Burlington Stores Inc (BURL) 2014 Q4 法說會逐字稿

Greetings and welcome to the Burlington Stores, Inc. fourth quarter and FY14 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Bob LaPenta, Treasurer of Burlington Stores. Thank you, sir, you may begin.

Thank you, Operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fourth quarter and FY14 operating results.

Our presenters today are Tom Kingsbury, our Chairman and Chief Executive Officer, and Marc Katz, our Chief Financial Officer. Tom will begin with a brief overview of the quarter and year's financial results and update you on the progress we've made towards the goals we outlined in our IPO. Marc will then review our financial results and future outlook in more detail before we open the call for questions.

Before I turn the call over to Tom, I'd like to inform listeners that this call maybe 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 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 10-K for FY14 and in other filings with the SEC, all of which are expressly incorporated herein by reference. Now here's Tom.

Thank you, Bob, and good morning, everyone. I'm excited to share with you another period of strong financial results. In the fourth quarter, top and bottom line results surpassed our increased outlook we provided on January 9, capping off a very solid year of growth. The Burlington team continues to perform at a very high level, driven by our disciplined execution of our off-price model and the focused execution of our growth strategies.

Let me share with you some specific highlights of the fourth quarter and year. For the fourth quarter, net sales increased a very strong 11.3%. Comparable stores sales rose 6.7% following a 4% comp increase in the fourth quarter of last year. Adjusted EBITDA increased 16% to $225 million with EBITDA margin expansion of 60 basis points. And adjusted net income per share on a fully diluted basis rose to $1.43, up significantly from $1.07 per share last year.

From a top line perspective, we are very pleased to see positive traffic in the quarter which is a result of our ability to deliver a continuous flow of fresh new trends, categories and highly desirable brands at great values, as well as our continued improvement in the store experience.

In addition we continue to receive positive feedback regarding our testimonial marketing campaign which features our customers in our stores explaining why they love and shop at Burlington. For the fourth quarter we recorded our eighth consecutive period of positive comp sales and we have delivered comp sales increases in 17 of the last 20 quarters.

[Doing] our comp store sales increase were strong performances in key businesses that cater to our core female customer such as missy sportswear, ladies shoes and accessories. In addition our men's apparel and our home businesses outperformed the Company average.

We were also very pleased with the performance of our gift assortments during the quarter. As many of you are aware, we've highlighted gifting as a major opportunity to capitalize on the holiday season. We delivered improved assortments which really resonated with our customers.

Also the continued growth in the quality and quantity of our vendor base has helped fuel our strong performance. We continue to increase our better and best receipt unit penetration as well as our branded receipt units. As in previous quarters, we believe the increase in comp sales was not only driven by better assortments but also by continued improvement in the store experience.

We remain focused on simplified merchandising, clear brand signage, size fixtures, well organized selling floors, and a better alignment of selling hours to customer traffic, which all translate into a better customer experience. We experienced remarkable consistency in our store execution as almost all of our regions achieved a positive comp in the quarter. In terms of our territories, the northeast and midwest were the strongest and the west was the weakest on a relative basis.

I'd like to provide an update on a few other initiatives that positively impacted all of our regions and categories. We continue to make progress in terms of tailoring our assortments across brands, lifestyles, sizes and climate. We continue to improve the timing of our seasonal product deliveries by region allowing us to get the right products to the right location at the right time.

We believe our localization strategies combined with our mark down optimization system had a meaningful positive impact in the reduction of seasonal product at the end of the year. In addition, we achieved another significant reduction in inventory age 91 days and older, an accomplishment which we're very pleased.

For the year our results were equally strong exceeding the annual targets we set at our IPO. Net sales increased 8.7%. Comparable store sales rose 4.9% which followed a 4.7% comp increase in the FY13. Adjusted EBITDA increased 17% to $448 million with EBITDA margin expansion of 60 basis points. And adjusted net income per diluted share rose to $1.83, up significantly from $0.95 last year.

Let me share with you some additional annual highlights. At year end our comparable store inventories decreased by 18%, contributing to a 22% faster comparable store inventory turnover. We ended the year with pack and hold inventory representing 27% of our total inventory versus 18% last year.

As is stated before, we do not set targets for inventory levels for pack and hold product as our buys are opportunistic and dependent on the availability of highly desirable branded product for key seasonal merchandise at strong values. We continue to have plenty of [open to buys] to take advantage of both in season and pack and hold opportunities.

