Burlington Stores Inc (BURL) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Burlington Stores First Quarter 2018 Earnings Webcast. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to David Glick, Vice President, Investor Relations. 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 fiscal 2018 first quarter operating results. Our presenters today are Tom Kingsbury, our Chairman and Chief Executive Officer; and Marc Katz, Chief Financial Officer and Principal.

Before I turn the call over to Tom, I would like to inform listeners that this call may not be transcribed, recorded or rebroadcast without our express permission. A replay of the call will be available until June 14, 2018.

We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties. Our remark sand 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 fiscal 2017 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, David. Good morning, everyone. We are extremely pleased to kick off fiscal 2018 with strong first quarter results, driven by a robust 4.8% comparable store sales increase on a shifted basis. Adjusted operating margin, or EBIT, expanded by 85 basis points. Our overall 12.8% sales increase, combined with the increase in gross margin and expense leverage, resulted in a 59% increase in adjusted earnings per share, significantly ahead of our guidance. In addition, we continue to reduce aged inventory levels to record lows and increase our inventory freshness and comparable store inventory turnover levels to record highs. We remain highly focused on executing the strategies that have driven consistent comparable store sales and increased operating margin results over the past several years. And we expect our momentum to continue as we move through fiscal 2018.

Turning to highlights of the first quarter. This was our 21st consecutive quarter of positive comp sales growth. Our comp sales growth was driven by an increase in traffic, our 13th quarterly traffic increase of the last 15 quarters. We delivered a 35 basis point improvement in gross margin and leveraged the SG&A rate by 45 basis points, which helped drive an 85 basis point increase in our adjusted EBIT margin, and our adjusted earnings per share grew 59%.

Like to clarify at this point how we are reporting comparable store sales. Our comparable store sales increase of 4.8% lines up with the comparable calendar weeks, specifically the 13 weeks ended May 5, 2018 versus the 13 weeks ended May 6, 2017. We believe this is the most accurate representation of our comparable store sales performance and is the basis on which we plan and manage our business.

Another key element of our first quarter is the outstanding performance of our new stores. As I just mentioned, our total sales increased 12.8%, driven by the strong performance of our new and non-comp stores, which contributed $82 million in sales for the quarter as well as a robust comp store growth. We opened 18 net new stores during the first quarter of 2018 versus only 4 net new stores in the first quarter of last year. We're on track to open 35 to 40 net new stores in 2018, including 22 in the first half of the year versus only 8 in the first half of 2017. The continued strong performance of our new stores is a testament to the strength of our real estate and store operations team's ability to find and open attractive new sites.

Moving to category highlights. Our top-performing businesses were: all areas of home; beauty; missy sportswear, including better, moderate and active; men's sportswear, driven by active and team; men's shoes and athletics shoes; and Baby Depot.

Regarding geographic performance. The West and the Southwest performed above the chain average, while the Midwest comped below the chain average. The Southeast and Northeast both had strong quarters, with sales performance consistent with the chain average.

Moving to inventory management. We were pleased once again with how our merchandising team managed inventory as we ended the quarter with comp store inventories down 7% on top of a 7% decline last year. The first quarter comp store turnover improved a strong 12% on top of last year's 7% improvement.

Our merchandising and planning teams once again drove down our aged inventory levels. As inventory age 91 days and older declined significantly as we focus on maintaining a fresh and exciting assortment for our customers. Pack and hold as a percent of total inventory was 27% versus 26% a year ago, as we continue to capitalize on the favorable buying environment. We continue to see no change in the vibrancy of the marketplace for our merchant teams, and we're thrilled with the great assortment and amazing values that we continue to deliver to our customers. This is clearly evident in our inventory freshness metric, inventory received in our stores that is less than 30 days old, which was meaningfully higher than last year at the end of the quarter.

I'm also pleased with the value that we continue to bring to our shareholders as we repurchased approximately 488,000 shares of common stock during the first quarter for $64 million. At the end of the first quarter, we had $153 million remaining on our $300 million share repurchase authorization that was approved in August of 2017.

Let me update you on our long-term strategic priorities, which continue to be focusing on driving comparable store sales growth, expanding, modernizing and optimizing our store fleet and increasing our operating margin. First, with regard to driving comparable store sales growth, our underlying strategies remain, enhancing our assortments as we continue to improve our execution of the off-price model with particular focus on underpenetrated businesses, building on our marketing initiatives to ensure we are continuing to engage both new and existing customers and improving the store experience for our customers.

