Burlington Stores Inc (BURL) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Burlington Coat Factory fiscal fourth quarter and full year, 2008 conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS). A rebroadcast of today's conference will be available beginning Friday, September 12, 2008, at 12 noon Eastern standard time, through September 16, 2008 at 11:00 Eastern standard time. To access the rebroadcast, please dial 1-800-633-8284, or 402-977-9140, and enter reservation number 21390966.

As a reminder , this conference is being recorded, Friday September 12 , 2008. I would now like to turn the conference over to Bob LaPenta, Vice President and Treasurer. Please go

Thank you, Paula, and good morning. We appreciate everyone's participation in this mornings conference call to discuss Burlington Coat Factory's fourth quarter and fiscal year 2008 operating results. I am Bob LaPenta, Vice President and Treasurer of the Company. With me today are Mark Nesci, our Chief Executive Officer; Jack Moore, our President of Merchandising, Planning, Allocation, and Marketing; Todd Weyhrich, our Chief Financial Officer ; Mark Katz our Chief Accounting Officer, Charlie Guardiola our Senior Vice President of Supply Chain and Fred Hand, our Executive Vice President of Stores.

We will begin our call with a review of our operating results. Followed by a discussion of the business conditions and business performance from Mark Nesci and Jack Moore. After the prepared remarks this group will be available to answer questions. This call may not be transcribed, recorded, our broadcast without express permission. A replay of this call will be available for 24 hours. In addition, I need to remind everyone that information provided on this call is primarily related to the Company's result s of operations for the fiscal year ended May 31, 2008.

Remarks made on this call concerning future expectations, events, objectives, strategies, trends or projected financial results are forward-looking statements that are subject to certain risks and uncertainties. Actual results or events 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 annual report on Form 10-K and at the Company's other filings with the SEC, all of which are expressly incorporated herein by reference.

I will now review some key component of the fourth quarter. Net sales . Net sales during the three months ends May 31, 2008, increased $6.5 million compared with the three months ended June second, 2007. The Company's comparative store sales declined 3.1% in the quarter, related primarily to weakened consumer demand. The decrease in comparative store sales were offset by 20 new Burlington Coat Factory stores, which contributed an additional $34.8 million to net sales for the fourth quarter.

Cost of sales. Cost of sales increased $6.6 million, to $482.1 million this fiscal quarter, from $475.5 million a year ago. Cost of sales as a percentage of net sales increased to 61.7% from 61.4% a year ago. The increase in cost of sales was due to the Company taking permanent markdowns of $16.9 million at cost in the final weeks of 2008, a few weeks earlier than historical practice, which was early June.

This negatively impacted cost of sales and gross margin by 220 basis points in the fourth quarter. The increased permanent markdowns were mostly offset by the effect of increased initial mark-ups, favorable short age results, and adjustments related to inventory valuation reserves. It should be noted that given the acceleration of the permanent markdowns in the fiscal 2008, we do expect substantial gross margin improvement in the first quarter of fiscal 2009.

Selling and administrative expenses. Selling and administrative expenses increased $16.5 million or 6.1% compared with the prior- year's three-month period. Store, selling, and administrative expenses increased $9.4 million primarily due to 20 new stores that were opened over the last year. Home office payroll increased $3 million primarily as a result of filling out our senior executive management team. Professional fees increased $0.9 million and relocation expenses increased $1.1 million.

In addition, insurance expense increased $1.9 million from the prior year's fourth quarter primarily driven by an increase in our worker's comp reserve due to a spike in claim activity from the 2006 claim year. Net loss. Net loss amounted to $48.5 million for the current fiscal quarter, compared with net loss of $38.2 million for the similar period a year ago .

Adjusted EBITDA. Adjusted EBITDA for the current fourth fiscal quarter was $24.2 million, a $19.6 million decrease from last year's fourth quarter of $43.8 million. The decrease in adjusted EBITDA in the quarter is due to the accelerated markdowns of $16.9 million, and an increase in selling and administrative expenses in the quarter of $16.5 million. These items are partially off set by improved initial mark-up, reduced shortage results, and reduced inventory adjustments, which in the aggregate represent approximately $16 million.

Some balance sheet highlights at May 31, 2008. Merchandise inventories increased $8.9 million from $710.6 million a year ago to $719.5 million at the current fiscal year end, due to the 20 new stores. Average inventory per store decreased 3% from the prior fiscal year. Accounts payable. Accounts payable decreased $58.4 million from $395.4 million a year ago, to $337 million million at May 31, 2008.

Accounts payable as a percent of merchandise inventory declined from 55.6% to 46.8%. The decline in accounts payable leveraging was due to calendar shifts related to both Easter and the end of the fiscal year. Increased pack and hold opportunistic purchases, and normal business decisions made to optimize gross margins.

I will now discuss our results for the full fiscal year 2008, compared with fiscal 2007. Net sales . Net sales decreased $10 million or 0.30% to $3.4 billion for the fiscal year ended May 31, 2008, compared with the fiscal year ended June second, 2007. Comparative store sales decreased 5.2% for the fiscal year ended May 31, 2008, due primarily to weak ended consumer demand, similar to what other retailers experienced, unseasonably warm weather in September and October, and temporarily low or out of issues in certain limited divisions throughout the fiscal year.