We continued our store expansion with the opening of 24 new stores while closing 3 locations. We remain pleased with the performance of our new stores which continue to perform in line with their underwriting model. In total, new and non-comp stores contributed an incremental $185 million to our annual net sales. And we increased our financial flexibility and reduced interest expense going forward through the refinancing of our debt that was completed on August 13.

We remain excited about our business prospects and expect the continual implementation of the three key priorities we outlined during our IPO to enable us to maintain our positive performance in FY15 in the longer term. First we expect to drive comparable store sales as we continue to benefit from our enhanced off price model, much improved store experience, marketing testimonial campaign and merchandise localization strategies.

We began the year in a great position with substantial liquidity. Aged goods are at record low levels and we will continue our plan to deliver more fresh product each month of the quarter. In addition, the higher penetration of pack and hold as a percent of our total inventory will help us deliver more great values on the floor.

By category we expect to see continued sales growth from the investments we've made in our ladies apparel, home, bath and body, and accessories businesses. Each of these businesses outperformed the Company average in 2014. Specific to the first quarter, we are looking to continue our solid growth in our bath and body and home businesses. We continue to be underdeveloped in these areas and are very excited about the opportunities in 2015.

From a store execution standpoint, we are consistently conducting various tests within our stores ranging from faster movement of receipts to the selling floor to different fixture types. When our testing platform indicates a positive return on investment, we look to roll out these initiatives Company wide as soon as possible.

In addition, we recently converted from a customer phone survey to a web-based survey which provides more detailed, actionable customer feedback. We believe this method is going to allow us to take our overall customer satisfaction scores to a new level.

Second, expansion of our store fleet continues to be a critical growth driver for us. We're excited about our new 2015 store program which spans from coast to coast. We remain on track to open 25 net new stores in 2015 and continue to believe that we have significant white space for growth to reach 1000 stores over the long term.

Third, we expect to enhance our operating margins as we continue to optimize our initial pricing and mark downs, tailor our assortments by store and remain vigilant within inventory management disciplines. Operating margins are also expected to benefit as we grow our top line and leverage fixed cost.

In summary, I want to thank each of our 30,000 plus associates for their contributions in assisting us to deliver beyond our objective this past year. We continue to believe we are at the early stages of realizing the full potential of our off-price model and believe the focused execution of our strategy will allow us to maintain our positive performance in the near and long term. And now I'd like to turn the call over to Marc to review our financials and outlook in more detail.

Thanks, Tom, good morning, everyone. Thank you for joining us today. We are extremely pleased with our fourth quarter and FY14 performance. We meaningfully surpassed our top and bottom line expectations as we saw progress across our key operating metrics with comparable store sales, EBITDA margin expansion and adjusted net income growth, exceeding our long-term targets that were set at our IPO.

I will begin with a review of our operating results. For the fourth quarter, as Tom indicated, total sales rose 11.3% and included a comparable store increase of 6.7%. Our comp growth exceeded the increased guidance we provided in January which we attribute to the continued benefits from our initiatives.

We also believe our January sales rated by earlier processing of tax refunds than in 2014 when this activity was delayed. In total, our 6.7% comp increase was driven by higher transactions as a result of increased traffic and a higher average basket based on more units per transaction.

Our gross margin rate was 42.2%, representing a 50 basis point increase versus last year. As expected, this increase was partially offset by a 40 basis point increase in product sourcing costs which is important to SG&A and includes cost to process goods through our supply chain and our buying cost.

Our SG&A expense rate, exclusive of product sourcing cost and the impact of a nonrecurring legal charge, improved by 30 basis points to 24.3%. The reduction was achieved through lower store payroll and marketing cost partially offset by higher incentive compensation accruals given our strong performance.

Other revenue and income benefited from a $3.2 million settlement from Visa MasterCard regarding the interchange fees that companies paid for credit card transactions in prior years. This one-time nonrecurring settlement was anticipated when we provided guidance on January 9.

Adjusted EBITDA increased by 16%, or $30 million, to $225 million representing a 60 basis point increase in rate for the quarter. Depreciation and amortization expense, exclusive of net favorable lease amortization, increased by $2 million to $37 million.

