Burlington Stores (NYSE:BURL) reported first-quarter financial results on Thursday. The transcript from the company's first-quarter earnings call has been provided below.
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Summary
Burlington Stores Inc reported a 26% increase in EPS for Q1 2026, marking the 14th consecutive quarter of double-digit earnings growth, with total sales growth of 14% and comp store sales growth of 6%, surpassing their guidance.
The company updated its full-year guidance to reflect Q1 performance, expecting 2% to 4% comp sales growth and 13% to 16% EPS growth. They plan to open 135 gross new stores in 2026, with a net increase of 115 stores.
Operational highlights included the successful execution of their new store, relocation, and downsize programs, contributing to a 55% increase in sales productivity since 2019. Their Store Experience 2.0 initiative is set to be completed chain-wide by the end of 2026.
Full Transcript
OPERATOR
Good morning and thank you for standing by. My name is John and I will be your conference operator today. At this time I would like to welcome everyone to the Burlington Stores' fiscal 2026 first quarter operating results. All lines have been placed in muted to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. And to withdraw your questions, simply press STAR one again. I would now like to turn the conference over to David Glick, Group Senior Vice President, Investor Relations and Treasurer for Burlington Stores. Please go ahead.
David Glick (Group Senior Vice President, Investor Relations and Treasurer)
Thank you operator and good morning everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2026 first quarter operating results. Our presenters today are Michael O', Sullivan, our Chief Executive Officer, and Kristin Wolfe, our EVP and Chief Financial Officer. Before I turn the call over to Michael, I would like to inform listeners that this call may not be transcribed, recorded or broadcast without our express permission. A replay of the call will be available until June 4, 2026. We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties. Our remarks in the Q and A that follows are copyrighted today by Burlington Stores. Remarks made on this call concerning future expectations, events, strategies, objectives, trends or projected financial results are subject to certain risks and uncertainties. Actual results may differ materially from those that are projected in such forward looking statements. Such risks and uncertainties include those that are described in the company's 10-K and in our filings with the SEC, all of which are expressly incorporated herein by reference. Please note that the financial results and expectations we discussed today are on a continuing operations basis. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are included in today's press release. As a reminder, as indicated in this morning's press release, all profitability metrics discussed on this call exclude costs associated with bankruptcy acquired leases. These pretax costs amounted to $7 million and $6 million during the fiscal first quarters of 2026 and 2025, respectively, and $10 million and $35 million for the full fiscal years 2026 and 2025, respectively. Now, here's Michael
Michael O'Sullivan
thank you David. Good morning, everyone and thank you for joining us. I would like to cover three topics this morning. Firstly, I will discuss our first quarter results. Secondly, I will talk about our outlook for the rest of the year. And finally I will comment on our New store opening program. After that, Kristen will walk through the financial details.
Kristin Wolfe
thank you Michael and good morning everyone. I will start with some additional color on our first quarter performance. Then I will share details on our guidance for Q2 and for the full year. Starting with the first quarter, total sales grew 14% while comparable store sales increased 6%, well above our guidance range of 2% to 4% comp growth. The gross margin rate for the first quarter was 44.1%, an increase of 30 basis points versus last year. This was driven by a 20 basis point increase in merchandise margin and a 10 basis point decrease in freight expenses. Product sourcing costs were $216 million versus $197 million in the first quarter of 2025. Product sourcing costs decreased 30 basis points as a percentage of sales versus last year. As we continue to execute on our supply chain productivity and cost savings initiatives, adjusted SG&A costs in the first quarter increased 20 basis points versus last year. Q1 adjusted Earnings Before Interest and Taxes (EBIT) margin was 6.3% 20 basis points higher than last year. This was well above our guidance range of down 100 to down 60 basis points. In March. We spoke to a few discrete factors that we expected would pressure Q1 margins, but we were able to more than offset those with stronger than anticipated sales, disciplined markdown execution and continued supply chain productivity. Our Q1 adjusted earnings per share was $2.10, which also came in well above our guidance range of $1.60 to $1.75. This represents a 