Burlington Stores Inc (BURL) 2016 Q4 法說會逐字稿

Greetings, and welcome to the Burlington Stores, Incorporated fourth-quarter FY16 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Bob LaPenta, Vice President and Treasurer for Burlington Stores. Thank you, 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-fiscal-quarter and full-year 2016 operating results. Our presenters today are Tom Kingsbury, our Chairman and Chief Executive Officer; and Marc Katz, our Principal and Chief Financial Officer.

Before I turn the call over to Tom, I'd like to inform listeners that this call may not be transcribed, recorded, or broadcast without our expressed permission. A replay of the call will be available until March 16, 2017. We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties. Our remarks and the Q&A that follows are copyrighted today by Burlington Stores.

Remarks made on this call concerning future expectations, events, strategies, objectives, trends, or projected financial results are subject to certain risks and uncertainties. Actual results may differ materially from those that are projected in such forward-looking statements. Such risks and uncertainties include those that are described in the Company's 10-K for FY15, and in other filings with the SEC, all of which are expressly incorporated herein by reference.

Please note that the financial results and expectations we discuss today are on a continuing operations basis. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are included in today's press release. Now, here's Tom.

Thank you, Bob. Good morning, everyone. We are very pleased to report better-than-expected fourth-quarter results that included strong sales growth, positive comp sales, expansion in gross margin, and a 19% increase in adjusted diluted earnings per share.

Our performance continued the strong momentum we have experienced throughout the year, driven by the successful execution and elevation of our off-price model. This is further demonstrated by our annual FY16 results that also included setting new records across all key operating metrics.

For the year, we saw our net sales of $5.6 billion, increasing 9.2% from the prior year; a 4.5% increase in comparable store sales on top of 2015's 2.1% increase; an 80-basis-point expansion in gross margin; and a 100-basis-point increase in adjusted EBITDA margin. We continued to generate strong cash flow, which enabled us to not only fund our growth, but return value to our shareholders through our share repurchase program. The combination of all these factors contributed to a 40% increase to FY16's adjusted net income per share.

The sustained and consistent strength of our business not only highlights our ability to satisfy customers with highly desirable brands, terrific value, and great customer service, but also the successful expansion of our product offerings. I want to thank our entire organization for contributing to our strong 2016 performance, and we remain excited about our business prospects in FY17 and longer term.

Let me share with you some highlights of the fourth quarter. Total sales increased 9.4%, with comparable-store sales rising 4.6%. The fourth quarter marked our 16th consecutive quarter of positive comp sales. Once again, we saw positive traffic. Including the fourth quarter, we have now delivered positive traffic in 9 of the last 10 quarters. Top-performing businesses were home, beauty, men's and athletic shoes, and handbags. We are also very pleased with our gift businesses across the Company, which continued to help us de-weather our business.

In the quarter, non-cold-weather businesses comped up 6%, while cold-weather categories comped down 3%. As a reminder, we define cold-weather categories as coats, sweaters, cold-weather accessories, and boots.

In terms of territories, the West, Northeast, and Southeast were the best-performing regions, and the Midwest and Southwest underperformed the Company average. We were pleased to see that 27 out of 29 regions experienced a positive comp for the quarter, demonstrating our broad reach across the country.

Comparable-store inventory decreased by 9% at quarter end. Our merchandising and planning teams continued to manage receipts well. To this end, inventory aged 91 days and older continued to improve versus the prior year, declining 29%, on top of a 13% decline at the end of 2015.

Once again, we increased our penetration of better-and-best product. Pack and hold as a percent of our total inventory was 23%, versus 25% a year ago. There continues to be an abundance of opportunities available in the marketplace, and we remain liquid to take advantage of great deals.

We repurchased over 560,000 shares of common stock during the fourth quarter for $50 million, and 2.8 million shares for $200 million during the year. As a reminder, in November, our Board of Directors authorized a new $200 million share repurchase program, which will continue to be executed through November of 2018, as we opportunistically aim to deliver increased value to our shareholders.

Let me now turn to speak to our long-term strategic priorities, which remain focused on driving comparable-store sales growth, expanding our store fleet, and increasing our operating margins. First, with regards to driving comparable-store sales growth, as I've mentioned before, we will continue to enhance our off-price model by investing in both our merchant organization and supply chain infrastructure. We have been focused on driving performance through our improved assortment, and continue to see opportunities within specific categories of home, beauty, and ladies apparel.