As we previously disclosed, on August 13 we refinanced and replaced our existing term loan facility with a $1.2 billion term loan. The proceeds from this loan along with the $217 million draw on our ABL were used to redeem all of our higher cost debt thereby lowering our interest cost. Accordingly, interest expense decreased $12 million to $15 million driven by interest savings related to the refinancing and principal payments made over the past 12 months.

Our adjusted income tax expense was $64 million, compared to adjusted income tax expense of $51 million last year. The adjusted effective tax rate was 37.1% versus 38.8% last year, primarily driven from New Jersey State tax credits assisted with our new Corporate headquarters. Combined, this resulted in an adjusted net income of $109 million representing an increase of 34% versus adjusted net income of $81 million last year.

Adjusted net income per fully diluted share was $1.43 versus adjusted net income of $1.07 per fully diluted share last year. On a GAAP basis, SG&A expense included a $9.3 million charge in connection with a California litigation regarding collection of personal information. For the FY14, total net sales rose 8.7% and included a comparable store sales increase of 4.9% following a 4.7% comp store sales gain last year.

Gross margin rate was 39.7%, a 60 basis point increase versus last year. This improvement was partially offset by a 40 basis point increase in product sourcing cost. Our SG&A expense rate, exclusive of product sourcing cost, the fourth-quarter impact of a nonrecurring legal charge and advisory fees, decreased 40 basis points to 27.2%. The reduction was achieved primarily in store payroll and marketing partially offset by higher incentive compensation accruals.

Adjusted EBITDA increased by 17% to $448 million, a 60 basis point increase in rate versus last year. Depreciation and amortization expense, exclusive of net favorable lease amortization, increased by $3 million to $142 million. Interest expense decreased $44 million to $84 million driven by our debt refinancing and principle payments over the past 12 months.

The adjusted effective tax rate was 37.8% versus 40.1% last year primarily driven by New Jersey State tax credits associated with our new Corporate headquarters and the one-time benefit of the release of certain tax reserves. Combined, this resulted in an adjusted net income of $139 million, an increase of 97% from adjusted net income of $70 million last year. Adjusted net earnings for fully diluted share rose to $1.83 versus adjusted net earnings per fully diluted share of $0.95 last year.

Now turning to our balance sheet. At year end we had $25 million in unrestricted cash, $63 million outstanding on our ABL and $387 million in unused credit availability. On January, we prepaid $27 million of our term loan in anticipation of our required excess cash flow payment due in the first quarter of FY15 bringing our total debt outstanding to $1.25 billion.

Merchandise inventories were $789 million versus $720 million last year. The increase was primarily driven by a $73 million increase in pack and hold purchases and inventory related to the opening of 21 net new stores since the end of FY13 partially offset by a comparable store inventory decline of 18%.

Our year-to-date cash flow provided from operations was $302 million which was offset by $217 million in cash spent for investing activities and $194 million in cash used in financing activities primarily related to our debt refinancings and repayments.

Capital expenditures net of landlord incentives of $38 million totaled $183 million during the year. As Tom mentioned earlier, we opened 24 stores this year and we closed 3 existing locations. We ended the year with 542 stores. We continue to expect to open 25 net new stores in FY15.

Turning to our guidance for the full year 2015 and the first quarter of 2015. Consistent with the long-term growth objectives we shared during our IPO for FY15, we expect net sales growth in the range of 6% to 7%, comparable store sales to increase 2% to 3%. As it relates to SG&A and other income, we would like to note that we will absorb incremental expenses of approximately $6.3 million related to stock-based compensation and $3.1 million related to our new Corporate headquarters building.

And as previously mentioned, the fourth quarter of 2014 included a one-time $3.2 million benefit in other income from the Visa MasterCard settlement that we will be up against in this year's fourth quarter. Even with these incremental costs, we expect to deliver 10 to 20 basis points of EBITDA margin expansion on top of the 60 basis points of expansion we achieved in 2014.

In addition, we expect interest expense to approximate $60 million, a tax rate of approximately 39% and a share count of approximately 77 million shares. Net capital expenditures in the range of $150 million to $160 million and depreciation and amortization in the range of $150 million. This brings our adjusted net income per share guidance to a range of $2.15 to $2.25.

Before we move on to Q1 guidance, I'd like to point out that our annual guidance just provided does not take into account any potential wage increases to $9 or $10 per hour for hourly associates. While we consider our associates to be our Company's most important asset, we want to fully vet all the possible scenarios for implementing a wage rate increase as well as appropriate offset strategies. Once this work is completed, we will provide an update.