26% EPS increase versus Q1 last year and our continued ability to turn strong top line growth into even stronger earnings growth at the end of the quarter. Comparable store inventories increased 11% versus the end of the first quarter of 2025. Our reserve inventory was 41% of our total inventory versus 48% of our inventory last year. We are very pleased with the quality of the merchandise and the values that we have in reserve. We ended the quarter with approximately $1.7 billion in total liquidity. This consisted of $747 million in cash and $942 million in availability on our ABL. We had no outstanding borrowings at the end of the quarter on the ABL. During the quarter we repurchased $81 million in common stock. At the end of Q1, we had $304 million remaining on our share repurchase authorization. This expires in May of 2027. Staying on capital structure, in March we completed a repurchase of $111 million of our 2027 convertible notes. This transaction reduced the outstanding balance of the 2027 convert to $186 million in Q1. And as Michael mentioned, we opened 40 gross new stores, relocated 6 stores and closed 4 stores. This resulted in the addition of 30 net new stores in Q1, bringing our store count at the end of the quarter to 1,242 stores. Now moving to our updated fiscal 2026 full year guidance. This guidance excludes approximately $10 million of costs associated with bankruptcy acquired leases versus $35 million in 2025. We are increasing our outlook for the full year 2026, passing through the entire Q1 upside to the full year. Total sales are now expected to increase 9.11percent versus our original guidance of 8 to 10%. We are now expecting 115 net new store openings this year. This is up from our original outlook of 110 net new stores. We anticipate that the majority of our 2026 new store openings will occur in the first half of the year for the full year 2026, we're now forecasting comparable store sales to increase in the range of 2% to 4% and our adjusted Earnings Before Interest and Taxes (EBIT) margin to expand by 10 to 30 basis points versus last year. Passing through the entire Q1 EPS upside results in adjusted earnings per share guidance and in the range of $11.45 to $11.80, up 13% to 16% versus FY25 and well above our initial 2026 full year guidance. Moving now to our second quarter guidance which excludes approximately $3 million of expenses associated with bankruptcy acquired leases versus $11 million in Q2 of 2025. For Q2, we expect comparable store sales to be up 1% to 3% and total sales to increase 10% to 12%. We are guiding Q2 operating margin expansion to increase 30 to 60 basis points versus the second quarter of 2025. This translates to an adjusted EPS outlook in the range of $2.05 to $2.20 compared to last year's second quarter EPS of $1.72. Our sales trend for May month to date is tracking at the high end of our comp sales guidance range. That said, our month by month comparisons get more difficult as we move through the quarter. For the back half of fiscal 2026, our outlook remains unchanged. We expect comparable store sales to increase 1% to 3%, total sales to increase 8% to 10%, adjusted Earnings Before Interest and Taxes (EBIT) margins to increase 10 to 30 basis points and earnings per share in the range of $7.30 to $7.50. Capital expenditures net of landlord allowances are still expected to be approximately $875 million in fiscal 2026. I will now turn the call back over.
Michael O'Sullivan
Thank you Kristen. Before I hand it back to the operator for your questions, I would like to summarize the main points from this morning's call. Firstly, we are pleased with our Q1 results, 14% sales growth, 6% comparable growth and an Earnings Per Share (EPS) increase of 26%. These results add to an already very impressive track record of consistently converting sales growth into strong margin expansion and earnings flow through. Secondly, we have raised our full year outlook passing through the entire upside from Q1. Our expectations for the balance of the year remain unchanged from our commentary in our March call, including the potential for upside in Q3 and maybe even in Q4. And lastly, we continue to be very excited about our new store store relocation and store downsize programs. These programs have contributed to remarkable growth in our sales productivity. I would now like to turn the call over for your questions.
OPERATOR
Thank you ladies and gentlemen. We will now begin the Q and A session and at this time I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press star one. Again, in the interest of time, we kindly ask that you please limit yourselves to one question and one follow up. Our first question comes from the line of Matthew Boss with JP Morgan. Please go ahead.
Matthew Boss (Equity Analyst at JP Morgan)
Great. Thanks and congrats on a nice quarter. Thank you. So Michael, in March you said you were bullish about the outlook for 2026. That was pretty much before the outbreak of war in the Middle East and the subsequent run up in gas prices. So have these factors caused you to feel less bullish on the outlook at all today?
