Burlington Stores Inc (BURL) 2013 Q4 法說會逐字稿

Good morning and welcome to Burlington Stores' fourth quarter and FY13 earnings conference call. The call will begin with prepared comments by Management followed by a question-and-answer session.

(Operator Instructions)

Please note today's call is being recorded.

I would now like to turn the call over to Bob LaPenta, Burlington's Treasurer. Please go ahead, sir.

Thank you, Operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fourth quarter and full-year FY13 operating results. Our presenters today are Tom's Kingsbury, our President and Chief Executive Officer, and Todd Weyhrich, our Chief Financial Officer.

Tom will begin with a brief overview of our fourth-quarter financial results and discuss some recent developments while providing the discussion of our ongoing transformation. Todd will then review our financial results and future outlook in more detail before we open the call up for your questions.

I need to remind everyone that information on today's call is primarily related to the Company's results of operations for the fourth quarter and fiscal year ended February 1, 2014. As a reminder, due to the 53rd week last year, our comp store sales for the fourth quarter and fiscal year have been calculated on a shifted basis by comparing comp store sales for the 13 and 52 weeks ended February 1, 2014 to the 13 and 52 weeks ended February 2, 2013.

I would also like to remind you that on our comparable P&L discussions about our fourth quarter and fiscal year are related to the 13 and 52 weeks ended February 1, 2014 compared with the 14 and 53 weeks ended February 2, 2013. Last year's 53rd week resulted in incremental sales of approximately $54 million, incremental adjusted EBITDA of $0.5 million and a $3 million adjusted net loss primarily driven by an incremental week of depreciation, amortization and interest expenses.

Also, as noted in the press release, pro forma weighted average shares outstanding in our disclosures represents the weighted average common shares outstanding during the period giving effect to the conversion, stock split and issuance of 15.3 million shares of common stock offered by the Company as if the offering occurred at the beginning of our FY12 year.

This call may not be transcribed, recorded or broadcast without our expressed permission. A replay of the call will be available for seven days.

Remarks made on this call concerning future expectations, events, strategies, objectives, trends or projected financial results are forward-looking statements and are subject to certain risks and uncertainties. Actual risks 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 S-1 and in our other filings with the SEC, all of which are expressly incorporated herein by reference. Now let me turn the call over to Tom.

Thank you, Bob, and good morning, everyone. Thank you for joining us today. Let me begin by saying that I am extremely pleased with our performance not only in the fourth quarter but for the full year.

We had strong performances in all four quarters, leading to the full-year results we are proud to share with you today. These results cap a truly transformative year for Burlington as we enter the public equity markets with our IPO in October and we executed on all three of our growth strategies. Driving comparable store sales growth, continuing to grow our store base and expanding our operating margins.

We delivered a strong sales and bottom-line performance in both the fourth quarter and the full year. Specifically for the fourth quarter, we delivered a comp store sales increase of 4%. In FY12, certain stores were directly impacted by Hurricane Sandy and were not included in our comparable store base. In 2013, including these stores, comparable stores store sales increased 4.3%.

For the full year 2013, we delivered a 4.7% comp and 4.9% if Hurricane Sandy impacted stores are included. Our total sales increased by 7.2%, adjusted EBITDA increased by 16% and our adjusted EBITDA margin expanded by 70 basis points. Our adjusted net income grew 18% to over $70 million. And our pro forma diluted adjusted earnings per share grew 15% to $0.95.

In addition, we opened 21 net new stores and completed the year with much leaner inventory position with comparable store inventory down 9.2%. Later, Todd will provide additional detail on our 2013 financials and our 2014 full year and Q1 guidance.

We're very proud of these solid results especially in light of the fact that they were delivered during a challenging time in the overall retail environment with a very promotional holiday period. We're executing as we planned and ended the year extremely well positioned to achieve our future financial and operational goals.

A strong comparable store sales growth for the quarter was driven by continued progress in merchandising execution. This includes having substantial liquidity to take advantage of the great in-season buying opportunities, continuing to expand our vendor and brand base which provides customers with expanded selection of fresh styles and improving our merchandise localization.

The continued growth in the quality and quantity of our vendor base has helped fuel this strong performance. We ended the year with over 4500 brands and we clearly see more opportunities to grow our vendor and brand base and improve the variety of styles and mix we offer our customer.

We meaningfully increased our better and best receipt unit penetration during the year with increases coming from most businesses. We saw similar increase in branded receipt units. These increases resulted in improvements to our assortments and contributed to our continued strong performance during the year.

In addition, we are beginning to see benefits from our new West Coast buying office which opened in October and is already helping us to open new vendors and brands in a number of our product categories.

We did benefit from the colder weather during most of the fourth quarter, which was a key contributor to our performance in coats and other cold related items. But consistent with what we have heard from other retailers, our business was disrupted by the unusually stormy winter weather that affected many parts of the country. Despite these disruptions we delivered a positive comp performance across all of our territories and continued to feel confident about our improvements in in-store execution.