The decrease in comparative store sales is part -- partially offset by 20 new Burlington Coat Factory warehouse stores opened during fiscal 2008 , which contributed $105.8 million to net sales for the fiscal year ended May 31, 2008. Additionally, sales from store opened during fiscal 2007, which are not included in our definition of comparative store sales, contributed an incremental $58.9 million to fiscal 2008 results. I will discuss other revenue in a few moments, so let's move to cost of sales for the year .

Cost of sales. Cost of sales decreased $29.8 million or 1.4% to$ 2.0954 billion for the fiscal year ended May 31 2008, compared with the fiscal year ended June second , 2007. Cost of sales as a percentage of net sales decreased to 61.8% in fiscal 2008 from 62.4% in fiscal 2007. The decrease in cost of sales as a percentage of sales was due primarily to the effect of improved initial mark-ups, offset in part by higher markdowns. As I mentioned earlier, the year was negatively impacted by the acceleration of markdowns of $16.9 million at cost, or 50 basis points for the full year.

Selling and administrative expenses. Selling and administrative expenses for the fiscal year ended May 31, 2008 , amounted to $1.0908 billion, compared to $1.0625 billion for the fiscal year ended June second, 2007, a 2.7% increase. Occupancy-related expenses increased $20.2 million for the fiscal year ended May 31, 2008 , compared with the fiscal year ended June second, 2007, primarily from rent, utilities, and maintenance related expenses for new stores opened in fiscal 2008 and stores opened in fiscal 2007 that were not operating for a full year.

In addition to increases in occupancy-related expenses, professional fees increased $3.2 million. The increase in professional fees is primarily related to the valuation of the effectiveness of our internal control over financial reporting. As a percentage of net sales, selling and administrative expenses were 32.2% for the year ended May 31, 2008, compared with 31.2% for the year ended June second, 2007. Depreciation. Depreciation expense amounted to $133.1 million for the year ended May 31, 2008, compared with $130.4 million for the year end ended June second, 2007. This increase of $2.7 million is attributable primarily to the 20 new stores that were opened in fiscal 2008 and a full-year impact of the 19 stores from fiscal 2007.

Amortization. Amortization expense related to the amortization of net favorable leases and deferred debt charges amounting to $43.9 million at May 31, 2008 , compared to $43.7 million at June second, 2007. Impairment charges. The carrying value of our long-lived assets is reviewed for impairment whenever events or circumstances have changed such that the carrying value of our long-life assets may not be recoverable. For the fiscal year end ed May 31, 2008, we recorded non- non-cash impairment charges of $25.3 million, related to certain long-lived assets and intangible assets. Approximately $19 million of the $25.3 million, was impairment related to favorable lease assets at 12 of our stores.

Interest expense. Interest expense was $122.7 million and $134.3 million for the fiscal years end May 31, 2008 and June second, 2007, respectively. The decrease in interest expense is primarily related to lower interest rates, and lower average borrowings on our ABL line of credit, and changes in the fair market value of interest-rate cap contracts. Adjustments to the interest-rate cap contracts to fair value amounted to a gain of $100,000, and a loss of $2 million for the fiscal years ended May 31, 2008 , and June 2nd, 2007, respectively.

Other revenue. Other revenue consisting of rental income from lease departments, sub lease rental income, layaway alteration and other service charges, dormancy service fees and other miscellaneous revenue items decreased to $30.6 million for the fiscal year ended May 31, 2008, compared with $38.2 million for the fiscal year ended June second, 2007. This decrease is mainly related to a decrease in dormancy service fees of $5.3 million and decreases in rental income from lease departments of approximately $2 million, due primarily to our converting of a lease department to an owned operation.

During the third quarter of fiscal 2008, we ceased charging dormancy service fees on outstanding balances of store value cards and began recognizing gift card breakage income in the line item, other income net. Other income net, consisting of investment income, gains and losses on disposition of assets, and now breakage income and other miscellaneous items, increased $6.7 million to $12.9 million for the period end ended May 31, 2008, compared with the period ended June second , 2007. The increase is primarily related to our recording $5.3 million of breakage income during fiscal 2008, from our restructuring of the store value cards.

Income taxes . Income tax benefit was $25.3 million for the fiscal year ended May 31, 2008, compared with $25.4 million for the fiscal year ended June second , 2007. The effective tax rates for fiscal 2008 and 2007 were 34.1% and 35%, respectively. Net loss, net loss amounted to $49 million for the fiscal year ended May 31, 2008, compared with $47.2 million for the fiscal year ended June 2, 2007.

Adjusted EBITDA. Adjusted EBITDA decreased $23.7 million for the year ended May 31, 2008 to $265.2 million, compared with $288.9 million at June 2, 2007. As mentioned earlier, adjusted EBITDA was negatively impacted by $16.9 million of markdowns that were accelerated in to this fiscal May 2008, an increase in selling and administrative expenses of $28.4 million, and $13.1 million of non-comp EBITDA adjustments. The non-comp EBITDA adjustments primarily reside in SG&A.