Michael O'Sullivan
Well, good morning Matt. Thank you for the question. You're right, a lot has happened since early March. But the direct answer to your question is we still feel bullish, especially about the back half of the year. As I recall, back on that call in March we described external and internal drivers of optimism. On the external side we cited the resilience of our customer. Well, we just reported 6% comparable growth for Q1 well ahead of guidance. And when we look at our underlying customer data, the key indicators continue to look positive across demographics and income bands. By the way, we estimate that higher tax refunds in Q1 were worth about 1.5 to 2 points of comp. So even if you strip those out, our comparable growth in Q1 was still mid single digit. The other external factor that we cited back on the March 5 call was that we expected tariffs to be less disruptive to pricing and supply this year. Well, check that. That is what we are seeing. The supply of off price merchandise is excellent right now. On that call we also talked about internal drivers of optimism and again I would say those have not changed. We see potential upside in Q3 and perhaps in Q4 as we lap easier comparisons in Q3 and as we lap tariff related assortment gaps in both quarters. So we continue to be excited about those opportunities. So with all that said, I would acknowledge that we're perhaps a little more wary now than we were in March based on higher gas prices and the potential impact on inflation. We're watching the trend very closely and looking for any change in consumer behavior. You know, we haven't seen it yet, but as an off price retailer that is what we do. We watch to see how the trend changes and the benefit of the off price model, when it's well executed, is that we can tap the brakes or we can hit the accelerator if we, if we need to. The last point I would make is if the external environment does get more difficult and if the consumer becomes more focused on value, then we don't regard that as a bad thing. In fact, you know, as a value retailer, it could turn into an opportunity.
Matthew Boss (Equity Analyst at JP Morgan)
Great color. And then Kristen, as a follow up on your second quarter guidance, even with a relatively modest comp growth, you're projecting earnings growth of over 20% at the midpoint of the forecast. Could you walk through the bottom line drivers and just additional details?
Kristin Wolfe
Matt, good morning. Yes, thanks for that question. So for Second Quarter (Q2), we're guiding 30 to 60 basis points of operating margin expansion on comps of 1 to 3%. And that translates, as you said in your question, to eps growth of 19% on the low end and 28% on the high end. A couple of drivers of the margin expansion in Second Quarter (Q2), 1 is higher gross margin. We're planning for, we're planning for higher merch margin in the quarter. This is driven by anticipated markdown favorability, modestly faster turns and a favorable shortage accrual rate relative to Second Quarter (Q2) of last year. Now, partially offsetting the merge margin is some pressure, some modest pressure in freight expenses due to higher fuel rates projected for the quarter. So one driver is in gross margin from higher merge margin. The second is leverage in product sourcing costs driven by supply chain. We're continuing to execute productivity initiatives across all our DCs. These savings are of course pressured slightly by the continued startup cost of our new distribution center in Savannah, Georgia which became operational late in the first quarter. There are also some puts and takes in SGA that we believe will give us some slight leverage in Second Quarter (Q2), certainly on the three comp. And then I just close by reiterating, we've consistently demonstrated the ability to drive strong earnings growth even on modest comp comparable sales growth. And our plan, our internal plans and our guidance reflect just that.
Matthew Boss (Equity Analyst at JP Morgan)
It's great color. Best of luck.
Michael O'Sullivan
Thanks Matt.
Matthew Boss (Equity Analyst at JP Morgan)
Thank you.
OPERATOR
Our next question comes from the line of Ike Porcha with Wells Fargo. Please go ahead.
Ike Porcha (Equity Analyst at Wells Fargo)
Hey, morning everyone. Michael, I wanted to ask you a bigger picture question, I think, I guess as you look across retail off price and non off price, what do you, what do you see happening in terms of major competitive trends? I guess just bigger picture. And how do any of those trends, if you do see anything, what are the ramifications of that on Burlington specifically?