I'd like to provide an update on a few other initiatives that impacted all of our regions and categories. Coming out of last year we recognized an opportunity to provide a stronger gift impression for our customers. This year we focus on clear gifting strategies across all of our businesses. We were pleased with the results in the fourth quarter but we took a fairly conservative approach in this area in 2013 and see opportunity to expand this concept and improve our execution for the fourth quarter of 2014.

We continue to make progress on our localization initiatives. This year we made progress in terms of tailoring our assortments across brands, lifestyles, sizes and climate. In addition we improved the timing of our seasonal transitions by region allowing us to get the right products to the right locations at the right time. We are looking forward to the continued positive impact localization will have on our results.

Inventory management continues to be an important initiative in driving comp performance and we continued to make great strides on this front during the quarter. We are very pleased with the level and currency of our inventories at the end of the quarter as our comparable store inventory level decreased 9.2% versus last year which contributed to 11% faster comparable store turnover during the year. In addition, the level of inventory aged 91 days and older continued to decrease versus last year. All of these metrics are contributing to improvements in freshness on our selling floors which we are focused on providing to our customers every day.

We continue to improve the execution of our buying strategies throughout this year and continue to refine the balance of our upfront and in season buys in each category. We took advantage of some great back away opportunities in the fourth quarter of FY12 positioning us well for the highly promotional environment around the holidays. We utilized our pack away inventory to provide strong value for our customers while providing the profit margin we expected.

At the end of the quarter, pack and hold inventory represented approximately 24% of total inventory versus 13% last year. As we've stated before, we do not set targets for inventory levels for pack and hold product as our buys are dependent on the availability of highly desirable branded product or key seasonal merchandise at strong values. We will continue to utilize our pack and hold inventories to deliver great brands at exceptional value to our customers.

Our expanded retail store base also contributed to our growth in Q4 delivering $50 million increase in sales from new and non-comparable stores. We are pleased with the performance of the stores we opened in 2013. We are excited about our approved deals from 2014 which include opening spanning from Brooklyn, New York to Burlington, Washington. We remain confident in our plans to open approximately 25 stores in 2014 and beyond and continue to believe that we have significant white space for growth to 1000 stores over the long term.

Finally, we remain focused on delivering improved operating margins. For the full year we delivered adjusted EBITDA margin expansion of 70 basis points over the last year. This improvement was driven by our strong comparable store sales growth, improved merchandise margins and expense leverage.

Our results for the full year were ahead of the guidance we provided on our third-quarter call and our long-term margin expansion targets. Todd will speak to our margins and our overall financials in more detail, so let me turn the call over to him. Todd?

Thank you, Tom, and good morning, everyone. Thank you for joining us today to discuss our operating results for FY13.

As Tom mentioned, we had a great fourth quarter with a comp store sales increase of 4% and 4.3% when including those stores impacted by Hurricane Sandy last year. We had positive comps each month with our strongest performance in November as we benefited from improved execution and cold temperatures. Like other retailers, our comps for the rest of the quarter were impacted by six fewer selling days between Thanksgiving and Christmas and unfavorable weather in January. But overall, we were very pleased with the quarter as a whole.

Gross margin rate improved 30 basis points to 41.7% this year primarily due to improved merchandise margins. Cost to process goods through our supply chain and buying costs, which are included in selling and administrative expenses, rose by a similar rate as expected. As a percentage of net sales, selling and administrative expenses exclusive of advisory fees increased 20 basis points to 28% during the quarter. Positive leverage was achieved from store expense reductions, primarily from payroll efficiencies.

However, the fourth quarter last year was positively impacted by the reversal of incentive compensation accruals while the fourth quarter this year includes compensation expense associated with performance better than plan. The compensation expense difference resulted in an 80 basis point increase in expense quarter over quarter which was partially offset by improved leverage on store payroll of 40 basis points and occupancy and other store expenses of 30 basis points.

Adjusted EBITDA increased by 2.2%, or $4.2 million, to $194.8 million representing a 10 basis point improvement in adjusted EBITDA margin rate for the quarter due largely to sales growth and gross margin expansion which more than offset the incentive compensation impact I just mentioned. Without this impact, adjusted EBITDA margin for the quarter would have improved 90 basis points.

Depreciation and amortization expense, exclusive of net favorable lease amortization, increased $900,000 from last year. Interest expense decreased $2 million and our adjusted income tax provision increased by $8.5 million resulting in a decrease in adjusted net income of $1.4 million to $81 million during the fourth quarter compared to last year. Pro forma diluted adjusted net income per share decreased to $1.07 versus $1.15 last year. And our pro forma weighted average diluted shares outstanding were 75.4 million shares versus 71.9 million shares last year.

