effectively managing liquidity, chasing sales, buying opportunistically, managing inventories, getting fast fresh receipts to the sales floor and making the store model flexible.
Furthermore, Burlington Stores is focused on store expansion to drive top-line growth. Management is encouraged by a 25,000-square-foot store prototype. The company projects nearly a third of its store openings in fiscal 2021 in this format. Over time, this smaller prototype is likely to represent majority of the company’s new store openings. Via this smaller prototype, the company aims to operate with leaner in-store inventory levels.
These endeavors have helped Burlington Stores report stronger-than-anticipated results in fourth-quarter fiscal 2020. We note that comparable store sales (comps) trend improved sequentially throughout the quarter, with the metric registering double-digit growth in January, thanks to the federal stimulus checks.
Although the aforementioned factors speak volumes for Burlington Stores, the company is not spared of challenges amid the pandemic. The company is witnessing higher selling, general and administrative (SG&A) expenses owing to elevated store-related and corporate expenses and product-sourcing costs. It expects persistent cost pressure and deleverage from product sourcing costs in fiscal 2021 on higher supply-chain costs. Also, pandemic-related SG&A expenses cannot be ruled out.
Management projects flat comps for fiscal 2021 versus fiscal 2019. With respect to gross margin, management forecasts elevated freight costs to continue building pressure in fiscal 2021. However, higher merchandise margin is expected to offset freight costs.
While problems related to higher costs cannot be overlooked, we expect Burlington Stores to continue its momentum in the future given its robust strategies. Also, a Growth Score of A highlights the stock’s potential.
Key Picks in Retail
Abercrombie & Fitch ANF has a long-term earnings-growth rate of 18% and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
L Brands LB, also a Zacks Rank #1 stock, has a long-term earnings-growth rate of 13%.
Tapestry TPR boasts a long-term earnings growth rate of 10% and currently flaunts a Zacks Rank #2 (Buy).
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