Michael O'Sullivan
Well, good morning Ike. Thank you for the question. It's actually good to talk about the big picture. Sometimes on these calls it can get very easy to get caught up in the details of quarterly performance. So again, I appreciate the question. When I look across retail and this has been true for a long time now, I see a major restructuring going on and the key driver of that restructuring is the consumer's desire for value. The retailers that can consistently offer great value are winning and those that cannot offer great value are losing. Now I think perhaps the strongest evidence for that is the growth of off price. For Q1, we just reported 14% total sales growth. And this 14% was on top of 6% last year and 11% the year before. And when you look at our off price peers, they are also driving terrific growth. The customer is voting for value and off price is delivering that value. The growth that we and our off price peers are achieving, of course is not coming out of thin air. It's coming from traditional retail, from full price retailers if you like. I don't see any signs of that slowing down. In fact, if the economic environment were to deteriorate in the next few months, I think that could further accelerate the growth of off price. So on the second part of your question, what are the ramifications for Burlington? Well, of course it means we have a big opportunity. But I would say that for us to take advantage of that opportunity, we have to continue to improve how we execute the off price model. We're very aware we have two very successful off price peers. We've made a huge amount of progress, but we know that we're behind those companies in some key capabilities. Capabilities like localization of the assortment or automation of our supply chain. But I regard that as good news. It means that we have a huge opportunity ahead of us. I think it's also worth calling out that to go after that upside. At Burlington, we do not have to try new and radical things for our off price peers. I think it's different at that stage in development it makes sense for them to invest in new ideas. That might mean, I don't know, expanding internationally or making big changes to their model. But for us, we're at an earlier stage of development. We need to stay focused on the basics of off price, controlling liquidity, managing inventory, chasing the trend and delivering great value. I guess I would wrap up my answer by saying that the proof of this strategy for me is in our numbers for full year 2026. Our guidance, our updated guidance is for mid teens Earnings Per Share (EPS) growth and that's on top of 22% Earnings Per Share (EPS) growth last year and 34% the year before that. So I know the phrase focus on the basics does not sound very sexy, especially with a British accent, but it is working for us over the last few years it's driven very strong and consistent earnings growth.
Ike Porcha (Equity Analyst at Wells Fargo)
Thanks and I applaud the British accent, but I'll go to Kristen with the follow up. Maybe Kristen, just to look back at Q1 just remind us what were the factors that were supposed to create the headwinds in First Quarter (Q1) for the margin contraction and then what basically happened outside of just the comping better that was able to offset that and drive the margin expansion you ultimately put up. Thanks guys.
Kristin Wolfe
Thanks Ike. Good morning. Yeah, good question. First let me step back and say we're very pleased with the flow through we saw in the first quarter operating margin expanded 20 basis points but that was 100 basis points above the midpoint of our guidance. And when we guided Q1 in March we embedded a few known headwinds that we expect would pressure operating margin and really disciplined execution coupled with stronger than expected sales drove better flow through than we originally anticipated. Let me call out a few drivers. First we saw strong merchandise margin performance up 20 basis points. This was versus our expectation of lower merch margin in the quarter, really driven by disciplined markdown execution which was better than we expected and also driven by the quality of our buys. This was a meaningful contributor to the upside. Freight also leveraged 10 basis points as we more than offset any fuel pressures in transportation. And then the second major area is we continue to make great progress, really better than expected progress on our supply chain productivity initiatives that drove 30 basis points of leverage in the quarter. And this is all despite startup costs from our new Savannah dc. And this is what drove the leverage on the product sourcing line. So overall for Q1 margin, improvement on gross margin and on product sourcing more than offset some slight deleverage we saw in SG&A. And that was really driven by higher incentive comparable comparableared to Q1 last year and higher marketing spend the quarter. And let me just final point I'd like to make is that the flow through we saw here really reflects the strength of the operating model. Meaning when we deliver sales above expectations we expect to see meaningful earnings leverage relative to our guide and that's what we saw in Q1.
Ike Porcha (Equity Analyst at Wells Fargo)
Thanks. Congrats.
Michael O'Sullivan
Thanks Mike.
OPERATOR
Our next question comes from the line of Florine Hutchinson with the bank of America. Please go ahead.
Florine Hutchinson (Equity Analyst at Bank of America)
Thanks. Good morning Michael. Over the last three years your EPS growth has typically exceeded 20%. Do you think that by driving earnings you may have missed some comp growth?