Our first quarter results demonstrate once again that we are making significant progress, increase in our underpenetrated growth categories, particularly home and beauty. These growth opportunities, like they did in the fourth quarter, allow us to continue to de-weather our business, building a long-term sustainable foundation for us. The first quarter was not an ideal quarter from a weather perspective, but growth in home and beauty help drive a very strong comparable store sales result, another example of our progress in de-weatherizing our business.

With regard to home, we built on the progress we made in 2017 with another very strong quarter in this key strategic category. Home still represents our largest category growth opportunity. We finished 2017 with home at 14% of our total sales, and we believe we can achieve a penetration level of 20% over time. Specifically, we have more opportunity to expand the presence of highly recognizable national brands in home and still see several key underdeveloped and new categories that we have targeted for growth in 2018 and beyond.

Our beauty business continued its strong momentum in the first quarter, and we expect this category to be a key growth opportunity for years to come. We will continue to expand the number of brands in both designer and prestige fragrances, grow key categories in beauty accessories and enhance our assortments in cosmetics and skin care. In addition, beauty remains an important element of our gift strategy, which was a key Valentine's Day sales driver. Ladies apparel remains a significant opportunity as our penetration of 23% remains well below our potential 30% penetration goal. Missy sportswear, the largest portion of ladies apparel, outperformed the chain average in the first quarter, while better and active were once again standout categories in the quarter. Our moderate sportswear business accelerated as well. That said, we continue to focus on improving the sales trend in those heritage businesses we discussed on our fourth quarter call. We're adding a second SVP in ladies apparel in the second half of the year in order to bring the necessary focus to this business and to capitalize on the penetration opportunity.

We continue to add to the quality of our vendor base. As we highlighted on our fourth quarter call, we added approximately 1,200 new brands to the mix in 2017, while we edited out a similar number of less meaningful brands. We carry approximately 5,000 brands and expect that number to increase over time as we deepen and expand our vendor relationships, grow underdeveloped categories and expand into new businesses. The momentum we enjoyed in 2017 in terms of better and best penetration increases continued into the first quarter of 2018 as the buying environment remains very attractive, and we had characterized spot availability as very strong.

On the marketing front. Our successful TV testimonial campaign has generated positive customer sentiment and strong brand recall. Also, we have been pleased with the results of our ongoing personalized marketing efforts, where we are able to deliver the most relevant content to customers in ways that matter most to them, including digital, mobile and social media. As mentioned previously, our dollar marketing spend will be comparable to prior years, though we will continue to incrementally shift into digital media.

Improving our store experience continues to be a key initiative for us. While we made significant progress in 2017 modernizing our store fleet, we're accelerating the pace in 2018 with 60 gross new stores versus 48 last year, while continuing the strong pace of remodeling 34 stores. A great example of our improved store experience is the new store we opened in March, only few miles from our headquarters in Burlington, New Jersey. For those of you who live in the New York and Philadelphia metropolitan areas, I would encourage you to visit this exciting new store.

The second growth initiative continues to be expanding our store fleet. We plan to open 35 to 40 net new stores in 2018, averaging 43,000 square feet. We are a national retailer that operates in 45 states plus Puerto Rico, yet, we only operated 647 stores at the end of the first quarter. As many of you have heard before, the foundation of our new store selection process is our C-Point strategy, which we developed over 3 years ago. At that time, we developed close to 500 potential locations that could get us to 1,000 stores over time. We believe the strategic tool, which we have been using over the last 3 years, has been integral in driving the strong new store sales and EBIT performance versus our underwriting model. At the end of 2017, we refreshed and updated our C-Point analysis, and we were able to identify even more potential locations that gives us great confidence so we can comfortably reach our goal of 1,000 stores.

While the number of net new store openings in 2018 is similar to 2017, we are increasing the number of gross new store openings by 12 stores. This acceleration of new stores, combined with remodels, will translate to another 94 stores in our brand standard. In just 2 years, 2017 and 2018 combined, we'll have increased the number of stores in our brand standard by 176 stores. Looking out 5 years, at the current rate of new store openings and remodels, we would expect a significant majority of our stores to be in our brand standard.