For the first quarter of 2015, we expect total net sales to increase in the range of 6% to 7% and we expect to open three new stores in the quarter. Comparable store sales to increase 2% to 3%. This brings our adjusted earnings per share guidance in the range of $0.36 to $0.40 up from $0.25 in the last year's first quarter. And now I would like to turn the call back over to Tom for concluding remarks.

In summary, we are very proud of our 2014 results which represented another year of significant accomplishments toward our long-term goals. We remain confident in our ability to continue positive momentum in future years given our dynamic operating model, our disciplined execution and the significant runway ahead. Operator, we are ready for questions.

(Operator Instructions)

Lorraine Hutchinson, Bank of America Corporation.

The 2015 decline in CapEx should result in some nice increases in free cash flow. Can you update us on your thoughts around the capital structure, and potential timing of debt repayment with that cash flow?

Sure, hi, Lorraine, this is Bob; I'll respond to that question.

So, we're going to end the year with leverage at around 2.7 times. This leverage rate is a little better than we've been planning, due primarily to the stronger performance that we've seen in 2014. So, as we continue to generate excess cash flow in 2015, and the higher EBITDA performance we're planning for 2015, we'll continue to see leverage come down. And as that happens, we will evaluate what we think is the best use of our free cash flow to increase shareholder value.

Thank you.

Paul Lejuez, Wells Fargo Advisors.

Can you talk about productivity sales per square foot maybe by category? Can you maybe frame for us what your better categories do, and where your biggest opportunities are? And if you can, update us on your goal in terms of what you think you can achieve longer term from a sales per square foot perspective -- maybe how that's changed given the success you had this past year. Thanks.

Hi, Paul, this is Tom.

Our goal is really to continue to grow our dollar per square foot. I think the steps that we've taken over the last two to three years in terms of size of box -- that's going to help us. Our stores that are 60,000 square feet or less -- the productivity in those stores is 20% more productive than our base. So, we really feel that by continuing to open smaller boxes as we have been -- our average store that we're opening this year is around 55,000 square feet. We're going to see a nice rise in the dollar per square foot.

As far as by category, we really haven't gotten into that kind of detail previously. We just really feel that, in general, there's just a nice opportunity to increase the dollar per square foot, and we feel that we're doing the right things from a long-term perspective, and we'll see growth in productivity.

Tom, do you have a number in your head of what you can achieve longer term?

We really don't have a target. We just obviously feel we can have more productive stores.

Paul, the only thing I'd say, just to piggyback on what Tom just said is, as you look at our sales per square foot versus our peers, obviously we underperform, but we -- there's three real reasons for that. One is we have a Baby Depot department. And the other two are: We have more square footage dedicated to our men's tailored, and our coat and outerwear businesses.

Thanks, guys. Good luck.

Matthew Boss, JPMorgan.

Good morning, guys, and nice print. Traffic is clearly [inflected] in the last couple quarters. Can you talk about marketing improvement -- any impact that you guys think you're seeing from lower gas prices? And then maybe just touch on the port strike pack away opportunity for the back half of the year, as you stand.

Well, we're pleased with our marketing efforts overall. The testimonial marketing campaign, which I've spoken about before, and in the prepared remarks -- it's resonating with our customers. We talk to our customers all the time, and they really feel the commercials are really good and really convey the kind of values that we have in our stores overall. And we just have been working really hard to put a lot more analytics behind how we go to market in terms of buying media, and we've just become much more efficient.

Our marketing spend year over year is comparable, and it will be again this year. We're not really spending -- we're not really planning on spending a lot more money in marketing, but we want to -- we're going to continue to be more and more efficient. Overall, we're going to shift more from -- or into digital. We really feel that is a media that we can get good returns on.

As far as gas prices go, yes, as one data point, gas prices probably have helped. But there's other things that could be impacting the customers' disposable income. But as a stand-alone item, I would say that gas prices probably had a positive impact on the Business overall, but there's other things that are negatively impacting the customers.

What was the --?

Port strike pack away opportunity for the back half of the year.

Really, the problems at the west coast port did result in additional pack and hold opportunities. But these goods mostly impact this coming spring, or the spring we're in, and next fall; not really in 2014.

