Burlington (BURL 3.17%) posted strong financial results in the third quarter of 2023. That was nice enough, but it wasn't the most important story to come out of the company's earnings conference call. The big story was that the off-price retailer updated its long-term growth model. It was some update!
Burlington is hitting on all cylinders
Before getting to Burlington's updated long-term guidance, it's important to highlight the business strength the retailer is experiencing today. Here are a few highlights. Same-store sales rose 6% year over year, which was right in the middle of the company's target range of 5% to 7%. Adjusted earnings per share tallied up to $0.98, which was, again, well within the guidance range of $0.86 to $1.01.
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Notably, the company has been benefiting from consumers trading down to the company's discount model. For example, the company was able to bring in more name-brand goods for which it could charge higher prices. That highlights the strength of the company's model at a time when consumers are, perhaps, getting more worried about their finances.
But there's an interesting difference here between same-store sales and the company's overall sales growth, which was 12% year over year. Same-store sales is an important figure and highlights how well the company's existing stores are doing. Overall sales include new store openings, which are likely to number around 80 in 2023. Now stores are what drive long-term growth, and they're what investors need to watch over the next five years.
Burlington is pressing the accelerator
So the backdrop for Burlington's growth update in the third quarter was strong operating performance, with the company hitting management guidance, and solid existing store base results. That's a double win. Looking forward, management is planning to open as many as 500 new stores over the next five years. At this point, the cadence is planned at simply 100 new stores a year, which may or may not work out exactly right. But if the company can get close to that annual target as it looks to hit the five-year goal, the top line should see robust growth.
Now the company is cognizant of the risks of such an aggressive store expansion plan. It highlighted that it expects to see some cannibalization as new stores draw customers from existing ones. That will probably lead to a drop in same-store sales, which means investors will want to monitor this metric closely. The expectation right now is for the mid-single digits. That said, each new store is expected to bring more revenue, and that is expected to drive the top line higher by double digits. Assuming management can hit its goals, as it has been doing of late, the growth story here remains fairly attractive.
The first year of this plan, however, could look a little weak. At this point, the expectations for 2024 are 2% same-store-sales growth and 11% overall sales growth, driven by the addition of 100 stores. Note that the same-store-sales figure is projected to be a bit below the target range, but that is coming off of a fairly strong performance so far in 2023. It seems reasonable to give Burlington's management team the benefit of the doubt on this one, assuming that it hits the targets it is setting out on the top line -- which it is expecting to do.
Is Burlington a buy, sell or hold?
So it looks like more growth is ahead for Burlington. But the stock is 45% below its 2021 peak. Meanwhile, the stock's price-to-sales, price-to-earnings, price-to-cash flow, and price-to-book value ratios are all below their five-year averages. The averages for those metrics are complicated a little by the pandemic and so may be a bit on the high side, but still, investors who favor growth at a reasonable price will probably find Burlington attractive. And, given the plans for the future, it doesn't seem investors who own this retailer would want to sell today.