We also remain focused on our third growth priority, continuing to increase our operating margin. Over the last 5 years, we expanded our operating margin by 370 basis points, an average of approximately of 75 basis points per year. While we are very pleased with this progress, we continue to believe we have a 400 to 600 basis point operating margin gap versus our peers, which we believe we can continue to close.

Going forward, we will continue to execute the same strategies that we have deployed over the last 5 years, increasing total sales to leverage fixed costs, optimizing markdowns, remaining disciplined with inventory management and maintain an active profit improvement culture across all SG&A areas.

Before I turn the call over to Marc, I want to reinforce some of the comments we made last quarter about some incremental investments we are making in 2018. We feel very good about the approach we are taking to balance CapEx and incremental OpEx investments in our business while continuing to deliver expansion in operating margin. Our business model generates substantial cash flow, which we are deploying in 2018 to drive sales growth, improve our infrastructure and give back to our associates.

Number one, our company's highest annual gross CapEx spend of over $300 million, which will continue to include 60 new stores, 34 remodels, another $35 million of spend in our supply chain and $11.5 million to complete the renovations of our corporate headquarters. Year-to-date, we have added 25 stores to our brand standard well ahead of the 7 stores at this point in fiscal 2017. Number two, we remain confident in our approach to wages, investing an incremental $13 million for hourly wages in 2018 on top of 3 prior years of similar increases. We continue to feel good about this strategy as our recent hourly employee turnover and open jobs statistics continue to validate this approach. Number 3, we are well on our way to increasing our merchandising team headcount by 10% in 2018. Among the additions to our merchandising team we've already made this year are, 1 additional EVP and 2 SVPs, further narrowing the scope and increasing the specialization of our team. And number 4, we are pleased to have increased employer contributions to our medical costs to keep employee cost flat for the second straight year.

Overall, we believe we are taking a balanced approach with investments in the business while simultaneously expanding operating margins, which we believe was evidenced in our first quarter performance.

Now I'd like to turn the call over to Marc to review our first quarter financial performance and updated outlook in more detail.

Thanks, Tom, and good morning, everyone. Thank you for joining us today. We ended the first quarter by recording our 21st consecutive quarter of positive comparable store sales. In addition, we achieved strong contribution from new stores and non-comp stores and expansion in adjusted EBIT margin, which combined, delivered a 59% increase in adjusted earnings per share.

Next, I will turn to the review of the income statement. Due to the 53rd week in fiscal 2017, our results are reported for the 13 weeks ended May 5, 2018, versus the 13 weeks ended April 29, 2017. All of our results are reported on this fiscal basis with the exception of comparable store sales, which we report on a shifted basis comparing similar calendar weeks, which are the 13 weeks ended May 5, 2018, versus the 13 weeks ended May 6, 2017.

For the first quarter, total sales increased 12.8% and comparable store sales, on a shifted basis, increased 4.8%. New and non-comp stores contributed an incremental $82 million in sales for the first quarter. Our Q1 comparable store sales performance was driven by an increase in traffic, AUR and units per transaction, while conversion was flat. We have seen traffic increases in 13 out of the last 15 quarters.

As of the end of the first quarter, 6 stores were still closed due to the 2017 weather-related issues. We expect 2 stores to reopen by the end of the second quarter, 1 store by the end of the third quarter, 2 stores by the end of Q4 and a final store is expected to reopen in early 2019.

Gross margin rate was 41.2%, an increase of approximately 35 basis points versus last year, driven by a lower markdown rate and slightly higher IMU more than offsetting higher freight costs, which negatively impacted the gross margin rate by approximately 20 basis points. We now expect freight expense to be slightly higher than we indicated on our fourth quarter call, up 20 basis points for the year versus our original expectation of 10 basis points. However, this will not impact our loaded gross margin or our EBIT margin guidance for the full year as we expect to be able to offset the slight increase in freight costs with a combination of slightly higher merchandise margin and slightly lower product sourcing costs, just as we did in Q1.

Product sourcing costs, which include the cost of processing goods through our supply chain and buying cost, were 5 basis points higher than last year as a percentage of net sales, slightly better than we expected. We are once again very pleased with the continued productivity improvements in our supply chain and will continue to focus on additional productivity gains as we move forward in 2018.

SG&A, less product sourcing cost, was 26.1%, approximately 45 basis points lower than last year's percentage of sales. These results were driven by leverage in store operations, including occupancy, payroll and other expenses as well as leverage in marketing and ongoing profit improvement initiatives.