With regard to home, we ended the year with the category reaching 12.4% of sales, up from 11.2% last year. Our growth in home was broad based, with the most significant increases coming in home decor, housewares, and textiles. We continue to set our sights on a 20% penetration rate, which is more in line with our peers, and expect to move closer to this objective in 2017 through faster identification and delivery of key trends, elevated assortments, and an increase in national brands.

In addition, beauty, which includes bath and body, skin care, hair care, accessories, cosmetics, and fragrances, remains a growth priority, and we are very pleased with this category's fourth-quarter performance. Our gifting strategies were successful, and we continue to benefit from our fourth-quarter 2015 transition of fragrances to an owned businesses from a leased arrangement. In 2017, we will continue to develop our fragrance business to store cosmetics and broaden our resource base.

Ladies apparel also remains a growth opportunity for us. We increased our sales penetration by 80 basis points, and ended the year at 24.4% penetration, versus 23.6% a year ago. We are pleased with our performance in Missy sportswear and intimate apparel, which are both benefiting from expanded assortments, and increased better-and-best penetration. As a reminder, our peer group operates at approximate 30% penetration level, which continues to be our go-forward goal.

The increase in these categories just mentioned, combined with the expansion of our holiday gift presentation, has enabled us to reduce our cold-weather dependency, in effect de-weathering our sales. And while we expect to always be known for having a premier selection of coats, the added diversity in our offering not only positions us to meet more of our customers' shopping needs, it also mitigates our dependence on any one category for our growth.

We ended this year with coats representing 5.5% of total sales versus last year's ending penetration of 6.3%. Reducing our penetration of coats has been a consistent effort by our merchant team. To put it in perspective, when I started at the Company, coats represented a double-digit sales penetration.

Our localization efforts also continued to focus on tailoring our assortments and brands for the various needs of the markets we serve. We are pleased with our localization efforts in coats and cold-weather products, as well as gift-giving, as we further improve in tailoring those assortments by store. Our marketing initiatives also support our sales growth priority, with our marketing testimonial campaign continuing to resonate with our customers. We will continue with this campaign in 2017, with a dollar spend similar to 2016.

Our second growth initiative is the expansion of our store fleet. We ended the year with 592 stores, adding 25 net new stores, averaging 51,000 square feet. We are very pleased with the performance of our new stores in our smaller formats. Stores less than 60,000 square feet achieved a sales productivity 17% above our comp base. In total, new and non-comp stores contributed an incremental $257 million to our 2016 net sales. We also completed 11 remodels and 25 refreshes. We will continue to remodel and refresh our store base as appropriate, to provide the best possible shopping experience for our customers.

In 2017, we continue to expect to open 30 net new stores, with an average square footage of 45,000 square feet. This will consist of approximately 44 new stores, including approximately six relocations and eight [pure] closures. All but one of the closings are stores that we decided to close, as they are low EBIT contributors in declining locations where we are not earning an acceptable return on capital. Given the strong performance we've experienced in our new stores, and the real estate opportunities that continue to be presented to us, we remain very confident in our ability to expand to 1,000 stores over the long term.

Our third priority is to continue to expand our operating margins as we benefit from increased leverage of our fixed costs, as well as optimize markdowns, localize our assortments, and remain disciplined with regards to inventory management. These efforts helped contribute to the 100-basis-point expansion in adjusted EBITDA margin we delivered in 2015. We will continue to apply these same strategies to further drive operating margin expansion in 2017, and beyond. Now I'd like to turn the call over to Marc to review our financial performance and outlook in more detail.

Thanks, Tom, and good morning, everyone. Thank you for joining us today. As Tom mentioned, we are very pleased with our better-than-expected fourth-quarter sales and earnings performance, which completed a strong year of growth and record-setting accomplishments toward advancing the priorities we set at the start of the year.

Specifically, the fourth quarter and full year saw positive momentum across key metrics including increased sales, expansion in gross margin, and reduction in interest expense. This, combined with a lower share count from share repurchases, drove an increase in adjusted net income per share for the fourth quarter and 2016 of 19% and 40%, respectively.