Accordingly, the incremental overage beyond what we already discussed in the SG&A section, represents $7.8 million of corporate payroll , $4.3 million of recruitment fees and relocation costs, and $2.3 million of insurance reserves. Improvements in IMU reduced by increased markdowns provided approximately $37 million of increased gross margin.

Before I turn the call over to Mark Nesci, I would like to make a few comments related to our fiscal 2009 cash CapEx plan. We have planned capital expenditures related to new stores in 2009 of approximately $55 million net of landlord allowance of approximately $73 million. Additionally, we estimate spending approximately $24 million related primarily to supply chain initiatives and approximately $18 million elated to information technology initiatives, $6 million of which relates directly to a warehouse management system .

I

Thank you, Bob. And good morning, everyone. During today's call I will provide a brief overview of business conditions and then I will describe some of our operating and growth initiatives.

Our comparative store sales decrease 5.2% during fiscal 2008, which reflects weakened consumer demand similar to what other retailers have been and are currently still experiencing. The impact of unfavorable weather in September and October, and temporarily low or out of stock issues in certain limited divisions throughout the fiscal year. Looking forward, we are quite excited about a new of new initiatives that we have recently put in place or will put in place in the near term that we believe will ultimately improve our results.

As I am sure you have seen, we had a 0.2% comparative store sales improvement in quarter one of fiscal '09 versus a 2% decrease in quarter one of fiscal 2008 . We believe that some of our initiatives are beginning to gain traction and I want to commend the hard work and effort of our team . We still have much to do to continue to improve comparative store sales . However, it is great to see that some of the initiatives underway and the hard work have enabled us to produce a positive comp in a very difficult economic environment.

During the year, we hired a total of eight executive and senior management positions in merchandising, finance, store operations, logistics, IT, and strategy, quite a feat. These hirings have and will continue to strengthen the management team and provide the experience to lead our various improvement and growth initiatives. I would now like to provide some additional color on some of our supply chain, IT and new-store initiatives.

We completed a supply chain network design study during the year. Certain findings from this study have been implemented and have enabled us to more than offset fuel price increases since the implementation. The longer term benefits will result in improved service times to the stores at less costs. Our goal will be for weekend sales to be replaced on the store shelves sales by the next weekend sales period. We also embarked on a performance management program during the year designed to drive productivity improvements within the four walls or our distribution centers. Lastly, the business intelligence system implementation is nearing completion and we believe we will begin to start utilizing this system in the latter half of the fiscal year, which will provide improved merchandising and inventory management information.

As we move through these uncertain economic times in 2009, we will continue to exercise sound fiscal judgment while remaining true to our growth strategy. In addition to the 20 new stores we opened in fiscal 2008, we plan to open 40 new stores in this fiscal year, of the 40 , we have opened 20 new stores. Of the remaining 20, 10 more stores will open this fall including two stores in Puerto Rico. In addition during this period, we have relocated two additional stores.

While we expect the foreseeable future to continue to be a challenging environment, we believe it is important to continue to invest in the necessary resources to support our long- term growth strategy. We believe we have stuck a balance between conservative planning of our inventory levels and providing the business with the resources it needs to continue to grow.

At this time I would like to personally thank all of the employees for their dedication and commitment to excellence and I'll turn the call over to

Thank you, Mark. In addition to Mark's comments I would like to provide some specific color about our fiscal '08 performance and our key initiatives for fiscal '09.

As we stated earlier , the most significant issue facing us during the fiscal '08 period was the general slowdown of the economy that was felt by most retailers. We also were adversely affected by the unusually warmer weather at the start of our coat and outerwear selling season, and a few selected internal in stock issues. Given the current economic conditions we believe the consumer will continue to be very cautious with their spending. While this environment creates challenges, it also provides opportunities to those who execute the business model well. Executing our business model will be our primary focus.

During the last quarter conference call, I discussed several initiatives. That we will be focus on executing our core business model to deliver trend-right brands at great every day value values; that he will be manage our inventory thoughtfully and we will continue to invest in businesses that are tracking strong. That we will manage our inventories in such a way that we will be able to chase great market opportunities that frequently present themselves in this type of economy.

That we will continue to invest and build out planning and allocation teams and functions with a focus on allocating the right merchandise to the right stores at the right time. That we will be improving our markets message with the selection of a new creative media team; that we will continue to invest in consumer research and incites in order to leverage our capabilities. And finally that we will enhance our talented team with selective key additions.

I am pleased to state that we have made significant progress on all initiatives, and we believe that our recent first quarter sales results for fiscal '09 are an indication of that progress. Our initiatives and focus will remain the same. Our inventories are well positioned for the critical upcoming selling period. As stated earlier, our average increaser to per store decreased 3% in 2008 versus 2007. We have cleaner and fresher inventories as well as the appropriate liquidity to invest in trending businesses and chase great market opportunities.

We have hired an outstanding new creative media agency Cramer-Krasselt, and we are very excited about our marketing campaigns for fall and holiday season. Plus, we have installed a new transaction customer relationship management tool that will enable us to better understand our customers preferences and behaviors. Our planning and allocation teams continue to make great progress. This team has significantly improved our processes and planning for new stores and our execution of the opening of 20 new and two relocated stores was the most well coordinated and execution of new store openings since my arrival.