But it seems like, since I've been at Burlington, some type of disruption occurs which results in [tremendous] product availability in the marketplace. This year it's the west coast port issue; next year it will be something else. So, whenever there's any disruption in the marketplace, we usually benefit from that. And we've been able to really grow our pack and hold nicely, which is the result of many things that have happened.

Great. And then one quick follow up: New store productivity materially improved in the model. It appears to be driven by the success of this new smaller format door that you were speaking to. Can you talk to some of the early learnings, and more so, how can we think about the penetration roll-out of the smaller format as a percentage of the store base over time?

Well, going forward, the stores that we'll be opening will be between 50,000 and 60,000 square feet. We really feel comfortable that we can open the stores and show all the product that we have in our assortments in a smaller box overall.

The biggest learning I think is the fact that we can operate with a lot less inventory, and these smaller stores really enable us to do that. Our comp-store inventories have been down significantly over the last six years, and it really gives us real confidence that we can give the customer experience -- the same customer experience in a smaller box as we did in a larger box. So, we just feel that -- not only do we feel 50,000 to 60,000 square foot boxes are important, we may be looking at some smaller boxes to test in the near future.

Great, good luck.

Thank you.

Dana Telsey, Telsey Advisory Group.

Good morning, everyone, and congratulations.

As you think about new store openings this year, cadence this year versus last year, and what you're expecting? And with the wage increases that you're thinking about for 2015, any sense of the magnitude of the dollar impact? And just lastly, the earlier tax refunds -- will that continue at all through the first quarter, and how much of a lift do you think that gave to Q4? Thank you.

All right, Dana, let's see if we can do these in order. The new stores: five spring, 20 in fall. The five in spring -- at the end of this week, three will be open; the other two are May 1. And then our 20 fall openings are all September and October.

The wage increase -- we don't have a number yet. We are spending a lot of time on that. We are looking at all of the various alternatives in terms of how we would approach the wage rate increase.

And quite frankly, Dana, we're spending just as much time on the offset strategies. What are we going to do to offset whatever we potentially do implement? So, we don't have a number yet. As soon as we get through that analysis, then we'll communicate something.

And as far as the tax refunds go, yes, on January 9 we issued guidance that said our comps would be between 5% and 5.5%, and we came in at 6.7%. So, we're really happy with the way we executed last three weeks of the year. But with that said, when you look at the government refund at about $26 billion or $27 billion versus $12 billion the year before, we think that had a positive impact, and so, pulled some sales into January.

Thank you.

Kimberly Greenberger, Morgan Stanley.

Great, thank you. Really terrific end to a great year.

Tom and Marc, I'm wondering if you have any long-term, adjusted EBIT margin targets that you'd care to share with us? And it seems like you're making very good progress in home and women's apparel. It still looks like they're underpenetrated relative to your peer set. So, I'm wondering if you can talk about 2015 strategies in terms of driving the share in those two businesses higher? Thanks.

All right, I'll start, Kimberly, with the long-term, adjusted EBITDA targets. We haven't put any targets out there, but clearly as you look at our adjusted EBITDA margin rates versus our peers, there's several hundred basis points of opportunity there.

I guess the first way I'd answer that is I'd look at the last two years. In FY13, we had a 4.7% comp, and we had a 70-basis-point expansion. Last year we had a 4.9% comp and a 60-basis-point expansion. So, I think we've shown that we can close that gap pretty readily, especially with the higher comp.

But with said, we're going to continue with 10 to 20 basis points of expansion in 2015. That includes absorbing $9.4 million of incremental expenses. And it's going to come from all the growth strategies, as Tom's talked about, from growing comps, getting deleverage, and quite frankly, from an SG&A point of view. We've got to be as efficient as we can on every line of the P&L, and that's how we'll approach it.

Talking about the home and ladies business: As I mentioned many times, the home business offers us a tremendous opportunity. We did well last year. We did especially well in the last half of the year in our home business. But our penetration in home vis-a-vis our competitors were very, very light.

So, we feel that we can continue to grow home at a very, very nice pace for this year and beyond. We've really put a lot of resources from all parts of the Company behind maximizing the opportunity that we have in home. So, we feel that it has a lot of leg.

So, the ladies business -- we've done a really nice job over the last three to four years. We still have a big opportunity there also. So, again, it's another area that we're marshaling all of our resources to really go after, this year and beyond.