Turning to a review of the income statement. For the fourth quarter, total sales increased 9.4%, and comparable-store sales increased 4.6%. This marks our 16th consecutive quarter of positive comp-store sales growth. In terms of comp metrics, our comparable-store sales performance was driven by increases in traffic, conversion, and units per transaction, while average-unit retail was down versus the prior year. We are very pleased that our positive traffic momentum continued, as we now have seen increases in traffic in 9 out of the last 10 quarters.

The gross margin rate was 41.8%, an increase of 80 basis points versus last year, driven primarily by improved shortage results. This more than offset a 25-basis-point increase in product sourcing costs, which include costs to process goods through our supply chain and buying costs, both of which are included in selling, general, and administrative expenses.

As you may recall, our physical inventories during the fourth quarter of 2015 resulted in a higher shortage rate than we had initially expected. Consequently, the full-year negative impact fell into the fourth quarter. As we have mentioned in previous calls, we view this result as a call to action, and implemented specific steps throughout the year to course correct. We were very pleased to see the positive results from our summer physical inventories carry forward to our January inventories as well. We had planned the full-year shortage rate to come in better than last year, and we ended up beating our plan.

SG&A exclusive of product sourcing costs, and costs related to certain litigation decreased to 23.2% from 23.3% last year. This improvement was driven by leverage obtained in advertising spend, store occupancy costs, and store payroll costs. The overall improvement was partially offset by the impact of the incentive compensation and insurance. Adjusted EBITDA increased 13%, or $30 million, to $255 million.

Sales growth and gross margin expansion led to a 50-basis-point expansion in rate for the quarter. Depreciation and amortization expense, exclusive of net favorable lease amortization, increased $2 million, to $41 million, and interest expense decreased $2 million, to $13 million.

The adjusted effective tax rate, which excludes the impact of the release of a valuation allowance on deferred tax assets, was 37.2% versus 36% in the 2015 fourth quarter, primarily related to the timing of hiring-related federal tax credits. Combined, this resulted in net income of $126 million, an increase of 27% compared to last year, and adjusted net income of $126 million for the quarter, an increase of 15% compared to last year.

We continue to return value to our shareholders through our share repurchase program. During the quarter, we repurchased over 560,000 shares of stock for $50 million. We have $200 million remaining on our share repurchase program approved last November. This resulted in diluted net income per share of $1.77 versus $1.35 last year, and diluted adjusted net income per share of $1.78 versus $1.49 last year.

For the full year of 2016, total sales rose 9.2%, and included a comparable-store sales increase of 4.5%, following a 2.1% comparable-store sales gain in FY15. Gross margin was 40.8%, representing an increase of 80 basis points versus FY15, driven by improved merchandise margins. This improvement more than offset a 20-basis-point increase in product sourcing costs.

As a percentage of net sales, SG&A, exclusive of product sourcing costs and costs related to certain litigation, improved 50 basis points, to 26.2%. This improvement was driven by increased leverage in store occupancy, store payroll costs, and advertising expense, and was partially offset by an increase in incentive compensation. Adjusted EBITDA increased by 21%, or $101 million, to $585 million, representing a 100-basis-point increase as a percent of sales in 2016.

Depreciation and amortization expense, exclusive of net favorable lease amortization, increased by $12 million, to $160 million. Interest expense decreased $3 million, to $56 million, driven by the repricing activity completed in the second quarter of 2016. The adjusted effective tax rate, which excludes the impact of the release of a valuation allowance on deferred tax assets, was 37%, flat to FY15. Combined, this resulted in net income of $216 million, an increase of 43% versus last year, and adjusted net income of $232 million, versus an adjusted net income of $175 million last year, up over 33%.

Diluted net income per share was $3.01 versus $1.99 last year. Diluted adjusted net earnings per share were $3.24 versus $2.31 last year, and our fully diluted shares outstanding were 71.7 million shares versus 75.4 million last year.

Turning to our balance sheet, at quarter end, we had $82 million in cash, no outstanding borrowings on our ABL, and had unused credit availability of approximately $428 million. We ended the period with total debt of $1.1 billion. We are very pleased to report that our debt leverage ratio at the end of 2016 was 1.9.

Merchandise inventories were $702 million, versus $784 million in the prior year. The decrease was primarily driven by a decline in comparable-store inventory of 9%. Pack-and-hold inventory represented 23% of inventory at quarter end, versus 25% last year.