Adjusted EBITDA increased 21% or $28 million to $165 million. Sales growth, gross margin improvement and SG&A leverage led to a 70 basis point expansion in rate for the quarter.

Depreciation and amortization expense, exclusive of net favorable lease amortization, increased $3 million to $45 million and interest expense increased $1 million to $15 million.

The effective tax rate was 17.4% for the first quarter, driven by the statutory reduction in federal tax rates and by the accounting for share-based compensation. Combined, this resulted in adjusted net income of $87 million, a 54% increase versus last year.

We continue to return value to our shareholders through our share repurchase program. During the quarter, we repurchased approximately 488,000 shares of stock for $64 million. At the end of the first quarter, we had $153 million remaining on our $300 million share repurchase authorization that was approved in August 2017.

All of this resulted in earnings per share of $1.20 versus $0.73 last year. Adjusted earnings per share were $1.26 versus $0.79 last year. $1.26 per share result represents a $0.17 beat versus our top end guidance. This beat was split between $0.11 of true operating outperformance and $0.06 due to a lower tax rate than planned.

Turning to our balance sheet. At quarter-end, we had $83 million in cash, $12 million in borrowings on our ABL and had used credit availability of approximately $533 million. We ended the period with total debt of $1.1 billion and a debt to adjusted EBITDA leverage ratio of 1.6x.

In regards to the $1.1 billion outstanding on our term loan B, $800 million of that amount is fixed at an effective LIBOR interest rate of 1.65%, including the swap premium through May of 2019. Given the current interest rate environment, we will continue to evaluate hedging options beyond May 2019. In addition, we will continue to actively monitor the credit markets for an opportunity to reprice our term loan, which is currently is priced at LIBOR plus 250 basis points. As a reminder, our soft call provision from our last repricing expired on May 17, 2018.

Finally, our $600 million ABL matures on August 13, 2019, which we anticipate extending for 5 years. Given our continued strong performance, relatively low usage on our ABL and decreasing leverage ratio, we believe we have opportunities to continue to optimize our capital structure while simultaneously reducing interest expense.

Merchandise inventories were $787 million versus $726 million last year. This increase was driven primarily by inventory related to 51 net new stores opened since the first quarter of 2017 and a slight increase in pack and hold inventory, which was 27% of total inventory at the end of the first quarter of fiscal 2018 compared to 26% at the end of the first quarter of fiscal 2017. Comparable store inventory decreased 7% and comparable store inventory turnover improved 12% during the first quarter. In addition, we were very pleased that inventory age 91 days and older at the end of the first quarter was down significantly versus the prior year.

Cash flow provided by operations increased $32 million to $60 million, driven by higher net income. Net capital expenditures were $52 million for the first quarter.

During the quarter, we opened 24 gross new stores, including 5 relocations and closed 1 store, ending the period with 647 stores. We continue to expect to open 60 gross new stores and close or relocate 20 to 25 stores, resulting in 35 to 40 net new stores for fiscal 2018.

Now I will turn to our updated outlook. For the 2018 fiscal year, we now expect total sales growth in the range of 9.7% to 10.5% compared to fiscal 2017, excluding the 53rd week. Comparable store sales, on a shifted basis, to increase in the range of 2% to 3% for the balance of fiscal 2018, resulting in a full year fiscal 2018 shifted comparable store sales increase of 2.6% to 3.4% on top of last year's 3.4% increase. Adjusted EBITDA margin expansion of 30 to 40 basis points, depreciation and amortization, exclusive of favorable lease amortization, to be approximately $200 million. Adjusted EBIT margin expansion of 20 to 30 basis points, interest expense to approximate $60 million and effective tax rate of approximately 22% to 23%. Capital expenditures, net of landlord allowances, are expected to be approximately $250 million.

Based on our strong first quarter performance, this results in an updated earnings -- adjusted earnings per share guidance in the range of $5.90 to $6. And the company now expects adjusted EPS, excluding the estimated impact of 2017 tax reform and the accounting for share-based compensation, to be in the range of $4.82 to $4.92, representing an increase of 16% to 19% over the comparable 52-week 2017 adjusted EPS of $4.14.

For the second quarter of 2018, we expect total sales growth in the range of 8% to 9%. Comparable store sales, on a shifted basis, to increase between 2% and 3%. Adjusted earnings per share expected to be in the range of $0.91 to $0.95 compared to $0.72 per share last year. Excluding the estimated impact of the 2017 tax reform and the accounting change for share-based compensation, we expect adjusted EPS growth to be in the range of 12% to 17%.