For the full year, net sales increased 7.2% and comp store sales grew by 4.7%. 4.9% including a comparable stores impacted by Hurricane Sandy. Gross margin rate improved by approximately 30 basis points to 39.1% due to improved execution of our buying model as Tom discussed. SG&A, exclusive of the advisory fees as a percent of sales was 31.4%, approximately 30 basis points better than last year.

Positive operating leverage was achieved in store expenses primarily from efficiencies in payroll and occupancy costs and advertising expense. Offsetting these were higher supply chain and merchandising costs and the incentive compensation costs driven by our better performance this year.

Adjusted EBITDA increased by 15.6%, or $51.7 million to $383.7 million, representing a 70 basis point improvement in adjusted EBITDA margin rate. The increase in rate was driven by our 7.2% total sales increase and improvements in both gross margin rate and SG&A leveraging. Interest expense increased by $13.8 million to $127.7 million due to interest associated with our $350 million HoldCo notes issued on February 14, 2013 partially offset by a decrease in interest expense associated with our term loan repricing which was completed in May of 2013.

Adjusted tax expense was $47.1 million versus $23.1 million last year and the adjusted effective tax rate was 40.1% versus 27.9% last year. The increase in the rate is a result of the recognition of tax credits and the reversal of uncertain tax positions last year. In addition, this year's rate was negatively impacted by the write-off of deferred tax assets related to vested stock options exercised.

Adjusted net income was $70.2 million versus $59.6 million last year, or $0.95 per pro forma diluted share versus $0.83 per share last year. The pro forma number of diluted shares outstanding was 74.3 million versus 72.1 million last year.

At the end of the year we had $133 million in cash, no borrowings on our ABL and $456.2 million in unused credit availability. Today, we have no borrowings on our ABL and have availability in excess of $500 million. At the end of the year, we had $1.4 billion in debt of which $59 million was classified as current primarily related to our intention to pay $58 million of our HoldCo notes in April. These noTes will be redeemed on April 4.

Merchandise inventory at the end of the year was $720.1 million compared with $680.2 million last year. The increase reflects increases in pack and hold inventory of approximately $85 million to a year-end balance of $175 million and the result of 21 net new stores. These increases were partially offset by a comparable store inventory decrease of 9.2% from the fourth quarter last year.

Accounts payable increased $42.6 million to $543 million at the end of the quarter representing 79 days of accounts payable outstanding reflective of our normal payment terms for inventory at year end.

For the year, we had a net increase in cash of $89.6 million. Cash flow from operations was $289.4 million which was partially offset by $168.3 million in cash spend for capital expenditures and cash used in financing activities of $34.9 million.

To give clarity on capital expenditures, our cash spend was $168.3 million and we received landlord allowance payments of $41.6 million for net cash spend of $126.7 million. In addition, we had $8.3 million of capital expenditures incurred but not yet paid for bringing our total capital expenditures on an accrual basis to $135 million.

I would now like to spend a few minutes on our full year 2014 and Q1 2014 guidance. We previously introduced long-term targets that on an annual basis included comparable store sales growth in the range of 2% to 3%, adjusted EBITDA margin expansion in the range of 10 to 20 basis points and adjusted net income growth of more than 20% each year. The guidance we are providing today is in line with those long-range targets, but we do expect somewhat higher 2014 earnings growth.

For the full year, we continue to expect our comparable store sales to increase between 2% to 3%. We expect comparable store sales in line with our annual guidance in each quarter of the year. We currently expect to open 3 stores in the spring and 22 stores in the fall. This range of comp store sales and the store opening expectations imply a total sales growth rate of 5.8% to 6.8%.

The timing of our store openings is often driven by our opportunistic approach to site selection. Many of the sites we open transition from other retailers and as such the timing can move. We continue to focus on our pipeline of deals and expect to move toward a more balanced split between first half and second half openings in future years.

We expect that our gross margin rate will be somewhat higher this year as we continue to evolve the execution of our buying model, but also expect that our buying and supply chain costs, which are included in selling, general and administrative costs will increase but at a lesser rate as we continue to invest in the merchandising organization to support the needs of the growing vendor base and in supply chain to process the goods bought more opportunistically. We expect that we will continue to pass the same great values onto our customers.

SG&A is expected to delever modestly driven by primarily the product-related costs discussed earlier and occupancy and related costs. Even with these increased costs, we expect EBITDA margin to expand 10 to 20 basis points consistent with the guidance we provided during the IPO. Interest expense is planned to be approximately $103 million and we anticipate a tax rate of approximately 40%.

We expect pro forma adjusted fully diluted earnings per share of between $1.25 to $1.35 per share using an estimated 75.5 million weighted average shares outstanding. We expect 2014 capital expenditures of approximately $190 million net of $40 million of landlord allowances which includes a shift in spend of approximately $10 million from FY13 to FY14 driven by the timing of expenditures related to our new office building.

We expect to continue to utilize our free cash flow to pay down debt. Depreciation and amortization expense is expected to be approximately [$145] million.