Our merchandising team is very focused on our core principals. We have grown many of our key brands. We have added several new brands, we have sharpened our price and values, plus we have strengthened our merchandising team with several key additions that bring very valuable experiences and insights.

And like Mark said, we are very thankful to our team. They have worked very hard, they have been focused on driving the business. In addition, I would like to thank our vendor community. We've received tremendous support and partnership. They are excited about our growth story and have assisted us in many ways in developing specific merchandising strategies.

With those comments, I am going to conclude our prepared remarks. Operator, we are ready to begin the Q&A

Thank you. (OPERATOR INSTRUCTIONS). One moment for our first question. Our first question comes from any line of Emily Shanks with Lehman Brothers. Please proceed with your question.

Good morning.

Good morning.

Thank you for taking the questions. I had a -- a -- just a housekeeping question around the accelerated markdowns that were incurred in the last week of the quarter, Bob, that you had mentioned. Can you just repeat for us what the dollar amount was for the fourth quarter as well as, perhaps provide a bit more color around the preference of this? Was this actually just a promotional calendar shift? I want to make sure I understand.

Yes, I'll quote the dollar amounts and then I'll turn it over to Jack, and he can give you nor color around it. It was 32 million at retail or 16.9 million at cost in permanent markdowns that fell in to May that in the prior year would have fallen in the early weeks of June.

And to give you a little more color on the activity. It was not due to any kind of promotional shift. We are really not a promotional store. We are an everyday value store. It was my decision to move the markdowns a couple of weeks in to the latter half of May versus the early part of June. The timing was right based upon the merchandise we were marking down and making sure we were priced right for our customers.

Great. That's very helpful. And then around the landlord allowances than are baked in for your CapEx of 73 million, exactly how are those structured, just to be crystal clear? It's safe to assume those are 100% cash, and are those locked in already? Is there anyway that you couldn't realize those over the next fiscal year?

Yes, it's -- our plan is to recognize those cash contributions from the landlord in fiscal 2009, and it is cash contribution that goes towards the build-out of the stores. And we record it as a long- term liability, and it gets amortized over the life of the lease .

Great and then just one more cash question. Around cash taxes for this coming year, should we continue to assume sort of a 38 % tax rate?

Yes, I think that's reasonable to assume.

Okay. And then I promise my last one. Around the comps that you posted for the first quarter of '09, they were great comps. Just want to get a sense from you what you thought during the quarter, sort of month-to-month? Were they increasing? Decreasing? What were some of the trends that you saw?

We really don't go in to that much color, in general our improvement in first quarter was reasonably consistent, but we really don't give that much incites.

Can you comment at all if you think that you benefited from the economic stimulus checks?

Boy, I -- if I had that kind of crystal ball I probably would be doing something else. I really don't know. I just really don't know. I think in general most people would say that did help for a short period of time, but it's really very, very difficult for any specific retailer except if you are Wal-Mart, to measure that.

Okay. Understood, thank you.

Our next question comes from the line of Grant Jordan from Wachovia.

Good morning. Thanks for taking the questions. So, just to get a little more color on the markdowns. Last year a similar size amount of markdowns occurred in Q1, so since those got moved up, that will benefit the gross margin we'll see this year in Q1?

Yes.

Okay. And then on the payables, Q4 this year versus Q4 the previous year, it looked like there was some contraction in the payables days. Was that due to timing ? What is going

Good morning, Grant, this is Todd. I think it's worth taking a little bit of time to elaborate on the comments that Bob made and explain in some detail what is driving the year-over-year change in accounts payable, because there are a number of things going on.

First of all there was a calendar shift related to both Easter and which day of the calendar month our fiscal year ends. Specifically, 2007, ended after the first of June. So checks for payment for most of our rents are cut on the first of each month, and that results on a gross on the balance sheet because the outstanding checks get reclassed back into accounts payable , and then there's an offset in prepaid rent. In fiscal '08 that ended on May 31, so we had no checks cut at the end of the year and accordingly there was no similar balance in accounts payable. That accounts for a little over about $15 million of the reduction in AP year-over-year.

The Easter shift resulted in 2008 receipts being received earlier than 2007. And given our normal terms, we still had amounts in accounts payable at the end of 2007 related to Easter-related merchandise. And because of the earlier receipts this year, that -- because of how long our terms are, there was no similar balance outstanding at the end of '08. Secondly, I think you are all aware that we frequently take advantage of opportunistic purchases, some of which we pack and hold for some period of time. As you can imagine with the economic situation we're in, these opportunities during the third and fourth quarters were more robust in '08 than they were last year, and we took advantage of a number of those when it was appropriate.

These didn't all come with extended terms, and the thing that I think everyone understands is we look at each one of these individually. We look at the economics of each deal and take in to consideration what is right for the business overall. So if we adjust for just those items, the accounts payable leverage is not significantly different between the two years. It is a big business with a lot of variables. There are a number of reasons some vendors offer substantial discounts or deals for shorter terms in the normal course of their business. And we analyze that tradeoff and between the lost time value of money and the true cash discount and sometimes we take the opportunity to take the discount.