Michael O'Sullivan
Good morning, Lorraine. Good to hear from you. Thank you for the, for the question. It's a great question and it's actually something that we wrestle with internally all the time. In our business, the most direct way to drive sales is to turn on receipts and flow more merchandise to stores and then to run with higher inventory levels and more markdowns. Conversely, the way to consistently drive earnings is to carefully control the flow of receipts and to very tightly manage inventory levels. Now, I would say that at Burlington, historically we were not good when it came to controlling receipts and inventory. But in more recent years we've worked hard at this and I think we've become very good at it. And the evidence for that is the huge increase in our merchant margin over the last several years. You know, our inventory terms are much faster now and our markdowns are much lower. We like those results. But you know, going back to your challenge, I do think that we may have an opportunity to loosen our belts a notch and get slightly more aggressive on sales. There are some high potential merchandise categories where it might make sense for us to take up purchase commitments and maybe run with a little more inventory. But let me be clear, let me reassure investors, I'm not signaling a major shift here. We're very focused on long term earnings growth. We strongly believe in discipline of the off price model, control liquidity, manage inventory and chase the trend. That's the proven model. It works. In fact, it drives terrific earnings leverage. 22% Earnings Per Share (EPS) growth last year, 34% the year before that.
Florine Hutchinson (Equity Analyst at Bank of America)
Thanks. And then Kristin, sticking with that theme, your comp guidance for the full year of 2 to 4 is below some of your off price peers, but your EPS growth guidance of 13 to 16 is in line. Can you talk about what's driving this leverage? Good morning, Lorraine. Yes, thanks for the question. I'll walk down the P and L for the full year and really kind of give you the puts and takes on the earnings guidance. First, we're expecting overall leverage and gross margin. Higher merch margin is more than offsetting some slight deleverage in freight costs driven by higher fuel rates that are embedded in our guidance. The anticipated higher merch margin is driven by disciplined control of inventory, translating to efficiency, efficient markdown execution, faster turns and better buying. And then as I move down the P and L, as I mentioned earlier, I'm really pleased with the leverage we're seeing in product sourcing costs driven by Supply chain. We anticipate supply chain cost levering in 2026. And this is all despite the opening of a brand new distribution center in the year in sga. There are also a couple puts and takes, but one line item I want to call out is on occupancy. We expect occupancy costs to lever this year as we continue to drive up sales productivity. And we're starting to see some of the benefits of downsizing stores and reducing occupancy expenses. And then the last point I'll make on the full year is that we expect 10 to 15 basis points of incremental leverage for every additional point of comp. Thank you.
Kristin Wolfe
Thank you, Loren.
Florine Hutchinson (Equity Analyst at Bank of America)
Our next question comes from the line of Brook Roach with Goldman Sachs. Please go ahead.
OPERATOR
Good morning and thank you for taking our question. Michael, in your opening statement you talked about the increase in sales per square foot as you've opened new stores and relocated or downsized older stores. How much more opportunity do you see to drive the sales productivity ahead?
Brook Roach (Equity Analyst at Goldman Sachs)
Well, good morning, Brook. Thank you for the question. The direct answer is that we still have huge opportunity on sales productivity. And my goal over the next few years is to further significantly drive up sales productivity in terms of sales per square feet, as you said in the prepared remarks. I talked about that and I quoted the data. In 2019, we had sales productivity that was down in the $200 to $220 per square foot range. And we're now up around $350 per square foot. And I should add that's with a lot of new stores in the base. Now, as with many key performance indicators, I think we've made huge progress. But when you look at our competitive benchmarks, it's clear that we still have plenty of opportunity ahead of us. Now, of course, part of that opportunity will come naturally from comp growth across all stores in the chain. But at Burlington, we have a lot of new stores that have opened in the last few years that are going to ramp up over the next several years. So those stores are smaller format 25,000 square foot boxes. And as those new stores ramp up, they'll have an outsized impact on our sales productivity. Now add to that the other programs, our downsize and our relocation programs, they have a direct impact on sales productivity of older existing stores. You know, these are large stores with existing sales volumes and essentially what we're doing is moving them into a smaller format location. So there are several reasons to think that our sales productivity is going to continue to move up. Now, of course, the reason that that is important is occupancy expenses are a big part of our cost base and by continuing to drive up sales productivity over the next few years, we should be able to leverage that expense and that should provide a nice tailwind to our operating margin over the next few years.