For the first quarter ending May 3, 2014 we expect comparable store sales to increase 2% to 3%. Total net sales are expected to increase in the range of 5.4% to 6.4% and we plan to open two new stores. Adjusted earnings per share are expected in the range of $0.19 to $0.23 per share, up from $0.08 per share last year. I will now turn the call back over to Tom.

Thanks, Todd. Again I'd like to reiterate how delighted we are with the performance in Q4 and for FY13. We've done some great work over the past few years refining our model and putting the systems and processes in place to drive growth and improved performance, and we are only starting to see the benefits of these initiatives. We remain extremely confident in our ability to continue to transform Burlington into a leading off-price retailer and are excited about the opportunities we see for 2014.

We ended the year with very lean inventories and great liquidity and flexibility which positions us to take advantage of the many great deals on fashion branded merchandise we see in the marketplace. We will continue to deliver growth by driving comparable store sales, growing our store footprint and expanding our operating margin.

In closing, I'd like to thank our store and corporate teams for their hard work that made this performance possible. This concludes our prepared remarks so let me turn it back over to the Operator to start the Q&A session.

(Operator Instructions)

Brian Tunick, JPMorgan.

Congrats on the year. Two questions for you. One, can you talk a little about the pack and hold, that 24% increase and how we should think about that running through the P&L? I know I think last year in the spring and going to the Q2 season, that that was a nice thing to have in your pocket and helped the Q2 comps. So wondering how we should think about pack and hold from a margin and comp potential.

And the second question, talk about how coats, women's ready to wear and home, the three categories you've been talking about all performed during the holiday season and any tweaks you might be making into next year? Thanks so much.

Hi, Brian, this is Tom. First to talk about the pack and hold. As you know we really don't have targets, hard targets for pack and hold. We really let the deals come to us and so it's really hard to really predict what pack and hold will be. But as you can see that lately our pack and hold levels have been higher than historical levels ending at 24% versus 13% at the end of the year. We were able to secure a lot of great deals for spring and obviously we're buying product now for next fall and it's one of our more profitable businesses for us. So we continue to buy the deals as they come and it contributes a higher gross margin than other types of buys.

As far as coat and ready to wear and the home goes in terms of performance, obviously based on the cold weather, coats outperformed the Company. It was above the Company but not by a tremendous amount because candidly we had really broad-based good performance across all categories overall. Our missy sportswear business significantly outperformed the Company. Our dress and suit business significantly outperformed the Company. So we're really pleased with our performance not only for the quarter in missy sportswear but also for the year. So that's done very well.

As far as the home goes, we had a really strong performance in our houseware business and also in our luggage business. We -- our home textile business and our home decor business wasn't as good as we anticipated, to be candid for the fourth quarter, but for the season and for the year, the home outperformed the rest of the Company.

We've done some structural changes to home to continue to try to capture the opportunity that exists there. We have a dedicated general merchandise manager now just for the home. We've added some divisional merchandise managers in the home for support and additional buyers. So we really feel confident that we're prepared to take advantage of the opportunities in the home going forward. So overall though, we were very pleased that our performance in the fourth quarter was real across many different categories.

And did you make any comments about regional performance outside the weather-impacted markets?

To be honest with you all of our territories had positive comps. For the fourth quarter, the West and the Northeast outperformed the other territories but candidly, they were very -- it was very, very close in terms of the overall performance. We really had again as we did in the businesses, very broad-based performance throughout all of our regions.

All right, terrific. Thanks again and good luck for spring.

Thanks, Brian.

Kimberly Greenberger, Morgan Stanley.

Really nice results this morning. I wanted to know if you could look out to 2014 you talked about 10 to 20 basis points of expected adjusted EBITDA margin expansion. Clearly, there are a lot of things going on in 2014. Is there an opportunity to do a little bit better if things were to go your way this year? And if there is an opportunity to do a little bit better, can you discuss what the drivers of that might be?

And then secondarily I wanted to ask about debt pay down. I'm not sure that I got the comments correct. But I didn't have any debt pay down in my model until 2015, is that still the expectation or is there maybe an opportunity to pay some debt down here in 2014? Thanks.

Okay this is Todd, I'll take that one. I think for our overall guidance for this next year as I stated in the prepared remarks upfront, we do expect that our gross margins will go up a bit this year and that's really just the evolution of our buying model as we continue to buy more opportunistically and as our buying team continues to mature.

And we also are expecting very consistent with what we said during the IPO that we're going to continue to invest in both supply chain and the merchandising teams to support the growing vendor base and to make sure that we're properly supporting these businesses that we're trying to expand. So we are looking when you net those together to get some positive flow through impact.

We also mentioned that there's a little bit of change in terms of what the expense structure is in occupancy. And that's just as we look at the stores that have come on, we get a little bit of delevering this year in that area.