Obviously we could drive up our accounts payable leverage if we wanted to by not taking them, but that wouldn't be the right answer for the business. We're actively managing this area and make sound decisions that are in the best interest of the Company, and if we're given the opportunities to give up terms to get substantially advantageous discounts we're going to fake advantage of those on most occasions.

The flexibility that we are on -- our revolver allows us to pretty much do what the right answer is for the business all the time here. Our minimum unused availability during this last year was never less than 175 million and we plan to have better liquidity during the rest of '0 '09. Hopefully that answers the question, because obviously we are managing this and I think that really sort of puts it to

Great. So -- so -- I guess just to summarize, like you haven't seen much if any contraction in terms of payables with your vendors?

No , no we haven't. And in the end, it comes down to actively managing this vendor by vendor, and our terms have remained where they have been historically, and we're actively managing that for the merchandising and finance

Do you know how much of your business is done through factors?

About half of the business is factored.

Okay. Okay. Different topic, you talked about the CapEx needed for the new stores this year, how much do you think you are going to have to invest in working capital for those new stores?

Well, I mean , typically, in -- inventory at cost for a new store is about two million and vendor leveraging will range depending on what time of the year 40 to 60% of that

If you look at that entire new store base, the cash need for the store itself it's between four and five million.

Okay. That's for the entire new store base? Okay.

Yes, because the stores don't have that much cash sitting in them.

And the current economic environment has that changed your thoughts on rolling out new stores? Kind of give us an update on how you see growth going forward.

No, to the contrary we're still taking advantage of opportunities. It's not unusual in tough times like this both -- as well as in the real estate markets, that it open opens up opportunities for us. So if anything we're seeking more of those and taking advantage of them.

Great, my last question, not asking you to comment on guidance, but obviously your bank debt covenants start to step down this year, can you give us a feel of how comfortable you are with those?

Yes, this is Todd again. In the planning process we obviously take that into consideration, and give special consideration to the economic environment that we're dealing with. Obviously we're looking at the capital structure.

We're looking at our true cash obligations, our covenant requirements, and taking that all in to consideration. And obviously we would been going forward with this level of capital investment in the Company if we weren't comfortable with our ability to meet all of those obligations. That was -- we put a lot of thought behind that and vetted that thoroughly in our plan this year.

Great. Thank you for answer ing the questions.

Sure.

Our next question comes from the line of Karru Martinson with Deutsche Bank. Please proceed with your question.

Good morning. In terms of how we should look at SG&A with the new store build-out that you have, should we expect to consider -- consider -- that they can continue at these levels, perhaps increase slightly as a percentage of sales going forward with all of the new stores?

No, I think, SG&A increasing as a percentage of sales is going to be a function of comp store sales increases. So I think you saw -- if you looked at SG&A in 2008, and saw as a percent of sales it went up. I mean , I think that's reflective of the negative 5% comp store sales drop that we had in the year. So if we were to generate very modest positive comp store sales, I think you could expect to see that either stay flat or

Okay. But the aggregate number was just because of the store base? We're going to see that increase?

Yes, the aggregate number will continue to increase as we add stores.

Okay. And in terms of the availability of goods in the market, you are going to be lapping some of the early recession kind of starts to that. Are you seeing any change on that front as stores -- as retailers have brought down their inventories already.

This is Jack. In general we're seeing more opportunities as of late than less, compared to last year at this time.

Well that is certainly good news. In terms of the trend right brands Jack that you mentioned, can you give some examples of what you're doing in these store stores, and how is that changing changing, perhaps the customer perception or the customer mix that you are attracting to the business?

Publicly we really don't talk about brands. Our partners prefer us to stay very low-key that is the nature of the off price business. But if you walk in to our stores, I think you would see the brands that we are very proud of well presented and front and forward, and many of them have grown very significantly, plus there's quite a few new ones.

Okay . Are you seeing a shift in your customer mix as people perhaps are trading down to the off- off-price retail channel in these economic

Not a significant shift, but we have always had a pretty broad-based customer base. Our locations typically draw from quite a few miles around our stores in urban locations we have a great mix there, in suburban locations with we have a great mix. We are in several city centers. So basically our customer mix hasn't changed much. Our customer base, everyone wants great brands, great fashion at great prices.

Okay. It might be a little early with this question, just -- the warm winter last year, certainly not about the discount to farmer almanac but expectations for a cold winter to this one. How are we looking at inventories on that side of the business?

Because we are Burlington Coat Factory if you walk in to our stores right now, we have taken a significant position in the coat side of our business. That is very important to us. And fortunately we;re into a fashion cycle in coats, and it's a pretty exciting the product that's being shown by the vendor community. And every morning I wake up and I look to the north and I hopefully see some snow flakes coming earlier this year than last year year. (Overlapping speakers)

Thanks, guys.

Thanks.

Our next t question comes from the line of Colleen Burns from Oppenheimer. Please proceed with your question.