Cash flow provided by operations increased $275 million, to $602 million, primarily related to our improved operating results, and changes in working capital, inclusive of the reduction in our inventories. Capital expenditures, net of landlord incentives, were $155 million for FY16. We ended 2016 with 592 stores, including 25 net new stores for the year.

Turning to our outlook for the full-year 2017, which includes a 53rd week, we expect: net sales growth in the range of 7.5% to 8.5%, 1.4% of which is related to the 53rd week in the fourth quarter, and comparable-store sales to increase 2% to 3%, on top of a 4.5% increase in 2016; adjusted EBITDA margin expansion of 40 to 50 basis points; interest expense to approximate $57 million; an adjusted tax rate of approximately 36% -- we expect the new accounting rules related to share-based compensation to have a favorable impact of approximately 100 basis points on the effective tax rate in 2017; a share count of approximately 71.8 million diluted shares; net capital expenditures to be approximately $200 million -- this is higher than prior years, and is due to the 44 total new store projects Tom mentioned earlier, and an approximate $47 million spend in supply chain, which is $25 million over last year; depreciation and amortization, exclusive of favorable lease amortization to be approximately $176 million.

This results in adjusted diluted net income per share guidance in the range of $3.77 to $3.87, versus 2016 actual adjusted diluted net income per share of $3.24. Please note, the 53rd week is expected to have a $0.04 per diluted share positive impact in the fourth quarter of the year, and the change in share-based compensation accounting is expected to have a $0.05 positive impact for the year.

I want to take a moment to review some expense headwinds that have been offset within our 2017 guidance. First, we are expecting that wage increases from both our stores and distribution centers will negatively impact our full-year performance by about $0.13. We also anticipate increased stock compensation expense of about $0.10, as the Company continues its transition to a post-IPO long-term equity-based incentive plan.

Consistent with what we have done in the past, due to our strong profit improvement culture across all sales support teams, we have been able to offset these headwinds in our 2017 guidance. For the first quarter of 2017, we expect net sales to increase in the range of 5% to 6%, and comparable-store sales to increase between 1% to 2%, on top of last year's 4.3% increase. This reflects the impact of the significant delay in the processing of income tax refunds this year compared to last year.

Diluted adjusted net income per share is expected to be in the range of $0.67 to $0.70, versus $0.57 per share last year, utilizing a fully diluted share count of approximately 71.7 million shares. This reflects a $0.02 benefit from the recent accounting change for share-based compensation. Now, I would like to turn the call back over to Tom for concluding remarks.

Thanks, Marc. In summary, 2016 marked another outstanding year of sales and earnings growth, driven by the ongoing success in increasing customer preference for our off-price model. I remain confident in our ability to further evolve our off-price model to drive sales productivity and profitability growth for many years into the future. With that, I would like to turn the call over to the operator to begin the question-and-answer portion of the call. Operator?

Thank you.

(Operator Instructions)

Ike Boruchow, Wells Fargo.

Hey, good morning, everyone, and congrats on a really strong quarter in a tough environment. First for Marc. Marc, can you maybe provide more color on the Q4 gross margin? It sound like shortage drove most of the improvement. So just kind of curious, if you expect more good news there going forward, and maybe if you could talk to IMU and markdowns for the quarter as well, and what's baked into the 2017 guide?

And then maybe, also, just headwinds related to share-based comp going forward. It's been doing well, it's been increasing about $5 million to $6 million a year. Just curious, if you can help us there?

Sure, Ike. Good morning. Let's start with the Q4 gross margin question. As we mentioned last year, we have, and continue to have a lot of confidence in our Asset Protection Team, a new, they review 2015's shortage result as a major call to action.

Our Asset Protection Team and the store's organization implemented a number of specific actions throughout the year. We were very pleased to see our encouraging results from our summer inventories carry forward to our January inventories as well.

So we took about 400 physicals in January, and we saw improvements across all four of our major territories, in just about every merchandising area. So specifically, shortage ended up being about 65 basis points of that 80 basis point improvement in margin. And given, that was better than our planned -- what we had planned in 2016, we're really only planning a very minor improvement in shortage for 2017, a few basis points.

In terms of the other components of gross margin you asked about. As it has been all year, our IMU was higher than last year, and it more than offset the increase that we had in our markdown rate. The net of those two, Ike, was the other 15 basis points. It was really important for us to be as clean as possible, from an inventory point of view as we started the spring season.