Consistent with what we said during the IPO though, we want to make sure that the results that we are projecting are realistic in line with what the environment is right now. The macroeconomic factors are still uncertain. We're up against what we think is a very strong year with 3.4% comp in the first quarter, approaching 8% in the second and basically 4% in both of the quarters in the back half of the year.

So as we look at what our comp store sales projections are we think that these are appropriate and realistic in the environment that we're in. And as we look at the flow through, how we expect our margins to work through and how we expect our cost structure to change, we think these are appropriate and realistic targets for us to have. That said, we're always looking to do the best that we can, but we think these are appropriate given the environment that we are working in right now. Regarding the debt pay down, I'll let Bob take that one.

Sure I'll take it. Hi, Kimberly. So we gave notice that we intend to pay $58 million of the 9% HoldCo notes on April 4. And that's the only planned debt pay downs we have, but as free cash flow becomes available, we'll look at paying additional debt payments down above our required amortization payments.

Probably, most likely would be term loan prepayments. The senior OpCo notes aren't callable until February of 2015. So as we get closer to that date, we will look opportunistically at any opportunity to refinance with that debt structure.

Terrific. And does the $103 million of interest expense guidance for the full year contemplate that debt pay down in April?

Yes, it does. It incorporates that $58 million pay down.

Okay. Terrific and good luck for the spring.

Lorraine Hutchinson, Bank of America.

This is Heather Balsky on for Lorraine. I was hoping you could talk about what you're seeing in terms of the competitive environment, how things looked in January and February and quarter to date in general? And how you're working to offset some of the headwinds. Some of your competitors have talked about being sharper on pricing and that sort of thing. Thanks.

Okay, in terms of the competitive environment, obviously the environment is always very competitive. The holiday season as everyone knows was very, very promotional. I really can't address what's happening currently in February and March. Obviously we'll have a first quarter conference call in June which we'll discuss and give more color on that overall.

But candidly what we're doing is what we've been doing for the last year and which resulted in the kind of performance we had in 2013 is we're really focused on continuing to execute the off-price model. Making sure that we utilize every tool available to continue to bring great value to the customers every single day.

We're focused on making sure we have plenty of open to buy so we can go in the market every single week and buy great deals. We talked a little bit earlier with Brian about pack and hold. We're continuing to ramp up our pack and hold and that's obviously a lot of great brands and a lot of great value.

And we're really focused on making sure we have fresh product in the store. We've done a very nice job of reducing our old aged goods and we have a very high percent of total now in goods that were received in the last 30 days which is our focus. So it's very competitive but as long as we stick to executing the off-price model superbly, we can counteract anything that comes our way as we did in the fourth quarter.

Thanks. And as a second question, in terms of inventory, how do you think about where inventory levels are going to be year over year as we go through the year? Are you -- you ended 4Q very, very lean, do you expect that to stay at that level for next year or this year, sorry?

Yes, we're really focused on improving our inventory turns. We had nice improvement last year. But I anticipate that we'll have the same kind of comp store decreases in inventory for the foreseeable future. We just really feel that weekly sell -- improvement in our weekly sellthroughs is really key to running the business. So yes, we're anticipating to have lean inventories and turn faster.

Great. Thank you very much.

Stephen Grambling, Goldman Sachs.

Was wondering if you could give a little bit more detail around the drivers of the merchandise margin expansion between things like mix shift, shrink, mark ups and mark downs?

This is Tom, I'll take that one. As far as the fourth quarter goes, we basically -- the mark up was basically consistent with the prior year. Our mark down as a rate was slightly better and our shrink was slightly better. So those -- the two real drivers were really mark downs and shrink reductions.

Great. And then changing gears a little bit, as you think about the opportunity for gifting and the conservatism you took this year, was that related to your marketing and promotional stance for select products or are there categories where you were too light or even didn't have?

We had gift items throughout our entire merchandising organization. It was really -- the prior year we really weren't in -- we didn't have a great gifting strategy. So in 2013 in the fourth quarter we really began with this gifting strategy. So we are testing some categories were better than others et cetera, et cetera. But we feel that in 2014 we can do even more in the gifting categories because of the performance that we had this year.

Great, that's helpful. Best of luck.

Paul Lejuez, Wells Fargo.

It's Tracy Kogan filling in for Paul. I was wondering if you guys could talk a little bit about your remodeled and refreshed stores, what kind of bump are you seeing to sales and profits and what's the average cost these days for your remodels? And then secondarily, how many stores do you expect to remodel in 2014? Thanks.

All right. We've discussed this a bit in the past and our strategy as it relates to remodels and refreshes is really pretty simple. We've been working through over the last number of years making sure that the shopping environment that we have for our customers is what it needs to be and there's been a lot of aspects to that. And it's primarily been in terms of getting the right product in front of them and making the store easier to shop.

