Chapter 1: What is the main topic discussed in this episode?
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Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA, Salt Lake City branch. Terms and more at applecard.com. Bloomberg Audio Studios. Podcasts, radio, news. Data just out this hour showing that consumer sentiment hit a three-month low as concerns about rising gas prices tied to the war in Iran mounted. For more, we're joined by Michael O'Sullivan, CEO of Burlington Stores.
Michael, thank you so much for joining us. And I should just point out that earnings out yesterday were really strong for Burlington. I wonder what behavior of at your stores has been like over the past two weeks as the war in Iran broke out. Michael, have you seen any change in consumer behavior? Well, let me start by saying good morning. Thank you for having me on the show.
It's great to be here. Now, of course, gas prices are a concern. But, you know, it's too early for it to really have had much of an impact on retailers or consumers. I suspect many consumers haven't filled their gas tanks recently. So it's going to take a little while before any impact really starts to be felt.
Now, the long-term impact of higher gas prices, I think, depends upon how long the situation in the Middle East lasts. For sure, if the situation lasts for a long time, then consumers, if they're spending more on gas, they're going to spend less on other categories. And that's not good for retail. But, you know, let me step back and say, look, higher gas prices, they're just one more thing.
Over the last several years, there have been numerous headwinds. Coming out of COVID, we had increases in freight costs. We had higher wage rates. We had port issues and delays. We had cost of living inflation. We had, more recently, tariffs. So just add gas prices to that list. As a retailer, we recognize that the key thing across all of these events and issues is to be nimble and flexible.
We can't predict or control what's going to happen externally. But what we can do, what we have been doing, is making sure that our business, our operations, our buyers are well positioned to react to whatever happens.
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Chapter 2: What recent trends in consumer sentiment are impacting retail?
Well, you also have in Burlington, in your brand, a product that maybe consumers will flock to when gas prices do rise, right? If I'm paying more at the pump and then I go shopping, I'm more likely to choose the white label store brand or try and... buy more efficiently by maybe going to Burlington instead of, I don't know, some other, you know, fancier mall department store.
Are you seeing that effect? Well, certainly if I look at our results in Q4, we had very strong performance in the fourth quarter. Our total sales growth in Q4 was 11%, and that was on top of 10% growth the prior year. Our comp store growth was 4%, and that was on top of 6% the prior year. Now, we didn't just grow earnings. We didn't just grow sales. We also drove earnings.
In the fourth quarter, we saw EPS up 21%. And for the full year, EPS was up 22%. Now, coming back to your point, what's driving that? One of the things that's driving that is that over the last few years, we focused heavily on value. And the one thing I would correct in your question is that we don't sell private label. What we're doing, what we're
What we're selling is for the most part, we're selling well-known recognizable brands. We're selling the latest fashions. Our proposition to the customer is it's the same item, the same brand, the same great fashion, but we're selling it at a retail price that's up to 60% lower than traditional retailers. So that focus on value has really helped to drive our business over the last few years.
Chapter 3: How has Burlington responded to changes in consumer behavior during crises?
And certainly, as you said, if gas prices remain high or if they get worse and the consumer is really looking for value, we think we could be a beneficiary of that. I find that really interesting then. Last week on the earnings, you mentioned that you would likely raise prices. You tested increases on some items and encountered little pushback. Why do you think that is?
Those feel a little bit contrasting, that people are looking for value but can also maybe pay a little bit more? Yeah, let me clear that up. It's a great question. What we saw throughout last year is we were very successful at trading the customer up to higher price points. Now, that does not mean that we raised prices on the same item. What we did was we have a good, better, best assortment.
So we have lower price points, opening price points, maybe the brand is less recognizable, but at higher price points, the brand would be more recognizable, the quality might be better, the fashion might be more up-to-date. What we were very successful in doing last year was actually trading the customer up.
The customer could see that, yeah, it was worth paying an extra dollar to get that particular brand or that better quality or that more up-to-date fashion. And that's what caused our average retail to rise last year rather than we took prices up.
Chapter 4: What strategies has Burlington implemented to cope with rising gas prices?
We were very careful on like items not to take prices up. So have you not been increasing prices on, even if something that I buy at Burlington is less expensive than something I would buy from a retailer like, I don't know, Bergdorf Goodman or Barney's, have you not taken price at all? Because as you mentioned, you've got tariffs coming into effect.
We've got inflation coming through from now the oil spike. Aren't you gonna have to, to protect margins, move prices at some point? Well, we really try ā going back to your earlier question about the consumer looking for value, that's our focus. We're really trying to make sure we're offering terrific value.
We know if we offer great value to the customer, whatever happens in the external environment, things are going to work out for us if we're offering terrific value. Now, let me take tariffs because that was part of your question. I think tariffs were a terrific example of what we do when we're faced with a sudden ā unexpected event.
Last April, we were basically faced with tariffs at levels that no one had expected. And those tariffs throughout the summer remained uncertain and very volatile.
So what we did in response to that, rather than taking prices up, which we knew our customer wouldn't react well to, was we went back and we looked at our assortment and we said, well, let's understand which categories we sell are the most impacted by tariffs, whether the margin pressure is the greatest from tariffs. And let's actually plan those businesses down.
And then there are other businesses that maybe are sourced in lower tariff countries or sourced domestically that we can plan up. Now, that kind of sort of remixing mid-year is very complex for a retailer. And only certain retailers who are very nimble, very flexible, and actually I think the off-price retailers in particular have that kind of ability.
And it's a capacity and it's a strength that we've been investing in for several years now. So, in 2025, we really put that muscle to work. We remixed our assortment. Now, it did mean that when we got into the back half of the year, there were some categories that we planned down where we could have done more sales, but those sales would have been unprofitable because of the tariff impact.
But we still ended up, based upon the remixing of our business, driving total sales by 9% for the fall year last year, and more importantly, driving earnings per share by 22%. So what we did was basically pivot away from the impact of tariffs rather than saying, oh, tariffs are here, let's take up prices, because we know our customer would not react well to that.
So, Michael, you had strong sales growth and you're boosting earnings as well in the fourth quarter, but... If I look at the stock over five years, it's relatively little change, actually down 4%. Whereas TJ Maxx is up 133%. And I would put you in a similar category. What are they doing that you're not? Or why do you think there's that massive difference? No, I think it's a great question.
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