So, it really feels good to have at least two businesses -- and if you throw in the bath and body business, which we have another big opportunity -- it's really nice to see that we have some real tangible businesses where we can get some growth.

Great, thank you.

David Glick, Buckingham Research Group.

Yes, thank you. Good morning, and my congratulations to the team.

I was wondering, Marc or Bob, on the free cash flow, where that came out in 2014 relative to your expectations, and whether you can be perhaps a little bit more specific on what your expectations are for 2015? Obviously, we can figure out the net income and the CapEx piece. I'm wondering if there are any other items in there -- how you're looking at working capital? And perhaps what the range of potential free cash flow is going to be, and the range of potential debt paydown?

Hi, David, this is Bob. So, I think I can respond to that.

I think, when you look at the statement of cash flow that we put out with the press release, I think that was pretty consistent with what we thought our expectation for cash flow in 2014 would be. It's a little confusing when you look at CapEx because it shows it gross on that statement. But up above in the operating activities, the deferred rent incentives, we net those cash inflows against our CapEx. So, the net CapEx came in just slightly above the $180 million we expected to have for the year.

So, CapEx came in on target. We did a little better with EBITDA performance. And we did a little bit better on working capital because of the comp-store inventories that came down.

The wild card in working capital is pack and hold. And there were a lot of opportunities that we'd stay liquid on, and took advantage of a little bit more pack and hold. That's a hard one to try to figure out. But net overall, with the nice decrease in the comp inventory, and the offset of the increase in the pack and hold, we came in pretty much where we thought we would from a working capital point of view.

Looking at 2015, I think you'll see more of the same. Our net CapEx is going to come down from 2014 levels. So, instead of $180 million right now, we're guiding to $150 million to $160 million. We're going to spend a little bit more this year on supply chain than we did in 2014, but we're going to spend less. We've got the new corporate office behind us. So, those expenditures won't continue into 2015 or beyond.

But cash interest will come down. We guided to about $60 million. So, that's a little lower than 2014, but taxes will go up because we expect to make more money.

So, I think, in that range of $180 million to $200 million is the expectation. It can change a little bit based on working capital needs, and how much we pay for pack and hold, but in that range.

And again, as I mentioned earlier with one of the other questions, with leverage down at 2.7 and with the better EBITDA performance, we expect to see leverage continuing to come down this year. As we generate this excess cash flow, we'll evaluate what we think the best way to utilize that cash to drive shareholder value will be. We'll look at debt paydown, but we'll look at other options as well.

Thank you. And then just a follow-up, if I could. You talked about the new store performance, performing in line with your pro formas, and that's a question I get a lot from investors because we really don't know what your pro formas are. So, I was wondering if there's any more specifics you can share with us? Obviously, the new store productivity numbers look strong, but any specifics you can give us in terms of the premium you get from a sales per square foot perspective, and the new, smaller boxes presumably in a lot of cases in higher traffic locations? Obviously, you pay probably a little more rent, but if we can -- if you can share some specifics with us on what those pro formas may look like, and to give investors a better sense of whether this is accretive to your return on invested capital?

All right, David. David, I'll take that, as I'm just starting to get involved in my new role with the new store approval process, and really starting to get into our underwriting models.

It's three data points that I looked at, David. The first of which was a financial hurdle that was IRR-based. And within our requirements for new store, we're looking for IRRs that far exceed our cost of capital. So, that was the first data point.

The second was EBIT contribution. As we look at our new stores and our underwriting models, the EBIT contribution from the new store must be accretive to our overall Company EBIT. In that, that overall accretion and the IRR calc -- those don't change based on store size or sales per square foot. They're the same for any new store that we look at.

And then the third thing I looked at, David, was: How accurate is our sales forecasting? You've got the underwriting models that are obviously based on sales forecast, and took a look at the last two or three years in terms of the sales that were in the underwriting models, and what the actual sales came in at. And I was really pleased to see a tight range there. So, it made me feel real good about the work that the finance team here, and the real estate team have done the last couple of years to come up with, in my mind, what's a very sound process.

And then the only other stat -- I don't know if you heard -- that Tom did quote earlier was: Our stores that are 60,000 square feet and less, their sales per square foot is about 22% higher than our average comp store. And as we open new stores go forward, those 25 net new stores in 2015, there's only one that's over 60,000 feet, and I think it's 62,000.

