Burlington (BURL)

Off-price retail company Burlington Stores (NYSE:BURL) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 6% year on year to $2.50 billion. Next quarter’s revenue guidance of $2.61 billion underwhelmed, coming in 1.5% below analysts’ estimates. Its non-GAAP profit of $1.60 per share was 12% above analysts’ consensus estimates.

Company Overview

Founded in 1972 as a discount coat and outerwear retailer, Burlington Stores (NYSE:BURL) is now an off-price retailer that has broadened into general apparel, footwear, and home goods.

Discount retailers understand that many shoppers love a good deal, and they focus on providing excellent value to shoppers by selling general merchandise at major discounts. They can do this because of unique purchasing, procurement, and pricing strategies that involve scouring the market for trendy goods or buying excess inventory from manufacturers and other retailers. They then turn around and sell these snacks, paper towels, toys, clothes, and myriad other products at highly enticing prices. Despite the unique draw and lure of discounts, these discount retailers must also contend with the secular headwinds of online shopping and challenged retail foot traffic in places like suburban strip malls.

Off-price and discount retail competitors include TJX (NYSE:TJX), Ross Stores (NASDAQ:ROST), and Ollie’s Bargain Outlet (NASDAQ:OLLI).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $10.78 billion in revenue over the past 12 months, Burlington is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Burlington grew its sales at a mediocre 8% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts), but to its credit, it opened new stores and increased sales at existing, established locations.

This quarter, Burlington’s revenue grew by 6% year on year to $2.50 billion, missing Wall Street’s estimates. Company management is currently guiding for a 6% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 8.8% over the next 12 months, similar to its six-year rate. This projection is eye-popping for a company of its scale and indicates the market is forecasting success for its products.

Number of Stores

The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.

Burlington operated 1,115 locations in the latest quarter. It has opened new stores at a rapid clip over the last two years, averaging 9.9% annual growth, much faster than the broader consumer retail sector. This gives it a chance to become a large, scaled business over time.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Burlington’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 3.2% per year. This performance suggests its rollout of new stores is beneficial for shareholders. We like this backdrop because it gives Burlington multiple ways to win: revenue growth can come from new stores, e-commerce, or increased foot traffic and higher sales per customer at existing locations.

In the latest quarter, Burlington’s year on year same-store sales were flat. This was a meaningful deceleration from its historical levels. We’ll be watching closely to see if Burlington can reaccelerate growth.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Burlington has great unit economics for a retailer, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 43.2% gross margin over the last two years. That means Burlington only paid its suppliers $56.84 for every $100 in revenue.

In Q1, Burlington produced a 43.9% gross profit margin, in line with the same quarter last year and exceeding analysts’ estimates by 0.8%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Burlington was profitable over the last two years but held back by its large cost base. Its average operating margin of 7% was weak for a consumer retail business. This result is surprising given its high gross margin as a starting point.

On the plus side, Burlington’s operating margin rose by 1.8 percentage points over the last year, as its sales growth gave it operating leverage.

This quarter, Burlington generated an operating profit margin of 9.2%, up 3.9 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, and administrative overhead.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Burlington broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, we can see that Burlington’s margin dropped by 7.5 percentage points over the last year. This decrease came from the higher costs associated with opening more stores.

Burlington burned through $438.6 million of cash in Q1, equivalent to a negative 17.5% margin. The company’s cash burn increased from $115.5 million of lost cash in the same quarter last year.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Burlington historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.7%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Burlington reported $371.1 million of cash and $5.33 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.12 billion of EBITDA over the last 12 months, we view Burlington’s 4.4× net-debt-to-EBITDA ratio as safe. We also see its $13.62 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Burlington beat analysts’ EPS and EBITDA expectations this quarter. On the other hand, its revenue guidance for next quarter missed and its full-year EPS guidance fell short of Wall Street’s estimates. Overall, this quarter could have been better, but the stock traded up 5.5% to $252 immediately following the results.

Updated: June 22, 2025 at 10:23 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Burlington.

Burlington has a few positive attributes, but it doesn’t top our wishlist. Although its revenue growth was a little slower over the last six years, its new store openings have increased its brand equity. Investors should still be cautious, however, as Burlington’s relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Burlington’s P/E ratio based on the next 12 months is 23.5x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $317.48 on the company (compared to the current share price of $226.69).