Michael O'Sullivan
Great. And then as a follow up, you mentioned the strength of the warm weather businesses in one Q. Can you talk a little bit more about those businesses? I'd also be interested in hearing more about how your new allocation systems helped to drive the comparable trend in those businesses this quarter.
Brook Roach (Equity Analyst at Goldman Sachs)
Good. Yeah, thank you for that question. Warm weather categories account for about 25% of our sales in the first quarter, so very significant. And those businesses include all the categories you might expect shorts, short sleeve tops, swimwear, sandals, sunglasses and so on. In Q1, those categories achieved double digit comp growth so well ahead of the chain. Now, weather was a piece of that early in the quarter, but overall the impact of weather in Q1 was somewhat mixed. It was helpful in February and March, but then it was unsettled and less favorable through April. Anyway, I'm very happy with how we were able to navigate those trends and drive our warm weather businesses in the first quarter. Over the last couple of years, we've begun to roll out more sophisticated localization tools and processes. And that meant that in Q1 we were able to plan and allocate receipts between different regions in a much more granular and intentional way. And we were able to respond much more effectively and in more detail to performance variations across regions. That helped drive sales, but it also helped drive merchant margin. Now, stepping back, I know that many investors have heard me say this before. We have terrific consistency when it comes to driving quarterly earnings growth, but we're much less consistent when it comes to quarterly comp growth. And that's especially true, or it has been especially true in the first and the third quarters when weather variations tend to be the most impactful. Our coat factory heritage means that our seasonal transitions historically just haven't been nimble enough. We know that we're never going to be able to control the weather, but we can get better at responding to it and our localization initiative is going to be an important piece of that. Thanks so much. I'll pass it on.
Michael O'Sullivan
Thank you, Brooke.
OPERATOR
Our next question comes from the line of Adrienne Yee with Mark Leaves. Please go ahead.
Adrienne Yee (Equity Analyst at Mark Leaves)
Thank you very much and good morning everybody. Congrats on great quarter, great follow through. Michael, I was wondering if you can talk about some of the Demographic trends that you're seeing by segment. Historically, you've made a little bit of comments on sort of the sub 40k category versus the above category. So wondering if you can help us out with any changes that you're seeing there. Typically we see sort of that inflationary pressure of gas in particular sort of creeping up. Any help there would be great. Thank you.
Michael O'Sullivan
Yeah. Good morning, Adrian. It's a good question. As you say, it's something that we look at all the time and often comment on. I would say the good news is that there's not a lot to call out in the data. I would say the only real headline is that our stores that are in lower income trade areas continue to outperform the rest of the chain. And I don't want to overstate it, but it is real. In the first quarter, stores in trade areas with lower median household income had comp growth that was clearly above the chain. That said, stores in higher income areas still achieved mid single digit comp growth. But the key takeaway from that data for me is that we continue to see resilience among lower income shoppers despite high gas prices, despite inflation creeping up. Now, as for other demographic factors, again, not much to call out. We pay very close attention, as you know, to trends among Hispanic shoppers. And in Q1 stores in high Hispanic areas had mid single digit comp growth, so more or less in line with the chain. So again we continue to feel good about that important demographic.
Adrienne Yee (Equity Analyst at Mark Leaves)
Fantastic. And then my follow up for Kristin, the topic of the year, I suppose is tariffs. And now tariff refunds. Can you talk about kind of how you are treating those throughout the rest of the year's guidance? I assume that you filed for them. So just any color commentary on where they are and what you're assuming for the rest of the year? Thanks so much.
Kristin Wolfe
Great. Good morning, Adrienne. Yes, very topical. As you've heard from many other retailers, we have also filed for tariff refunds. But it's really, it's highly uncertain how much we will receive and when we could receive the refund. So we have not factored any of that into our guidance.
Adrienne Yee (Equity Analyst at Mark Leaves)
Okay. And the assumption for current is the incremental 10%, I assume,
Kristin Wolfe
correct? Yes. Yes, that's right. Yeah.
Adrienne Yee (Equity Analyst at Mark Leaves)
Thank you very much. Best of luck.