Okay. I presume your rent is not 22% higher. That this is clearly a higher four-wall margin contribution from your new stores, in general?

And again, we come back to -- IRRs got to far exceed cost of capital, and the EBIT contribution has to be accretive to our Company EBIT.

Okay, very good. Thank you very much.

You bet.

Ike Boruchow with Sterne Agee.

Hi, good morning, everyone, and let me add my congrats on a great quarter.

My question is on margins. I understand that, as your model becomes more and more like a pure off-pricer, there's going to be an impact on your buying costs. But is there a point when you'll still be able to recognize gross margin benefits from better inventory management and better sell-throughs, while your product sourcing costs can begin to subside a bit over a certain period of time?

I would think that's certainly possible at some point. Right now, as we just continue to get better at executing the model, we're seeing more of the in-season buys, more close-out buys, and more pack-and-hold buys. So, right now, we're not in the ninth inning of executing our model yet. So, we're continuing to get better at that. And as those product sourcing costs continue to increase, our margins -- our merchants, excuse me, are just doing a phenomenal job of offsetting it.

So, with all of those increased costs -- we look at margin by buy type. So, we can tell gross margins for pack and hold versus close-outs versus in-season buys. And we're really happy to see that, again, our merchants are doing a great job covering those costs.

At some point in time down the road, could there potentially be more that flows through the bottom line? Yes. And it's probably something we'll look at, and also with passing value on to the customer.

Got it. Thank you so much.

Stephen Grambling, Goldman Sachs.

Hi, good morning. To piggyback on David's earlier question on the store format and pro formas, could you maybe provide a little more detail on how else your store planning has maybe changed, other than the size of the box? And perhaps anything unique related to 2015 openings due to either location, markets, developed versus second use, et cetera?

This is Tom. Really, we haven't really changed anything for 2015. It's really a continuation of what we've done over the last two to three years. Again, size of box is getting smaller. We're looking at sites that are in better retail locations than maybe a while ago.

The other thing we're working on, and I think you will see that in our stores that we opened in 2014, and it'll continue in 2015, is our fixtures that we have in the stores. They're much more product-centric. They really have the ability to highlight product better than our original fixtures, especially when it gets to the home store obviously, which is a big growth area for us, as I mentioned before. It also helps in the accessory areas. And also helps in the Baby Depot area.

And I think all of those things, because of the fixture types, they'll continue to help us in a productivity perspective. But we're comfortable; we feel very good about how our new stores look. And we really feel our job right now is to continue to execute at the same level that we have been, and we'll continue to see nice improvement in productivity.

That's helpful. Maybe if I can squeeze one more in? Could you talk a little bit more about the localization strategy? What's been done so far, and anything else that's needed, either from a systems or supply chain, to continue to push that along?

A lot of work has been done on localization, Stephen, and it's really, obviously: How do we better tailor our assortments by store? We use external data that we can get, where it provides us with more opportunities by DMA. But we've looked at better and best brands. We localize by size. We have six different climate groups where we know the first receipt that comes in, the last receipt that comes in to a certain geographical area, and what the exit date is from an MDL point of view.

So, we're really refining how we allocate by store. It's clearly one of the drivers that's helping us with comp.

From a systems point of view, we've got the functionality that we need. There's always a little bit of enhancement that takes place. But for the most part, the -- all the system enhancements that we needed to really be able to localize by store, in place at this point.

Great, thanks so much. Best of luck this year.

Thank you.

John Kernan, Cowen and Company.

Hey, good morning; this is Jerry Gray on for John. Thank you for taking our question.

I wanted to follow up on your inventory productivity. The comp-store inventory has come down pretty significantly the past few years. I was wondering if you could talk about how much more opportunity you have to improve your same-store inventory?

And then what are your expectations for long-term merch margin? Seems like you're really hitting an inflection in terms of your planning and allocation and inventory turns. And what does that mean for margins as productivity continues to improve?

I'll take the inventory question, and then Marc can take the merch margin question.

Since I started here, as I mentioned many times before, we've taken half the inventory out of the stores. It's really an important initiative for us overall.

I really feel, for the foreseeable future, we're going to continue to reduce comp-store inventories by high-single digit, low-double digits. We find that it's easier for the customer to navigate through our stores with less inventory overall. We've become much better selectors of product, so we can operate with less inventories in the stores.

