EUR 850.00 For Business Accounts Only

Morningstar | Results Should Improve As Burlington Optimizes Assortment and Store Footprint

We expect Burlington Stores, like its off-price apparel retail peers, to remain an exception to physical retailers' woes, capitalizing on a fast-turning inventory of high-value branded merchandise to deliver a value proposition that is difficult to replicate and should continue to drive traffic. We believe Burlington benefits from vendor relationships and an efficient cost structure that constitute long-term competitive advantages, with ongoing efforts to improve its assortment and real estate footprint delivering improving returns and top-line expansion.Burlington uses a strong merchandising and inventory management operation to hold inventory turnover above comparable full-price department stores, driving traffic as customers are faced with a fast-changing assortment. We believe off-price retailers are particularly valuable to manufacturers looking to sell excess product, as they offer flexibility, prompt payment, and discretion by avoiding advertising the brands they carry (important to producers looking to protect their pricing power in conventional channels). Mercurial customer preferences, an expanding array of alternative channels, and unpredictable weather conditions complicate vendors' production forecasting efforts and should keep product availability high, particularly as off-price retailers can offer favorable purchase terms and a level of flexibility that their conventional counterparts cannot consistently match, in our view.We believe that off-price retailers such as Burlington are better positioned than other physical sellers to fend off digital competition. The treasure hunt experience and low-frills environment enable steep discounts relative to the full-price channel (up to 65% for Burlington), limiting price gaps against digital-only rivals. Although digital retailers are building scale and a presence in apparel and home categories, shipping and return costs (in addition to certain vendor-imposed restrictions) limit the discounts such sellers can offer. While the higher end of the market should leave more room to absorb fulfillment costs, we think the more mainstream market that Burlington targets is relatively well protected.