Kristin Wolfe
Thanks, Adrienne.
OPERATOR
Thank you.
Dana Tulsi
Our next question comes from the line of Dana Tulsi with the Tulsi Group. Please go ahead.
Kristin Wolfe
Hi, good morning and congratulations on the progress. Kristen, can you expand a little bit on the new store pipeline? How you are thinking about what is the smaller size of the box. You are looking at regional growth and what the pipeline could look like. And also along with that, the new store performance. And then I have a quick follow up.
Dana Tulsi
Great. Thanks Dana. Good morning. So for 26 for the full year we now expect 135 gross new stores. And then once you strip out relocations and closures, we expect to yield 115 net new stores in 26. This is slightly ahead of the prior guidance we gave of 110 net new stores for 26. We were able to pull forward the openings of several stores that were borderline 2026 openings. And we feel good about opening these additional five new stores by the end of the third quarter this year. Given the timing, these additional new store openings did not really move the needle on the overall total sales growth guidance. Now turning to your question on the pipeline, we continue to feel very good about 2027 new store pipeline. And the 2028 pipeline is also robust. We are comfortable opening at least 110 net new stores in 27 and in 28 and we are well on our way to hitting or likely exceeding that 1500 store mark by the end of 2028. And I think you had in the last part of your question on new store performance, we continue to be pleased with the performance of new stores. We continue to see stores open at about $7 million of sales in their first full year and achieve a payback in just under two years. And lastly, after these new stores enter the comp base, we see them meaningfully out comp the chain for several years.
Kristin Wolfe
Got it. Thank you. And then just higher freight and fuel costs. What are you seeing and how are you planning?
Dana Tulsi
Thank you.
Kristin Wolfe
Yeah, great question. We are of course seeing higher fuel costs and surcharges driven by the higher diesel costs in the first quarter. We were able to lever overall freight cost as transportation cost savings initiatives offset those higher fuel rates. The higher fuel and those incremental surcharges are baked into our full year guidance. As I mentioned, I think in an earlier question on full year 26 guidance, we are expecting modest deleverage in freight for the year driven by higher fuel costs. We strive to, or I strive to manage the P and L proactively. And we found offsets to these surcharges and that's all incorporated into our guidance. Let me also call out kind of in the same vein. We recently locked in our ocean and domestic contracts for the next year at favorable rates. We've got great partnerships here and this should help us Control freight costs in 2026. And I guess, of course, if diesel fuel prices go up further from here and where they're projected, that could be an incremental risk to our guidance.
Dana Tulsi
Thank you.
OPERATOR
Our next question comes from the log of Mark Altragoric Baird. Please go ahead.
Mark Altragoric
Good morning.
Michael O'Sullivan
Thank you for taking my question. Michael first was hoping you could give us an update on the elevation strategy just where you are in the rollout and what's working. Sure. Well, good morning, Mark. Thank you for the question. Yes, the elevation strategy has been a major strategy for us for the last couple of years. You know, elevating the assortment to offer better, more recognizable brands, higher quality and more fashion, all at great values within a good, better, best assortment. Now, our internal data shows that by elevating our assortment, we've been able to drive higher customer perception scores, stronger comparable growth in higher price buckets, and ultimately a higher average basket and unit retail. You know, I've said this before, but I'm especially pleased with how we've been able to successfully pursue this elevation strategy without hurting margin. When you increase the mix of better brands that can really pressure your merchant margin through a lower markup or higher markdowns or higher shortage. So it's remarkable that over the last two years we've increased the mix of better and recognizable brands in our assortment, but at the same time we've actually increased our merchant margin. It takes a lot of skill to pull that off. The fact that we've been able to elevate the assortment at the same time actually expand margins demonstrates the strength and talent of our merchant teams.
Mark Altragoric
That's great. Thank you.