So along with those merchandising initiatives, we've also been looking at just what the store environment is. And so what we do in terms of refreshes and to level set where we're at the end of the year, 68% of our stores are either new, remodeled or refreshed since the acquisition by Bain basically eight years ago. So there are a number that we haven't touched yet, but we obviously started with the ones that we thought were appropriate to start with and in the most need.

But from a refresh standpoint, it's basically replacing carpets, it's redoing baths or redoing fronts of the stores, cashiering areas where it needs to be. It really comes down to making the shopping environment appropriate. What we don't want to do is spend money that just makes the store look glamorous or looks beyond what it needs to be. We want to undoubtedly put forth an off-price image but have a good shopping environment.

So those refreshes that we do, and there were roughly 50 of those this year, those range between about $200,000 to up to about $0.5 million per store. We looked at those more as being defensive than being offensive. There are occasions where we do get positive payback on those but we look at those as just necessary to have the right shopping environment.

We do a limited number of remodels each year. There were just less than a handful this last year but they were in big important stores for us. A lot of the times those do have a payback, not quite at the same level as our new stores but they are meaningful. We only do remodels in very important stores, high-volume stores and where they are important for the market impression.

This year, we'll do between five and eight remodels. Again, focused on stores where we do think we get some level of payback and where it's important for the perception across the market. So that said, we'll continue down that path as we've indicated with roughly 35 refreshes each of the years going forward in our capital plan.

Great, thank you. And one separate question, can you talk about the drivers of your comp increase, what were your AUR, your UPT, your transaction counts, traffic, whatever metrics you guys can provide? Thanks.

Okay. Traffic was slightly up. Our AUR for the fourth quarter was slightly up. The average basket is where we experience the biggest growth overall. And unit transactions were up. So traffic slightly up, AUR slightly up and the unit transactions were up.

Thank you very much.

John Morris, BMO.

Congratulations in a pretty tough environment. First of all briefly, I think if I picked it up, Todd, you said a comp cadence even on a quarterly basis in the coming year would be about in line with your guidance of 2% to 3%. And I'm wondering, is that even despite the variation with comp compares ranging from 3% to I think the 8% toughest increase in Q2?

And then secondly, the new stores that you anticipate opening, 25 of them in the coming year, any of those particularly you want to call out in terms of some of the larger store openings where you would characterize as flagships? What markets would those bigger stores or more meaningful flagships and where they might be in the coming year?

And then finally, heard your comments already on inventory, sounds like you're in really good shape. I want to know, Todd, is that a little lighter than where you want to be? Are we expecting to actually see in the range of negative high single on a go forward basis? I think you touched on that but I want to clarify that it would be up in that range or down in that range on a go forward basis? Thanks.

Okay, this is Todd. I'll take the first one. The comp cadence during the course of the year we did indicate on the call that we do expect to be in that range each one of the quarters. And it is a good question because we obviously had actually pretty consistent performance during each of the quarters of the very strong second quarter.

And as we've thought through our plans for this year and thought through the strategies and the inventory positioning that we have, we -- right now we're confident in being able to deliver in that range each one of the quarters. I think on the new stores in the inventory Tom may want to have some comments on those.

Hi, John, how are you doing?

Thanks, Tom.

As far as big markets go we're opening a store in Brooklyn, New York as I mentioned in the prepared remarks. We're opening a store in Chicago. And actually we're opening two stores in Brooklyn. They're all going to open next fall. We're also opening a big store in Orlando, Florida.

So four big -- four really big markets really I wouldn't call them necessarily flagship, but obviously they're going to be big volume stores for us. We're really, really confident that they will -- they'll do well.

As far as inventory levels, as I mentioned our comp store inventory levels are going to continue to decline. We really feel that we have enough inventory to really drive our business and we're focused on the quality of our assortments versus the quantity of assortment. In terms of the level of assortment, we really feel that we need to pick better and we feel that we can do with less inventory. Our customer has told us over time that they feel that we have too much inventory in our stores and so we're reacting to their feedback and we really feel it's important that we continue to reduce our comp store inventories.

Great, thanks. Good luck.

John Kernan, Cowen and Company.

Back to the real estate side of things, what are you hearing and seeing out there from landlords? Todd, you mentioned that maybe there'd be a little bit more occupancy deleverage this year. There's obviously -- seems to be pretty available real estate opportunities out there given some of the closures, some mid tier department store competitors have announced.

Any comments on what you're seeing in terms of occupancy costs and real estate availability in general? Thanks.

Sure and then -- sure Tom will want to weigh in on this as well. But in terms of occupancy costs, the change that we're seeing this year there's a lot of moving parts. We have new stores that are coming on and annualizing. We have older stores that are up for renewal. You'll recall over these last couple of years we've opened some what are truly flagship stores. And as those come on that's part of what's driving the occupancy deleveraging.

In terms of major changes in the underlying rent cost, we are not seeing that. Obviously it comes down to as we've talked about in our underwriting, it's really location by location. And typically in locations where the rent maybe a little bit higher are typically the ones that we expect higher volumes.

