Burlington Stores (BURL) is proving the protective power of discounters for portfolios on Thursday.
Shares of the Burlington, New Jersey-based discount retailer leapt double digits in pre-market trading, bolstered by a report of $1.36 in earnings per share and revenue of $1.66 billion. Both figures easily cleared the bar set by Wall Street ahead of the quarter. The print marks the second straight report of significant progress from a bearish result in March.
Adding optimism, the ever-important comparable store sales figure increased 3.8%, while margins remained intact due to strong inventory management and a mitigation of tariff and freight cost impacts.
"We are very pleased with our second quarter results, driven by our 3.8% comparable store sales increase and 10.5% overall sales growth, which resulted in a 19% increase in Adjusted EPS, well ahead of our guidance," CEO Tom Kingsbury said. "In addition, based on our disciplined inventory management, our comparable store inventory decreased 7%, putting us in a very good position to take advantage of the abundant values available in the marketplace."
During the quarter, the company repurchased $51 million of common stock in expectation of the positive results. Following the report, the company announced a further $400 million share repurchase plan, to be executed through August 2021.
The dynamics for the remainder of the year encouraged the outgoing Kingsbury and his management team to raise the company's outlook even as recession fears foment.
The company now expects full year EPS of $7.14 to $7.22, up from a range of $6.93 to $7.01, aided by a full year comparable store sales increase of 2.0% to 2.5% on top of the 3.2% increase during 2018. The outlook does not account for the five cent EPS hit expected from the accession of former Ross Stores (ROST) COO Michael O'Sullivan to the CEO role in place of Kingsbury.
Analysts have actually been encouraging this defensively bullish view for weeks, with many pointing to the bifurcation of retail not only in e-Commerce and brick and mortar, but in pricing.
"While we're increasingly negative on the US Softlines space in 2H19, this type of marketplace chaos has historically been positive for off-pricers," Credit Suisse analyst Michael Binnetti said earlier this month. "We see off-price retailers as best-in-class Softlines investments, with good defensive properties in any kind of economic downturn with any recession likely to push consumers further into trade-down/value seeking mode."
While tariffs remain a concern for margins moving forward, that too might be a tailwind rather than a headwind for the retailer.
"As Kingsbury reiterated last call, direct imports represent just 6% of total orders, and only 15% of those orders were subject to tariffs at the time." Jim Cramer's Action Alerts PLUS noted ahead of the print. "Thinking bigger, and as we have discussed several times with regards to Burlington, off-price retailers tend to see benefits from the "chaos" tariffs may create."
In short, the increase in prices at more exposed competitors and a potential market downturn are actually catalysts for a retailer like Burlington as it continues to increase traffic and aggressively open new locations.
An earnings call to discuss how the company is seizing on the chaos is scheduled for 8:30 a.m. ET and will be available here.
Analysts are looking for added color in category performance, gross margin trends and commentary on tariff disruption in particular.
(Burlington Stores is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells BURL? Learn more now.)