Michael O'Sullivan
And just to follow up, Michael, on the consumer, you spoke to some of the demographic trends earlier, but I guess have you seen any correlation between gas prices and the comp trends on a week to week, month to month basis? Just any insight there. Thanks again. Thanks, Mark. Yeah, it's a very good question. It's something that we've sliced and diced many different ways in the past. Actually, we've analyzed this looking at, for example, we've looked at what's happened to comp growth historically when gas prices have gone up or down. We've also looked at what's happened to comp growth by region or market when gas prices have hit different levels in different parts of the country or gone up at different rates in different parts of the country. The bottom line is that none of those analyses show any correlation. And similarly, in the first quarter, we saw no clear pattern and we looked very, very closely that said, we all understand that if gas prices remain high for a sustained period of time and if that feeds into a higher general cost of living, then that's not good. We saw what happened a few years ago when inflation went up. It squeezed the discretionary spending of shoppers and that had a particularly negative impact on lower income shoppers. So as I said earlier, we're watching the trends very closely for any change in consumer behavior, but we just haven't seen it. Thanks again.
OPERATOR
Our last question for the day comes from the line of Michael Binetti with Evercore. Please go ahead.
Michael Binetti (Equity Analyst at Evercore)
Hey guys, thanks for all the detail today. Kristen, let me start with one. Could you just expand on the call outs you gave in the prepared remarks and some of the category performance metrics and any regional call outs and then any. I'm also curious, any color you can provide on first quarter comp metrics like transaction versus basket, aur ept. Anything on the build would be helpful. Thank you.
Kristin Wolfe
Yeah, great. Good morning, Michael. Okay, let me start regional performance. In terms of regional performance, the Northeast and Midwest were the top performing regions. The Southeast and West were in line with the chain comparables and the Southwest trailed the chain on category trends. Michael spoke to some of this in the prepared remarks. It was really broad based across businesses. We had particular strength in ladies apparel, beauty and accessories. We also did particularly well in warm weather categories in Q1. We were really pleased with that transition. Those categories include shorts, short sleeve tops, swimwear, sandals, sunglasses, et cetera. So those are the call outs on the category. And then the last part of your question, comparableonents of the copy. So our first quarter comparable was driven by both an increase in the number of transactions and by a higher basket size due to higher average unit retail (AUR). Those two drivers, transaction volume and higher basket, were about equal in terms of their contribution to our comparable in the quarter.
Michael Binetti (Equity Analyst at Evercore)
Okay, thanks for that. And then, Michael, if I could just ask one, really nice to see the soho store open earlier in the quarter. Nice store. Could you mind giving us an update? You touched on the store experience 2.0 in the prepared remarks, but just a little bit of an update on that initiative. What we'll see as we go out and do the checks the rest of the year here. Yeah. Well, good morning, Michael. Thank you for the question. Yeah, you've heard me say this before. Historically at Burlington, our store environment was quite undifferentiated. When you walked into our stores, it was just a sea of racks. It really hadn't changed since the company was founded in the 1970s. So a few years ago, we launched our Store Experience 2.0 initiative and the goal was to reimagine the store environment to make it more exciting, more off price, easier to shop, and more Burlington 2.0, if you like. Now, in 2024, we rolled that program out to new stores and we retrofitted approximately 120 existing stores. And we saw very good feedback from shoppers and from associates. And we also saw a nice sales lift in retrofitted stores. So last year we rolled the program out to, I think it was about 350or so additional stores and we'll complete the full chain rollout this year. Now, again, we continue to see a nice sales lift on retrofitted stores. That said, we also believe that the benefits of store experience 2.0 will grow over time. By the end of 2026, all stores will have been fitted with store experience 2.0. And that's important. We know from research that many shoppers have an outdated perception of Burlington. Maybe they came into the store with their mother to buy a coach 20 years ago. Well, when they walk into our stores now, they tell us it feels completely different, fresh, more exciting and more off price. Thanks a lot, guys. I appreciate the help. Thank you, Michael.
Michael O'Sullivan
Thank you. And at this time, that concludes our Q and A session. I will now turn the call back over to Michael for closing remarks. Before we close, I am very pleased to announce that Marisha Sharkey has recently joined Burlington as Senior Vice President of Investor Relations and Treasury. Marissa has tremendous experience and a strong track record of success in banking, consulting and retail, including off price. We are very excited to have Marissa as part of our investor relations team. With that, let me close by thanking everyone on this call for your interest in Burlington stores. We look forward to talking to you again in August to discuss our second quarter 2026 results. Thank you for your time today.
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