On Thursday morning, Burlington Stores (BURL 1.09%) reported mediocre results for the first quarter of 2019. Comparable-store sales growth slowed dramatically, as the No. 3 off-price retailer in the U.S. continued to suffer from merchandise planning mistakes, particularly in the critical ladies' apparel business, which accounts for nearly a quarter of sales.

However, Burlington had already told investors to expect a poor quarterly performance. The results weren't quite as bad as feared, so Burlington stock soared as much as 11% on Thursday. (As of 10:15 a.m. EDT, the stock's gain had moderated to about 6%.)

BURL Chart

Burlington Stores stock performance data by YCharts.

Burlington stock remains well below its 52-week high, but it still carries a premium valuation. Considering Burlington's choppy recent sales performance, investors may be better off sticking with shares of the off-price retailer's biggest rival: TJX Companies (TJX 0.18%).

Sales growth slows again

In the first nine months of fiscal 2018, Burlington grew total sales 12.1% year over year on a 4% comparable-sales increase. However, comp-sales growth slowed to just 1.3% in the fourth quarter, which CEO Tom Kingsbury described as "below our expectations."

At the time of Burlington's Q4 earnings report, the company warned investors that sales trends would not improve in the first quarter. The retailer's initial Q1 guidance called for a 0% to 2% comp-sales gain. Furthermore, in late April, it cut the high end of that forecast to just 0.5% comp-sales growth.

Ultimately, Burlington eked out a meager 0.1% comp in the first quarter. Total sales still rose a respectable 7.3% year over year, reaching $1.63 billion -- about 1% ahead of the average analyst estimate -- as the chain continues to add stores at a rapid pace. Management said that the baby, children's apparel, and home businesses performed well, but that strength was offset by continued weakness in ladies' apparel.

The exterior of a Burlington store

Burlington's comp-sales growth slowed to a crawl last quarter. Image source: Burlington Stores.

To some extent, the slowdown in comp-sales growth can be blamed on weak consumer spending trends. That said, Burlington's larger rival TJX achieved a 5% comp-sales gain last quarter.

Margins stay surprisingly strong

Typically, a sharp slowdown in comparable-store sales growth can severely damage a retailer's profit margin. Fortunately, Burlington has been able to minimize its margin erosion through disciplined expense management and a variety of initiatives to boost gross margin.

For the first quarter, Burlington reported that gross margin slipped by approximately 20 basis points (0.2 percentage points) compared to the prior-year period, due entirely to higher freight costs. Meanwhile, adjusted operating expenses increased by 20 basis points as a percentage of sales, rising from 26.1% to 26.3%.

Burlington's operating margin slipped to 7.7% from 7.9% a year ago, but this margin contraction was mostly offset by revenue growth. Operating profit fell just 2% year over year, and adjusted earnings per share came in at $1.26: exactly in line with the company's Q1 2018 result. That was right in the middle of the guidance provided back in March, and slightly above the high end of the updated guidance range of $1.21 to $1.25 provided last month. Analysts had been expecting EPS of $1.25.

Management expects results to improve soon

Encouragingly, Burlington projects that comp-sales growth will accelerate to a range of 1% to 2% this quarter. Its forecast also calls for healthy 2% to 3% comps in the second half of the year. This likely explains the bounce in Burlington stock on Thursday morning.

Additionally, Burlington's full-year earnings forecast didn't fall by much. The company now expects adjusted EPS to come in between $6.93 and $7.01, compared to its original forecast range of $6.93 to $7.06.

Weighing opportunity versus consistency

Despite its recent struggles, Burlington stock trades for a lofty 22 times the company's projected 2019 earnings. That high valuation reflects Burlington's potential for expansion and margin improvement. Burlington sees room to operate 1,000 stores in the U.S. over time, compared to fewer than 700 today. Additionally, its 9% pre-tax margin last year left room for improvement compared to top rivals TJX and Ross Stores, which routinely post double-digit margins. Thus, Burlington has high earnings-growth potential -- if everything goes right.

That said, top competitor TJX still has plenty of room for growth, even though it ended last quarter with 4,381 stores worldwide. TJX sees room to operate at least 6,100 stores eventually, just with its current concepts and in its current markets. And unlike Burlington, it has a track record of successfully launching new retail concepts and entering new international markets.

Moreover, TJX stock trades for just 19 times forward earnings. Some investors may still prefer Burlington's higher EPS-growth potential, despite its recent sales stumble. But for most, TJX's reasonable valuation, consistently strong results, and ample growth potential combine to make a compelling investment rationale.