As Tom mentioned in his prepared remarks, our comp-store inventories were down 9%, and our goods aged 91 days and older were $85 million versus $120 million the year before, a 29% reduction. So the flip side of reducing that 91 day and older bucket, is that we increased the freshness of our inventory. So we pay a lot of attention to those goods aged 0 to 30 days, and we began this year, 2017 with that 0 to 30 bucket, 300 basis points ahead of last year.

As you know, we think about gross margin on a full-year basis, and we think about it on a full-year basis net of product sourcing costs. So for the year, we delivered an 80 basis point increase, and that was primarily driven by the stronger IMU. The shortage benefit for the full year was about 15 basis points, and obviously, that more than offset the product sourcing increase of 20 basis points.

Your second question, Ike, was stock-based comp related. So we did call out in the script, there's an incremental $12 million of SG&A in 2017 or $0.10 per share in stock-based comp. As you know, we became a public Company in October of 2013, and since that time, we've been transitioning to a more competitive equity grant program.

Stock-based comp, last couple of years, as you mentioned has run about $5 million to $6 million of incremental headwind. Based on the leadership changes that we announced in January, there were some one-time equity grants that drove the majority of that incremental amount that you see in 2017.

As far as going forward, we do not expect to see that type of increase in 2018. We expect it to revert back, more in that $6 million range. And obviously, I was just talking about stock-based comp expense that hits SG&A. I was not talking about the accounting change related to stock-based comp. We expect that to be a $0.05 benefit in the year, that's going to come through on the tax line.

Got it. Thanks, Marc. And then, if I can, just one follow-up for Tom. So there's a later Easter this year, a few years ago, when Easter shifted around, you had a few execution issues that popped up. Maybe Tom, can you just talk about the guardrails that got put back on the business back then, and how that maybe protects you this year? And how you're thinking about the Easter shift this year, and how it compares to what happened a few years ago? Thank you very much

I think you're referring to what happened in 2015. We had a lot of receipts issues in some of the key businesses for Easter, one of which was ladies dresses. It was more about the -- trying to time the -- and we have the West Coast port strike.

There are lot of other outside factors that contributed to that, but we've -- we're not concerned about receipts this year. We have the right things in place to ensure that the goods get on the floor at the right time.

So we're in good shape there, that was a one-off. I don't think we really talked about that any more after that one-time deal. So we're in good shape.

Got it. Congrats, guys.

Thanks, Ike.

Thanks, Ike.

Matthew Boss, JPMorgan.

Hey, nice quarter, guys.

Thanks, Matt.

So 4% to 5% comps, up 6% ex-cold weather, that clearly points to market share gains. Can you just talk about the tone that you're getting from the buying organization, are you fielding calls from new brands out there? Are you seeing better quality of the assortments that you're getting? I'm just thinking about this in the larger context of all of the lateral brick-and-mortar disruption that's happening out there.

Matt, I'll take it. Yes, we feel really good about the relationships that we're building with the vendor community. We've been doing this over a long period of time, and there's people that really want to do business with us. And they see the results that we're getting, and there's things that are coming available to us.

Our buying organization is getting much more mature, in terms of executing the off-price model. They're getting better and better every season, and both -- there's a lot of positives around what's happening here at Burlington.

That's great. And then, just to follow up, Marc, on the SG&A front, any change to 10 to 20 basis points of leverage at a 2% to 3% comp? And then, the 15 basis points incremental expansion for each comp point above, just thinking about this year and multi-year?

Yes, Matt, let me take that. So the -- for 2017, we talked about EBITDA expansion of 40 to 50 basis points, so 40 of that's going to come from reporting margin, less product sourcing costs. So product sourcing costs, just like we've had have the last couple years, we are expecting some deleverage there, and we're expecting it to be more than offset with gains in reported margin. So that's 40 basis points.

40 to 50 basis points is just the difference between the 2% and the 3%. So at a 2% comp, we're at 40 basis points. At a 3% comp, that's where we will see 10 basis points of leverage from SG&A, and that's what gets us to 50 basis points. And it's still the same thing beyond 3%, as we go 3% to 4%, we would expect another 15 basis points.

That's great. Thanks for the help.

You got it.

Brian Tunick, RBC.

Thanks. Good morning. I'll add my congrats as well, guys.

Thanks, Brian.