With that, I will turn it over to Tom for closing remarks.

Thanks, Marc. In summary, we believe our results this quarter once again demonstrate the agility and the increasingly strong foundation of our business model. We drove operating results above our expectations and expect the continued implementation of our growth initiatives and store expansion plans to enable us to continue our positive performance through the remainder of 2018 and beyond. We remain confident in our outlook and believe in our focus on evolving our off-price model and our ability to capitalize on the rapidly changing retail landscape. This positions us well to bring more great brands, styles and value to our customers and increased value for our shareholders. Again, I'd like to thank the store, supply chain and corporate teams for their contributions to our strong first quarter results.

With that, I'd like to turn the call over to the operator to begin the question-and-answer portion of the call.

(Operator Instructions) Our first question is from Ike Boruchow with Wells Fargo.

I guess, Tom, for you, a two-part question, if you don't mind. First, the number of retailers have talked about the impact of weather on Q1. Maybe could you comment on the impact weather had on your business in the first quarter? And then, second, I think on the last call, you talked about some issues and opportunities in ladies apparel. Could you maybe update us on any progress in that category?

Okay. Well, first of all, there is no question that weather was not as favorable as it could have been in the first quarter. So it had to have some impact on our apparel businesses overall. Temperatures nationally were colder than last year each month of the quarter. But with that said, like in the fourth quarter, we are pleased with the progress we made in Q1 de-weathering our business. Apparel in total did comp slightly below the chain average, while coats clearly underperformed the chain. However, growth in those underdeveloped, less weather-sensitive businesses, such as home and beauty among others, helped us not only overcome the weather, but outperform in total once again in the first quarter. We also saw weather impact in our regional performances as the West and the Southwest led the chain, while the more weather-sensitive regions, the Northeast and Midwest, were either with or below the chain. For the second part of your question in terms of what's going on in ladies apparel, well, first of all, it trended much closer to the chain average in the first quarter than it did in 2017. That said, the business is not performing -- is not outperforming the chain. As I said in my prepared remarks, missy sportswear led the first quarter trend, again, in ladies apparel. Not only we're better and active strong, but in the first quarter, we also saw a much stronger performance in moderate sportswear, which also comped above the chain, which was very encouraging. In addition, as I mentioned earlier, we're adding a second SVP in ladies apparel in the second half of the year to expand our leadership, increase our specialization in that business.

Got it. And then just if I can, one more. Marc, on the freight dynamic, I think, freight cost were 20 bps you said in Q1 and now you are expecting higher for the year. Can you just kind of walk us through what changed and the drivers of gross margin that are helping you offset those costs?

Yes, sure, Irwin. You're absolutely right. We had originally guided 10 basis points -- 10 basis point headwind in freight for the year, and that was really been driven by 3 things: higher fuel; higher contract rates; and a mix of more West Coast deliveries versus East Coast. Just so it happens in Q1 that fuel really ended up being higher than we had originally planned and that really -- that drove that additional 10 basis points. The good news is, that we were able to offset it. We're able to offset it with 5 basis points of incremental good news in merchandise margin and with product sourcing cost only being 5 basis points worse when we hit the originally guided 10. So to your point on the year now, we are forecasting 20 basis points of bad news for freight since -- due to fuel and contract rate increases more so for the back half of the year. Again, both of those are beyond our original assumptions. But we're still guiding that 30 basis points of loaded margin. And of course, by loaded margin what I mean, the reported margin less the product sourcing costs. Those are still at 30 basis points. We're going to -- we believe we can offset those incremental freight costs with increased merchandise margin and little bit less in product sourcing just as we did in Q1. And I guess, your other question was what were the specifics that helped us set that? So we had to 55 basis points of good news in merch margin, and that was really driven primarily by a lower markdown rate, slightly higher markup, but the lower markdowns was the big contributor there. And it's -- you got to tip your head to our merchant team because they did a great job with inventory management. Comp store inventories were down 7%, but comp store turnover was 12% faster. And as Tom mentioned, aged inventory once again at record low levels. I guess I should also throw out that we did start the year with very clean inventories. And then from product sourcing point of view, our supply chain continues to embrace our profit improvement culture, and they were able to implement some efficiencies during the quarter. And I'm certainly hopeful that, that will continue as well.

