One of the underappreciated factors in Burlington's (BURL) blockbuster report on Thursday is its seamless succession of Tom Kingsbury, the man who led the retailer for more than a decade.
Shares of the New Jersey-based retailer rose over 16% shortly after the market open, bolstered by a big earnings beat and raised guidance that bookended Kingsbury's tenure as top man at the company on a high note. Under his leadership, as a public company, Burlington shares have soared nearly 600%.
Given that track record, there could be understandable concern on the transition to new CEO Michael O'Sullivan, a former partner at Bain Capital and Vice President at J.P. Morgan (JPM) , who most recently served as COO of key Burlington competitor Ross Stores (ROST) .
However, management quickly moved to instill confidence in the new CEO and the path ahead.
"Based on the strength of our team and our incoming CEO, Michael O'Sullivan, the future for Burlington is very bright," Kingsbury told analysts on Thursday morning. "During the hiring process, Michael was much aligned with the views of our Board in terms of future direction of Burlington. We see Michael as helping us implement our current corporate strategies."
He added that the growth outlook remains encouraging as O'Sullivan steps in and advised analysts to "give him a chance" as he steps into the executive office in mid-September.
Judging from analyst research, the street is giving him much more than just a chance.
"We think O'Sullivan's appointment bolsters the bull case thesis for BURL to accelerate its margin expansion story," Credit Suisse analyst Michael Binetti said. "On top of improving SSS as BURL fixes its women's apparel assortment issues, which we expect to be in a better place by Fall, we see a path for accelerating EPS growth next year."
J.P. Morgan analyst Matthew Boss noted that this is O'Sullivan's modus operandi as he kept productivity highly elevated against Burlington in his time at Ross.
"Operating margin expansion remains the opportunity over time with slightly more than 50% of the split driven by SG&A leverage," he explained. "We see retail 101 blocking and tackling as the key area of focus rather than an overhaul of SG&A investments noting a material productivity potential unlock."
The already positive dynamics in inventory management are quite encouraging ahead of his start on September 16 in Boss' view.
Inventory aged 91 days and older, declined to record low levels in the quarter, with inventory overall declining 7% and providing flexibility as O'Sullivan steps in.
Overall, the productivity focus of O'Sullivan make him a key factor in the stock story amidst numerous supply chain and pricing pressures on the retail sector.
With these factors at play, the market is clearly ready to give O'Sullivan much more than just a chance and is instead pinning hopes for Burlington to be among retail's best under his stewardship.