Thanks, Brian.

So two quick ones. Obviously, a lot of angst around the warm weather trends we've been seeing, so was curious regarding the Q4 results, if there was any color you could share with us, regarding the monthly sales cadence? Or was it pretty consistent throughout the quarter as you are changing the mix a little?

And then, along the same question, on the real estate side, particularly on the smaller store format you're opening now, I guess, as outerwear comes down as a percentage of the mix, can you maybe talk about what you are doing inside the store, which categories are gaining floor space, and how you're looking at these new smaller stores, where the opportunity, as outerwear continues to shrink? Thanks very much.

Okay. Hi, Brian. Well, during the quarter, all the months in the fourth quarter were positive. December was a little bit higher, just because there's extra two days between Thanksgiving and Christmas this year. But overall, it was pretty consistent.

As far as the new stores go, the smaller footprint, we're going to add more space to home and beauty, accessories to areas that we feel we can grow. And as we reduce our outerwear penetration, as we de-weather our business, these are natural categories that will grow. We're going to continue to push throughout the year, our gifting business, which was very successful in the fourth quarter.

But just simply, we're going to continue to reduce our overall square footage in our apparel areas, and outerwear is part of that, as I've mentioned before in other calls, so that we can increase our penetration in home and beauty as I mentioned.

When you look at your competitors that have square footage close to 35,000 square feet per box, are there specific categories that you think are so important to Burlington, that you couldn't do that in that kind of box?

Well, we have some categories that take up more square footage. The Baby Depot business that takes up more square footage, and that's a business that's a differentiator for us overall. We're still a big believers in the tailored clothing business in men's and the furnishings business, that takes up additional square footage.

Even though outerwear has come down as a percent of total, it's still a pretty big penetration relative to other retailers, so that takes up space. We're very proud of our ladies dresses, that takes up space. So the big drivers though, I would say would be the Baby Depot, the men's tailored clothing business, and still our coat business.

Super. Thanks very much. Good luck.

Thanks, Brian.

Thanks, Brian.

Lorraine Hutchinson, Bank of America.

Thank you. Good morning. I wanted to follow up on Ike's gross margin question. It sounded like fourth quarter markdown rates were higher.

How are you thinking about that going forward into 2017? And when you talk about the 40 basis point of increased reported margin, is that still driven by higher IMU? And do you expect the markdown rate to continue to trend up? Thank you.

Yes, it's really driven by both. We think about gross margin over the course of the year, and our reported margins could offset product sourcing to be net a 40 basis points, Lorraine. But we think it could come from a combination of both IMU and markdowns. Over the course of year, as we continue to reduce our comp-store inventories, as we continue to turn faster, I would expect to start to see more good news come from that markdown rate.

Our IMUs were strong, all quarter long during 2016, so that's going to be a piece of it as well. So I could see it potentially coming from both places, over the course of the year in 2017.

Okay. What was the driver of the higher markdown rates in Q4?

Just our desire to be very clean, from an inventory position point of view.

Okay. Thank you.

Yes.

Lindsay Drucker Mann, Goldman Sachs.

Thanks. Good morning, guys. I wanted to ask about your first-quarter guidance and the more subdued outlook, and the discussion of really attributing it to delayed tax receipts? A lot of companies talked about it, but I'm just curious from your perspective, what you're seeing on the ground that gives you confidence, that the softer start really is a function of these delayed tax receipts?

Well, last year, the income tax refund started in week two of February. So, and this year, it was in week four of February. So we could just see how it impacted our business, when we're up against last year's income tax refunds, and we saw what happened once the income tax refunds got in the customers hands, in terms of our business. So yes, but fundamentally, we still feel very, very good about our business, and the way we're operating the business.

And we are taking a conservative view on the first quarter from a comp perspective. But the tax refund thing, it's all built into our guidance that we supplied. And we really feel that comfortable with our 2% to 3% for the year.

So is that to say, that between weeks two and four, business really softened because of the comparison, but as you sit now, business is as strong as you had hoped it would be?

It's come back, once the income tax refunds got into the customers hands.

Yes, that's a fair statement.

Yes.

Okay, great. And then, separately, just on comp-store inventory, I was hoping you could give a little bit more color, on how you're thinking about how much you can reduce these numbers, how much comp-store inventories can decline? You have significant reductions in calendar 2016, what you're thinking about for 2017, and what the real drivers are, of the reduced inventory going forward?