Hi, thank you. With regard to gross margin disregarding the markdown timing shift, but just in general given your supply chain initiatives and other buying opportunities. Do you expect to continue to see positive benefits this year?

Going forward, I think it's going to be a very challenging environment. I think it is well documented in the press what is going on with pricing , and all of the pressures, everybody whether be it supplier, consumer and anybody in between the spacing right now. We are planning ourselves very conservatively, we're trying to make sure we present a a great value to the consumer always, and we're just -- we're very cautious. I think some of the early wins we have had the last couple of years were because of a lot of smart things that my team did, but going forward, we're very

Okay. Just the borrowings on the revolver were obviously a little higher at year. It sounds like that was mostly a timing thing. Do you expect to be out of the revolver in December like you were last year?

Ye, it's -- given the plan that we put together for '09, we would expect to be out for a short period of time in December, and then we'll go back in to it, in -- in calendar '09.

Okay. That's helpful. And just lastly I noticed in your K on the supply chain the change to a regional network, how involved is that, and what is the time line there?

That's actually a transformation that will occur over the course of the next 18 months to two years. And it's really an effort to reduce the amount of transportation miles requires to service the stores, and it's primarily focused on driving better service levels. You heard in Mark's comments that -- that our goal is to begin to move goods from weekend sales back in store by the following weekend. So the regionalization is really an effort to reduce costs, drive service levels, and in doing that really take miles out of the network as we services those stores.

So are you going to be shifting inventory to certain DCs? I mean, do you expect disruption, or how are you managing that?

Obviously don't expect any disruption, and yes, that's exactly the nature is kind of a structured change in terms of how we move goods both inbound and outbound through our network.

Okay and then just lastly I noticed in the K you said you set up an CRM database. Can you talk about how you are using the data and whether you started to see any positive benefits there? Thank you.

We just got it set up over the summer months. The data is very rich and we're spending a lot of time right now reviewing it and understanding it. It's a little bit too early to tell you if we have any significant conclusions, but I am very optimistic about its ability to impact our decision-making going forward.

Okay. Thanks. That's it for me.

Our next question comes from the line of Tom Carroll with Imperial Capital. Please proceed with your question.

Just -- another question on gross margins. I understand the caution in 2009, but is the expectation that they are going to be flat year-over-year? I mean, we're not expect ing a decline, correct?

No. Of course we're not planning for a decline. The specifics about gross margin margin, there's two components. The initial mark-up and what the final margin is after you take your markdowns. My cautiousness is about the initial markups.

With all of the pricing pressure, we need too be smart about how much of a mark-up we take in order to make sure we do not compromise our value to the consumer. Our ability to maintain our gross margins or grow them will be dependent upon how smartly we buy and therefore reduce markdowns. And that's a day in and day out activity that all merchants are aggressively employed in . So I'm just caution mostly about the

Okay. All right. As far as the positive comp stores for the first quarter, I mean, you kind of talked about some of the initiatives resulting in those positive comps. Would you attribute any of that to the trade down affect, or would you say it was entirely based on some of the initiatives you put forth. Or can you discuss that a little bit more?

Again, I don't think I have clear incite to -- to the trade down impact. My gut tells me there are consumers searching for more value out there, and I think us, being a strong valued player, it plays into our strength. I do think most of our success comes from us having the right merchandise. We are product driven. We're not promotional driven, and as long as we keep focusing on great merchandise, flowing it in a fresh and timely manner , I think we'll be very

Okay . Excellent. And as far as the new stores that you have opened, let's say , for example, the last 18 months, can you talk about the performance of those stores and where they fall in terms of their margins, relative to the existing

Yes, this is Fred Han. We're very pleased with the performance of the new stores that we have opened. Yes, we're -- a lot of the efficiencies that we put in to the system has really improved in how we've opened the stores and has contributed positively to the margin line. I can't go in to a lot of specifics, but I can tell you that overall we're very pleased.

Okay. Excellent. Thanks, guys.

Thank you.

Our next t question comes from the line of Ian Wallace with River Run. Please proceed with your question.

Yes, hi, with respect to the new store openings and I'm new to the Company, so I apologize if you walked through this in the past. What is the typical ramp in terms of getting to a positive, kind of fully loaded EBITDA contribution, and then how long does it take a new store, to start to look like an old store?

Yes, we have not discussed that historically, and really don't want to get in to the time frame. Obviously we have analyzed that , and we're continuing to gain incites in to that, but that's not a level of detail we want to get in to in these

Okay. Thank you. And with respect to the -- kind of the trade down. When you look at retail broadly, full-priced retailers are getting killed on comps, and the value players are posting in some cases pretty significant positive comps. And it doesn't appear as though you have benefited from that. Earlier this year , and it looks like this last quarter, comps are finally, kind of basically flat. Why do you think you're not benefiting from the consumer trade down to the extent maybe some of your competitors

I do think we are benefiting if you look at our relative performance over the last 15 months, we have steadily moved up in the pack. We are a combination of an off-pricer and value department store, so we tend to take a little bit of broader point of view on our position within the marketplace. And my opinion is this will continue to be a very strong factor in the economy over the next two to three years. I think value is going to really play into our hands very nicely, and I think we'll continue to do well.