Our next question comes from Matthew Boss with JPMorgan.

Tom, as we think about lateral brick-and-mortar closures, have you seen any impact on Baby Depot from the Toys"R"Us bankruptcy so far? And I guess, as we think about your store growth trajectory, does Toys"R"Us present an acceleration opportunity where maybe there is the opportunity to potentially increase store openings as the year progresses?

Well, we haven't talked about Baby Depot for a long time as an outperforming business. We really feel that we're making a lot of progress in that business overall. Candidly, we feel we're on the right track at the right time. So the Toys"R"Us liquidation does create disruption in product availability. But with that said, Baby Depot, it's a very important business, but it's a small heritage business for us, and we see it as a differentiator overall. And we'll see over time, what will happen with the business based on obviously Toys"R"Us no longer in business. In addition to the potential sales opportunity, Toys"R"Us situation could present us with a real estate opportunity. This type of situation like the Sports Authority liquidation is a fluid-dynamic process and will evolve over time. The good news is that I mentioned, we have our C-Point strategy, so we have real clarity as to what stores we may be interested in. We did end up with over 30 Sports Authority locations. So we shall see if the Toys"R"Us situation will end up yielding additional locations us or not. As always, we'll be disciplined, not chase store count and make sound financial decisions as we approach this potential opportunity, but stay tuned.

Great. And then, maybe one for Marc. Just understanding the comps you guys reported but on a shifted basis, total sales in the first quarter were up 13% and then the second quarter's plan up 8% to 9%. I guess, can you just walk through some of the drivers of the delta and any color you can provide on that shift by quarter for the balance of the year, that would be helpful?

Sure, Matt. Yes, as Tom mentioned in his prepared remarks, we believe that shifted is the most accurate representation of our comp sales performance. That's how we plan and manage our business. We think some other folks have talked about the impact of shifted versus nonshifted spring versus fall, but just to state the obvious in terms of for us, reporting comps on a shifted basis versus nonshifted results in us reporting a lower number for the first 3 quarters and a higher number in Q4. In terms of your specific question, we're moving from a 13% in Q1 to a 9% at the high end of Q2, really 2 drivers there. The first is, the higher shift impact we had in Q1 versus Q2. So in Q1, Matt, you're talking about a differential over 200 basis points. And in Q2, expectation is it's more around 50. So that's one piece. And second piece was, of course, our Q1 was a 4.8% comp and at the high end of Q2 we were at a 3%. So those are the big differences there. In terms of -- Matt, in terms of modeling, the rest of the year, we obviously guided 2% to 3% shifted comps for the remaining quarters of the year. But given that we're up against this 53rd week, we thought maybe it'd be helpful to provide a little bit more color than we typically do, and this is not something that we're going to do every year, but just to try and help as it relates to total sales, we'll give some direction. If the Q3, I mean, the total sales increase should be approximately 11% to 12% and Q4 total sales increase to approximate 7% to 8%. Those are the numbers that we have baked into that full year guidance that we already provided just to try and help a little bit here.

Our next question comes from Lorraine Hutchinson with Bank of America.

I wanted to ask about the initial markup was a nice driver to merchandise margin. Can you talk about what drove that and then your expectations for markup going forward?

Yes, slightly higher markup did help us, Lorraine. But just to be clear, the 55 basis points of good news we had merch margin, the major piece of that was a lower markdown rate. The lower markdown rate was much more impactful than the markup. In the markup, I would -- can tell you, it continues to be -- as our supplying team continues to mature, I think we continue to negotiate a little better. The slightly better markup came across all buy types, which we like to see. So that one obviously is a balance, right? This model is rooted in value as you well know, so we're always balancing markup with driving sales. But I'd expect some slight pick up there, but again, I think the majority of our merch margin pick up for the rest of the year will be more so related to the lower markdown rate.

Yes, and just to piggyback on what Marc said. We're going to continue to pass value on to the customer because our -- one of our primary focus is driving comp store growth. So we will really -- but most of the improvement will come out of markdown like Marc said. Markdown optimization has been really been a good tool for us, and it's really helped us stay current in terms of our inventory freshness. So again, we're going to continue just to deliver value to the customer. That's our #1 goal.

Our next question comes from Kimberly Greenberger with Morgan Stanley.