We still feel we have more inventory than we would like to have. We feel that we can experience mid-to-high single-digit decreases in comp-store inventory for the foreseeable future. We just getting better, in terms of selecting product. Our turns are getting faster.

And the real driver is really, as we grow home, beauty and the non-apparel areas, we can take our inventories down in apparel, and we're going to do what we have been doing. We're going to work on reducing the amount of inventory we have that's in the older buckets. As we've talked about in the prepared remarks, we're down 29% in terms of 91 days and older. But that's it, we just want to have faster turnovers, and we really feel that we can continue to reduce our inventories.

Great. Thanks very much.

Thank you.

David Glick, Buckingham Research Group.

Thank you. Good morning, and I add my congratulations to the team.

Thank you.

Marc, I wanted to follow up on your new-store performance. Obviously, as the size shrinks and locations improve, the productivity you said was up 17%. How does that translate to four-wall profit, now that you have more of these smaller footprints stores? And how do we think about how that impacts your return on invested capital? And then, I have a follow-up on the supply chain. Thanks.

Yes, with our smaller stores, David, especially given that they're more in the retail hubs if you will, we're paying more even -- so it's less because from a size point of view, they're smaller, but it's more because we're more of the retail hub. So occupancy is higher for these new stores. But to your point, given the fact that the sales productivity is 17% higher, it's making sure that we achieve an EBIT that we're very comfortable with.

So we've been very happy with our new stores, both from a sales point of view, and an EBIT contribution point of view. And as Tom mentioned, we're ratcheting it up from net 25 to 30 next year, and we've been very comfortable with how they've been performing.

Thank you. And if I could follow up on the supply chain here. I think you said you're investing another $25 million. Could you give us a little color on what you're investing in, how that might help your product sourcing costs and how that might drive some future returns or cost savings? Thanks.

Yes, the two areas we continue to invest in for this model are our merchant organization and our supply chain. So as we mentioned, about $47 million in capital will be spent in 2017, its $25 million higher. The majority of that incremental amount is two things. One, its storage for pack-and-hold, and two, it's incremental processing in our distribution centers, which primarily is conveyor. But it's just to move more units through the system, a little bit more on the fragile side, and putting in more lanes that require a little bit more manual intervention, where we have to touch more.

Thank you. If I can get one more follow-up. You mentioned storage on pack-and-hold. Now that Jennifer has been aboard for while, coming from Ross, where they obviously have a higher pack-and-hold penetration. I'm just wondering, the impact she's had on the organization, in terms of your approach to pack-and-hold, and your effectiveness in buying that category?

Jennifer's done a very nice job, in terms of helping the buyers and the divisional merchandise managers, and the general merchandise managers, understand how to operate more effectively, in terms of selection of pack-and-hold. She sits down with each merchant, and talks to them about what type of product we should be packing and holding, what are the manufacturers we should be packing and holding.

The other thing she's helped us with, is terms of timing, of when we bring the pack-and-hold goods in. Now we're using pack-and-hold to set up some of the seasons. We use it for, in the second and fourth quarter to deliver more value onto the selling floor. So she has really helped us, to really look at pack-and-hold, in a more sophisticated way than we did prior. So yes, our level is coming out a little bit lower, but the quality is better.

Thank you very much. Good luck.

Thanks, David.

John Morris, BMO Capital Markets.

Congrats to everybody as well.

Thanks, John.

You bet. A couple quick ones here. Thanks for giving us a little bit of the color on the tax refunds, posing a little bit of that headwind in Q1, and you able to surmount that.

I'm wondering, with the Macy's closings, and thinking about the liquidation sales that would be happening, if you have any experience looking at the stores that are in those close proximity to those Macy's closings, what kind of an impact you've seen from that?

And then, my follow-up really would be, given the regional performance; you called out some of the outperforming regions. Was there anything that you saw from a regional perspective with the patterns that was a learning, why West outperformed, as opposed to some of the other ones underperformed, and kind of what was going on there? Thanks.

Hi, John. I will take the first one, and then, if Marc wants to weigh in on the second one. So in terms of the Macy's closures. It's really too early to talk about the 2017 closures, but I can talk to you about some of the findings related to the 2016 closings if that helps you.

Yes, that would be great.