Okay. And do you think that most recent quarterly performance kind of indicates any shift or acceleration in your direction or?

We believe so. We're very caution about being forthcoming in predicting the future. As you know it's a very volatile out there, and you have to earn your stripes every single day. And all of us have a very, very important holiday season coming up in front of us that will determine the health of the year. But we have our eye on the price, and we think we're working very hard towards it.

Great. Thank you.

Our next question comes from the line of John [Brecker] with Longacre Management. Please proceed with your question.

Yes, good morning. Could you give us some color on what you are seeing from your competitors, and what worries you or excites you?

I have a lot of competitors that worry me. We are in a very competitive business, we have a lot of good competitors. And basically it all -- for us it comes down to product. Most of our focus has to be on having great relationships with the right vendor community. Making sure we that negotiate well and hard for a win-win situation within pricing it right.

It's execution. Those people who are doing extremely well, they execute their business model, and like I said in my prepared comments our primary focus is really about executing our core business model.

And could you give us some color on what you saw, from back-to-school period?

We're not prepared to talk about back-to-school yet, when we have our next conference call, which is I think in a little more than a month, on Q1, we'll give you more color on back-to- back-to-school.

Okay. And can you give us an idea of what your liquidity is, your current liquidity?

Again, we don't discuss that specifically, but liquidity is very important to us, if you are talking about inventory liquidity.

No, I'm talking about cash.

Yes. For the fiscal year end, as of May 31, we had 274 million available under the ABL line of credit. There are public holders on the line, so we can't comment on first quarter liquidity, but it's available to the banks, to the administrative agents, and the factors through our portal.

And in your projections, what do you project for free cash flow on a going forward basis now that you have increased your capital expenses program?

We don't provide forward guidance.

I just have to make a comment to you, frankly. You are talking about a slowdown in the economy , you are talking about a cautious environment, which I totally respect. But at the same point, you are increasing your capital expenditures and spending capital, and it doesn't make sense to me frank frankly. If you are being cautious you manage your capital, you don't go and spend at a time that we're all concerned about the retail environment, I'm wondering what your strategy

Well, first, to address , I think your primary question about the -- the affordability of the CapEx, as I explained before, we did put an awful lot of thought into the plans this year. We are taking in to consideration the possibility of what could happen with comps. And while plans are not to have negative comps this year, we have -- we have built in to our plan , the ability, and there is cushion in the covenants, and there is ability, there is liquidity in your borrowing to allow us to move forward the CapEx plan that we have in place.

And there is enough pieces of that, levers that could be pulled if there were a situation that is different than as we're planning right now, if sales deteriorate substantially, we can pull back on a number of those. So we have looked a multiple of scenarios as we have gone through the planning process and again we're comfortable with our ability to meet the cash requirements and stay well within our covenants with the plan that

I think there's good flexibility here. And I think on top of that, you shouldn't confuse the growth strategy, as being -- in some way -- it's part of when the business model was built, was that we were going to grow this chain. And we have much less doors than much of our competitors, and to stay formidable in the market place and compete, we really believe it is imperative that we grow the chain. It does need to accomplish that. And put stores in place where we still don't have them, where our competition does have them.

I respect that. I appreciate that. But at the same point you should be cognizant of the market and do it carefully, and hopefully that's your game plan.

We think we have done that. To be frank you, and we are doing it. And as Todd has said we think there's enough flexibility in what we're doing that we can manage accordingly.

Thank you.

Surely.

Our next question comes from the line of Phillip [Emil with Preprich]. Please proceed with your question.

Hi, good morning . Can I assume that as one of the few retailers that is opening up stores right now you are getting fairly favorable rent deals that will benefit you

Sure we don't comment on our rent deals obviously, but we wouldn't be opening stores if we didn't feel like it fit in to our plans and we could take advantage of it.

The second question, you said the stores that were opened in 2007 contributed about 59 million in revenue this year year. But those stores did about 86 million in '07. Why such a drop-off?

That was just the incremental increase in sales because they are not included in our comp numbers.

Okay. So it's not a direct -- that 2007 class of stores did 60 million in revenue. It's incremental above what we did last year?

Correct.

Sorry one last question. TJMaxx's comps have been pretty good, and you're probably not going to comment on what their comps are. But I notice that there there -- the number of stores that they open from like 2003 to 2006 was about three times what Burlington was opening at that same point. Has that -- has that amount of stores new stores on their part relative to yours really been part of why their comps have been a lot better?

Generally, I feel that you are deserving better comps if you have a newer or younger store base. I'm sure -- again, I don't know their numbers well enough, but in general my experience has been when you aggressively open up store you should expect a payback of having above average comp increases over your old store base.

Don't forget when you are are -- you are look at international business and the valuation of the dollar, so you have to take that into your consideration when you are looking at that.

I was looking at it more in terms of if you are increasing the number of stores that you are opening, should that, two to three years out, imply kind of a sweet spot for comps with those new stores?

It will be part of our plan, I can tell you that. We don't make any forward projections, but it will certainly be part of our plan.

Great . Thank you very

Our next question comes from the line of Todd Harkrider with Goldman Sachs. Please proceed with your question.