But we see -- we want our turns to be faster. We've made remarkable improvements in terms of our inventory turns, but we have a long way to go still. We really feel that we have to obviously turn our goods quicker than we have this year and historically. It's just really an important issue for us.

And one of the things we've worked on is really reducing how much old product we have in our store. Our goal is to have as much fresh product, meaning goods that were received within the last 30 days, as -- continue to grow that as a percent of total. So, that's important to us all, and I really feel that these initiatives have really been some of the drivers of our good comps over the last two to three years.

Marc, do you want to talk about the gross margin?

Clearly, the comp-store inventory reductions are helping us lower our markdowns, and are all part of the 60 basis points of improvement we had in reported margin over the year.

Okay. And if I could squeeze in a follow-up?

Guidance seems to imply a little bit of a moderation in your same-store sales and margin trends versus where you were in Q4 and 2014. Could you talk a little bit about what's driving that moderation in Q1, and then the rest of the year? Thank you.

Yes, I just want to reemphasize the fact that we've just completed two years of very strong comp performance, plus 4.7% in 2013, and plus 4.9% in 2014 overall. We just really believe it's prudent to plan a more conservative comp, as the expense base and receipt plan is consistent with that lower comp. We really feel it's important. But with that said, we consistently have a lot of open to buy, and our merchandising and planning team is very adept at chasing the business if appropriate.

The other thing that Marc indicated, to speak specifically to the first quarter, is the fact that there was a shift from February into January in terms of the tax refunds acceleration versus the prior year. And there has been some inconsistent weather throughout the US early in the first quarter overall. But most importantly, we just really feel it's important to be prudent and conservative when we -- when I plan our Business.

Great. Thanks for taking my questions.

Pam Quintiliano, SunTrust.

Great, thanks so much, and congratulations guys on really fabulous year.

So, had a few quick questions. First off, the men's and baby -- obviously they're big in-store differentiators, but not really mentioned much on the call. So, what's going on there, and how do we think about both of those going forward, especially in light of some of the smaller stores that you're opening, and the growth opportunities in the other classifications like ladies and like home? And then the second question quickly is -- the percent of the store base that's been refreshed and plans for this year?

I'll speak to the first piece of this. Our men's business has been very good. I mentioned in the prepared remarks that it outperformed the Company. So, we're really pleased with men's. We have a very nice developed men's business, but it continues to grow, so we feel that obviously will help us also in 2015 and beyond.

The Baby Depot business -- we haven't had growth there. I've talked about it multiple times on different calls; we really feel that our goal right now is to stabilize that business -- do everything we can to shore that business up. We've taken some initiatives to do that. But as a percent of total, Baby Depot is going to be smaller because we're growing everything else around it.

As we grow men's -- or excuse me, as we grow the ladies' apparel business, as we grow home, as we grow our bath and body, Baby Depot is going to be smaller as a percent of our total. And we're looking in the stores to make sure that the footprint is appropriate relative to the dollar per square foot we want. So, we've worked on fixtures to accommodate that. So, you'll see those in our new stores.

Pam, hi, this is Bob; I'll take your question around the refreshes.

So, through 2014, we've refreshed over 70% of the chain. It's either a new store that's opened since 2006, or it's been refreshed or remodeled. And we're at the point now where some of the earlier stores are actually going to start turning again -- the more higher traffic stores -- because it's just an ongoing process that you have to continue to do. And for 2015, included in our guidance around what we'll spend for stores is the same cadence that you've seen in terms of what we'll continue to refresh every year as just an ongoing planned maintenance spend.

All right, thanks so much. And one follow-up question: You did mention the impact of weather, but how are you thinking about the earlier Easter? Is there anything you're doing differently with that?

Well, all of it will fall into the first quarter, regardless of where it falls overall. I feel that, as long as we continue to execute our strategies, it doesn't matter exactly where Easter falls overall. But a lot of it depends on -- if it's warmer, we probably -- it obviously would help us a little bit. But in general, we just feel that our opportunities are -- just continue to execute the way we're executing today.

Great, best of luck.

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Mr. Kingsbury for any additional concluding comments.

Well, thank you for joining us today, everybody, and for your interest in Burlington Stores. We'll speak to you again in June for our first-quarter call, and have a great day. Thanks again.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.