So when we underwrite our stores, we're looking at the top line, we're looking at the bottom line, we're looking at the flow through, we're looking at payback time frame. And clearly what we are wanting is to make sure that our new stores as they come on are accretive to our base so we have a focus on that.

Clearly there's a good amount of real estate available and our real estate team is constantly in contact through our brokerage network as we have been the last several years but also where other retailers may have opportunities where they may be getting out of stores.

So we feel good about the real estate that's available. We feel good about our site selection and feel good about our expansion plans both for this year and beyond.

Okay, that's helpful. Also, Todd, embedded in your -- helpful comments surrounding inventory, but embedded in your free cash flow outlook this year how should we expect and model net working capital? Do you expect an inflow or outflow there?

I'll take that one. So I think with 25 new stores coming on board, we can expect to see a modest increase in cash used and working capital. And then depending on the extent of the comparable inventory decline and the level of pack and hold that we'll accumulate from quarter to quarter could vary a little bit in those numbers. But I think overall from a high level, I think you'll see a modest increase in the working capital.

Okay, that's helpful. And if you don't mind me sneaking one more question in, with the vendor base and the expansion of the West Coast buying office, any comments on how that's going to evolve this year and beyond and how much more room you have to expand that? Thanks.

Well we added 1000 vendors this year, net vendors this year overall. We're continuously looking at our vendor mix and in round numbers we probably added 2000 new vendors this year, we got rid of about 1000, so a net 1000 overall.

As far as the West Coast goes, we think it's going to be very, very helpful for brand expansion because of having a group out there that can be in the market every single week looking for brands that would really be good for our assortments overall. But we really feel that based on some of the numbers that we've heard from other -- some of our competitors that we still have a lot of opportunity to grow our vendor base and that's something we're really focused on.

And as Todd mentioned, we've invested in our merchandising group overall. So we have more feet on the street looking for more and more brands. So our key is the treasure hunt and we want to have as many brands as possible for the customers to choose from. So we feel that it's a big opportunity for us across all of our business categories.

Okay, thanks. Good luck.

Pamela Quintiliano, SunTrust.

Congrats on a really solid quarter in a very challenging environment. So two quick follow ups from previous questions. You mentioned new talent in home, can you tell us when we should see a meaningful difference in the stores?

And then also you mentioned plenty of open to buy. Is there any way to think about that in terms of quantification or if there's any meaningful change from what was done previously?

Okay. We've already seen some progress in the home business overall as I mentioned especially in housewares and in luggage. We've also have been transforming our stores in terms of the presentation in the stores as it relates to the home business.

We really feel confident in the first half of this year we're going to have a very, very good performance in the home store and obviously the second half we think it's going to get even better. So we really feel we've put all the pieces in place to have a very successful performance in the home business for 2014.

As we've mentioned before it's one of our biggest opportunities and we feel that obviously there's more focus on it especially with a dedicated general merchandise manager running the home business overall. So we feel that we have everything in place and we're going to do well in the future. So what's your second question?

The second follow up because then I had another one for you, but was the open to buy positioning, can you remind us if there's any change there?

Well we're continuously scrutinizing how much product we're buying before the season begins which we call upfront purchases. We're trying to minimize that as much as possible because of all the availability for pack and hold and optimistic buys and we really want to buy in season. We really think it's important. We want to chase the business overall it's -- we feel we're going to be much more successful.

But fundamentally it's the same as we've been doing but we really feel that we really want to scrutinize what we're buying upfront. And our merchant team led by Paul Metcalf, they look at that all the time in terms of which manufacturers we should be buying upfront and which we don't need to. So it's an ongoing process. But in general, we want to buy less upfront.

Okay. And then quickly in terms of larger versus smaller stores, was there any difference in performance in 4Q? And then is it safe to assume that the majority of this year's class is going to be on that lower square footage base? And then lastly advertising campaigns, can you comment on the effectiveness in 4Q and if you're doing anything different versus prior years in terms of timing or penetration going forward?

Let me address your first question. The stores that are 60,000 square feet or smaller, the dollar per square foot is better than the total average. As far as what our future looks like in terms of 60,000 square foot stores, we opened -- or less, we opened 11 in 2013. Our average was slightly over 60,000 square feet.

In 2014, we're looking at an average of around 61,000 square feet. So to remind you, the average was around 80,000 square feet and we're really looking at stores that are 50,000 to 60,000 square feet in terms of size. We feel that they're going to be much more productive.

As far as marketing goes we're still in the process of evaluating our marketing for the fourth quarter. We still have a lot of analytics that we need to do in order to evaluate our overall performance there. So maybe in the next conference call we can give you a little bit more color on that.

And is there any change at all when we think about 1Q if there'll be any more campaigns or timing or anything like that?