Yes, appreciate it. Most of my questions have been answered, but I know you opened a couple of stores in Puerto Rico , can you talk about maybe the number of stores you opened in areas you already have a presence in, versus new trade ares and if there is any differential in performance in those? We're still very committed to every day great pricing, but

This is Fred Han again. Of the 20 stores that we have opened, most of our stores are in existing markets that we're in in the states that we're in. And I will tell you that the stores that we have opened up , the initiative read on them, we're very pleased with the plan and how they opened up. So it 's really hard to differentiate as to market by market, but over all the performance is very good

And the next 20 that you are opening those are going to be for the most part in existing markets as well or?

Yes, Puerto Rico is a new market for us, but other than Puerto Rico, everything else is in existing markets.

Okay.That sounds good. And can you talk about the change in creative media budding in different agencies. What are the catalysts behind that change and has there been a change in philosophy of the Company on how you want to present yourself in front of the consumer? Can you just add a little color there.

The new agency [Kramer Krazlet] is a top notch agency. A lot of very talented people there. We basically wanted to freshen up our approach to marketing. We're still very committed to every day great pricing. But we wanted to come across in a way that was a little bit more modern, a little bit more fresher, a little bit more energy to it.

And like you have probably seen with most retailers over time, there are changes occasionally between agencies in order to kind of freshen up your approach to the consumer. And I think they have done an excellent initial job and we're really excited on what they're walking on going forward.

Sounds good, appreciate it.

Our next question comes from the line of [Carla Posella] with JPMorgan. Please proceed with your question.

Hi, can you give us some color on your top vendors, and if that mix has changed much over the year?

We don't communicate anything about specific vendors, but basically our most important vendors continue to grow with us. There hasn't been a significant change, but there have been some changes.

All right. All of my other questions were answered. Thank you.

Thank you.

Our next question comes from the line [Bishi Parett] with KBC Financial. Please proceed with your question.

How are you doing? My question has been answered. Thank you.

We have time for one more question.

Great. Our next question comes from the line of Paul [Drewkowski] with Brownstone Asset Management.

Hi, good morning. Thanks for getting me in last here. Just wanted to ask a question on your cash taxes, even though your earnings before taxes have been negative for the last few years here , you are still a fairly significant cash taxpayer. Can you just walk through why that

Sure. The significant amount of the cash taxes are coming from timing difference as a result of the purchase accounting from the acquisition. So we had a substantial gross up of fixed assets of over $460 million when we did the acquisition, and all of that booked depreciation is not deductible for tax purposes. ANd that accounts for about 24 million in additional cash taxes against our benefit for tax -- income taxes that's reported on our full-year P&L.

And same thing for adjustment for favorable lease amortization. We put over $500 million in net favorable leases on the balance sheet with purchase accounting that we amortization. We took $43 million in amortization in 2008 that's deducted for booking comp, but you don't get that deduction for tax. And the other significant piece is for impairment charges. Again, deductible for book but not for tax. So most of the difference in cash tax versus the benefit for income tax that you see on the P&L is as a result of those items.

Great. Thanks very much.

That concludes our Q&A session. Mr Nesci, I will now turn the conference back to you. Please continue with your presentation or closing remarks.

Thanks to all for participating in today's call. Before I conclude the call I want to share with you a personal decision that I have made. After an extremely rewarding 36-year at Burlington Coat Factory I have decided to retire as Chief Executive Officer effective when m successor has been identified and transitioned in to the Company.

I am playing an active in this search that has recently begun for an outside candidate with proven abilities. There is no established timetable for this transition, because the priority is to find the right person to lead the Company through this period of accelerated growth that we started two years ago. After my successor is identified and integrated in to the business, I plan to continue my affiliation with Burlington as an advisor of the Board of Directors. I will consult Bain Capital and selected portfolio companies and on future investments. And of course, I will remain a significant equity investor in this company. I believe in it.

I am very proud of the successful brand that Burlington Coat Factory has established over three decades, as we've grown from one store to 400 stores. I may be retiring, but I firmly believe that this business model and the principals upon which this company was built will be the same principals that will be bring us future success. Over the past few years, we have made tremendous progress in executing our growth strategy.After some tough quarters, our business is gaining traction as we achieve positive comparable store sales in our first quarter this year. We have improved margins while managing overhead expenses without sacrificing growth.

Through tremendous efforts by our field and corporate teams, we successfully opened new 59 new stores since the Bain buyout, with another 20 planned to open this fiscal year even in this tough economic environment. Since the buyout we continue to generate positive cash flow from operations which allowed us to pay down 73.5 million in debt. In addition, your existing credit facility provides us with more than sufficient availability of funds, and there are numerous other initiatives that are underway that will continue to support our growth strategy.

With the management team in place, the Company is poised to execute its growth strategy more aggressively. I believe now is the appropriate time to allow a new leader to assume the helm. I am committed to continue to drive this business until the new CE is successfully integrated into the business and to ensure that this transition will be seamless.

Thank you again for your support, and please feel free to contact either Todd, Bob, or myself if you have future questions. Thank you operator, our call is concluded.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.