Yes, okay, in terms of the short-term impact, we did notice a small drop in the first three weeks of the liquidation. After that, it really leveled off, and over the course of a 12-week period, was really not material.

So then after the post-liquidation impact, the Burlington Stores that were co-located with a Macy's, saw a drop in sales, most likely due to the overall traffic drop in that area. But the Burlington Stores that were between 0.5 and 5 miles away, we saw a slight pick up.

So assuming the 2017 stores react similar to 2016, we wouldn't really see a material pick-up overall. But with that said, there's going to be other closures too. So we feel that if we can execute the off-price model and deliver value, we're going to continue to experience market share gain.

So just, right before we get to Marc, Tom, can I ask, there's so far been enumerated about 65 of the Macy's closures this year. Our count, doing this off the top of my head, that there was about 40 Burlington Stores that were within about a five-mile radius. Does that sound about right? Do you have those numbers handy, so we can think about it?

Yes, I think for us, it's closer to 51, John.

Okay, good. So you would expect longer term, once those liquidation sales wrap up, within say, a five-mile radius, you would expect to see a nice pick up in market share I take it, on a net basis?

Well, we experienced a slight pick up, really not material in 2016. But as I mentioned, it's more than Macy's. There's a lot of other brick-and-mortar closures. So again, if we can execute our off-price model, and deliver great value as we have been, we should experience some market share gain, but it's beyond just the Macy's closures.

Excellent, and Marc?

Yes, John. So when you have a quarter, where 27 out of 29 regions comp, you've got to feel pretty good about that.

(Laughter) Yes, exactly.

And to be honest with you, one of the regions was minus zero, so we just didn't call that comp. The other region, was really impacted by Texas, and I think there were some unique things going on in Texas. So I don't think there's anything --

Yes, Texas, I think everyone knows, with the strength of the dollar, and obviously, the oil business. I think a lot of other retailers have been impacted by those factors.

Okay, great. Thanks, guys.

You got it, John.

John Kernan, Cowen and Company.

Good morning, everyone. Congrats on a great quarter.

Thanks John.

So it sounds like IMU is moving in the right direction, it's helping to offset some of the markdowns. Can you talk about the drivers of higher IMU?

Yes, and it's really coming from, as you look at it across the year, it's really come from all buy types. It's not just coming from pack-and-hold [it] up front, it's literally across the board. So I would tell you that, and I will let Tom weigh in here if disagrees, but I would tell you it's just more maturity within the Buying Team, and better negotiating across the board.

(Multiple speakers) Marc, what you said Marc is really accurate, I think the better we get at executing off-price, the mark-up has improved.

Okay. And then, just some model questions, is there any embedded share buyback this year? I noticed the moving pieces with the incentive compensation. And Bob, is there any debt pay-down this year?

So we don't project any of that, John. So we'll continue to just report any share repurchase at the end of each quarter, and update you on what the new share counts will be going forward. And we don't predict any additional debt pay-down in any of our interest expense modeling.

As you remember from the script, there's $200 million available on the latest authorization for share repurchase, but we'll look at it opportunistically every quarter.

Okay. Thanks. Best of luck guys.

Operator, we have time for one more question?

Christian Buss, Credit Suisse.

Yes, hello. Obviously, congratulations on the nice quarter. I was wondering if you could talk a little bit about availability of inventory from vendors? We've heard from some vendors that they're trying to dial back their availability of goods into the off-price channel. What are you seeing from an inventory standpoint and an availability standpoint?

We've seen a lot of availability. It's been pretty consistent. Throughout 2016, there was really a lot of goods to choose from. So far in 2017, there hasn't been a lack of inventory.

There are some manufacturers that have stated, they're going to cut back on off-price, but there's a lot of other manufacturers that are going to aggressively go after off-price, just because obviously, we're gaining market share, and our performance is very good. But, in general, there's plenty of product out there, and we're not concerned about it whatsoever.

We've been hearing over and over again, that there's going to be less and less goods, but it doesn't really manifest [with] that. So we're comfortable with the supply that we're going to have for 2017.

That's very helpful. Thank you so much, and best of luck.

Thank you.

Thank you.

Gentlemen, do you have any closing comments?

Yes, I do. I just want to thank everyone for joining us today. We look forward to speaking with you, when we report first quarter results in May. Thanks, again.

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines at this time, and have a wonderful day.