Our campaigns continue to evolve. The campaign that we just started actually last week it's a little bit different than the campaign that we had in the fall season. We call it testimonial. It's more of the customers talking about the great deals they're getting at Burlington and we feel that the feedback we've gotten from the customers so far has been very, very positive.

Great, thanks so much. Best of luck.

Dana Telsey, Telsey Advisory Group.

Congratulations. It really seems like one of the differences for this quarter and as we end the year is the enhanced execution, whether it's on the vendor side that you've added, whether it's on the West Coast facility that you've opened. As we think about next year when we're sitting here a year from today, is the number of vendors going to 5,500 or 6,000 vendors?

And as you see the opportunity for gross margin, is it more on the AUR side from what you're seeing? Is it more on volume and velocity through the stores? And do the smaller stores get different average transactions than the larger stores? Thank you.

As far as vendors go, we really feel confident that we can add 1,000 net new vendors every year. We feel very good about that. So at the end of next year -- or end of this year, 2014 we probably will have 5,500.

But it's a moving target. But we really feel confident based on what we know our competitors have that it will continue to grow overall which we really feel is a huge benefit for us overall. As far as the margin expansion goes, are you talking about gross margin expansion or --?

Yes, gross. And if you want to make comments on operating margin, that would be great too. Thank you.

As far as the gross margin goes, we really feel that we're going to continue to probably have some positive news on the mark down side. Mark down optimization has been an excellent tool for us in terms of the timing of our mark downs. We feel the mark down optimization tool really helped us throughout the year 2013 in terms of making sure that we're taking mark downs at the appropriate pace overall. So we really feel that it's going to be more relative to just better usage of our mark downs overall.

As far as by store size in terms of that, we really have not really given that kind of information out in the past. I feel uncomfortable giving that out. But overall, we know that the smaller sized stores which has been -- which is what happened in 2013 are much more productive -- are more productive than the bigger stores.

Perfect. Thank you very much.

Carla Casella, JPMorgan.

One question on the pack away. You broke up in balance for this quarter, can you say what we'll be comparing to as we go into first or second quarter this coming year how much pack and hold you were holding at the end of first quarter and second quarter last year?

We really do not -- we don't really target the pack and hold levels overall. I would say there will be growth from where we were in the first quarter and there will be growth in the second quarter because it's obviously a great tool to get really great brands and get great values and the margins are better. So it's going to continue to ramp up.

Okay. But I was wondering, last year I thought there was one period in late spring where you got a lot of opportunity and actually had increased pack and hold. Will we be above that level this year?

We really -- as I mentioned, we really feel that pack and hold is going to continue to expand based on all the great deals out there.

Okay, that's great. And then I have -- one question in comparing your EBITDA breakout to last year's, some of your adjustments have -- or even to last quarter, the adjustments had changed and there was a transition related expenses in third quarter this year that were about $10.5 million. Are those broken out into different line items this year, or did you not include that in your EBITDA adjustments for FY13?

Hi, Carla, this is Bob. I think it is in a different descriptive category for the full year. But I think the item you're talking about is in the description we call cost related to debt amendments and termination of advisory agreement and other.

Okay. And then you're not breaking out the barter any longer, so is that an add back you're not going to take or is that also put in other line items?

It's not an add back in our adjusted net income calculations. For the covenant calculations, it's still an adjustment.

Okay. That's all I had then, thank you.

We have time for one more question.

William Reuter, Bank of America.

Two quick ones. Your commentary regarding weather, you talked about in the fourth quarter how it benefited you in your sales of cold weather products and coats, but then you also talked about the fact that several of your stores were shut down or impacted. I'm curious whether you think weather was in general a positive or negative when you factor that all in together?

Well, based on our coat performance we feel that the cold weather obviously helped us. Some of the upside was neutralized based on what you just articulated in terms of closure overall. But yes, I would say that the cold weather was a positive because it helped us sell more coats and more cold weather accessories.

Okay. And then my second question is a lot of the retailers that we're talking to, as well as other apparel companies, are talking about planning a little more conservatively in 2014. I'm curious on your perspective for the availability of goods for next fall and how that could impact your buying selection between the upfront and in season and opportunistic one-third, one-third, one-third? And if there could be some -- if your high levels of pack and hold right now are meant to offset that? Thank you.

Well, since I've joined Burlington, there's always been an ample supply of product. We've never had an issue where we couldn't get product overall. We turned down more deals every day than ones we accept. So it's really not an issue.

The reason why the pack and hold is up is because we're getting great deals and there's a lot of great brands available at great values. And so it's really more for that reason versus to protect us for the fall season overall. But there has never been a short supply of product.

Okay, that's all for me. Thank you.

Thank you. I will now turn the call back to Management for closing remarks.

I would just like to thank everyone for your participation today, we really appreciate it. We look forward to updating you on the performance on our future quarterly calls and thank you again for your continued interest in Burlington Stores. Have a great day everybody, thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time.