Great. And I appreciate the extra color on the modeling. If I can just follow up on a couple of the things you talked about. In the fourth quarter, you indicated 7% to 8% revenue growth. Is that a 13-week versus 14-week sales growth rate?

No, no, no. That's flat, 13 to 13.

Okay. Got it. Perfect. And then, tax rate, obviously, here are coming in lower than expected. I know it's very difficult to project that the stock comp piece as you came in $0.06 better than the guide. Should we leave $0.22 to $0.23 -- or sorry, 22% to 23% in our tax rate for the rest of the year?

Yes, Kimberly, that's the best we can give you. You're absolutely right. The big difference in this expense in that tax rate was related to share-based compensation in just all of our associates. And it's not just restricted stock vesting for us, a lot of that has to do with options, and we have options at varying strike prices. So that was a big driver that took us to '17. But for the rest of the year, yes, we're right now 22% to 23%, and of course, we'll update that each quarter.

Okay. Great. And then, my last modeling clarification is just on SG&A. I'm wondering if the 1-week shift in the fiscal calendar is shifting perhaps here in the first quarter, a higher expense week into Q1, and therefore, caused perhaps a slightly higher SG&A growth rate in the first quarter. And is that expected maybe can vary throughout the year?

Yes, I guess, the way I would say it is, we did end up with 45 basis points of leverage in other SG&A. Typically, on a 5 comp, that number would be 40. So maybe it was about 5 higher and some better flow through. But nothing significant, nothing that changes our full year guide.

Our next question comes from John Kernan with Cowen.

Tom, I think you talked about reduced aged inventory to record lows, comparable store inventory turns are at record highs. How much lower can you push aged inventory? How much faster can you turn comparable store inventory at this point before when you start to effect the comps in your mind?

Well, we feel we have a lot of opportunity to increase our inventory turns. We're going to focus on reducing our comp store inventories by mid- to high-single digits or a long period of time. Even though we've done a really great job in reducing our inventories, I just personally feel that we can do even more. So I think it's a long time before it's going to -- would impact our overall sales performance, but I feel very good about what we've done. I think, the aged inventory, as I mentioned, was at record lows and freshness goods that we received in our stores were lesser days is record high. So we're going in the direction, but we still I think have work to do in terms of increasing our turns.

That's great. And then Marc, did you give us an update on the drivers of comp between traffic and ticket in Q1, and how you're thinking about that as we go through the year in the guidance for 2% to 3%?

Sure, John. So traffic was by far the biggest driver of our comp. We did see nice increases in AUR and UPT as well. Conversion was flat. And again, traffic up 13 of the last 15 quarters. So we feel real good about that. AUR was up again. As we said, and it's probably a combination a higher bit of best penetration, higher percent of full price sales versus markdown sales. But John, we've talked about this before, we don't have a strategy to move AUR from X to Y. We have lots of merchandising strategies to grow the business. And some of those put downward pressure on AUR and some of the put upward pressure on AUR. So I think we'll continue to move similarly, but again, it's really going to be based on those underlying merchandising strategies.

Our next question comes from Daniel Hofkin with William Blair.

Just a couple questions, I don't know if you touched on this specifically. But any comp progression comment within the quarter? I think, February of last year, you have the negative impact of the late tax refund. So just curious is February the best month or how did that flow this quarter?

I guess the best way to answer that is we felt good about February and we felt good about Mar-pril.

Okay.

Because with the Easter shift (inaudible) you can't do better than that.

You have to look at March and April combined.

Fair enough. I guess, if you were to adjust for that, was -- did February have an outsized gain relative to March and April combined.

No, we were very happy with the result in both -- both those time periods, if you will.

Okay. And then can you discuss the stores, I guess, that are -- that have been under your brand standard for some period of time? Can you discuss kind of the performance of those stores whether it's comps or margins progression versus stores that are not yet under the brand standard? Any commentary you can give there?

Well, I'll tell you, we see nice comps across the entire fleet of stores and across really all of our cohorts. So even the older stores we're seeing nice comes, a lot of those older stores the bigger stores, but they also pay low occupancy rates and have very high EBIT percent. So overall, we're very comfortable with those. If the question was more related to new stores and our new store cohorts and how they comp versus the chain average, Dan, I'd probably go back to the stat that we gave at the end of last year, which was our '14 and '15 cohorts together how did they react '16 to '17 versus the chain. And they out-comped the chain by 240 basis points. It's probably I'd go back (inaudible) year for the most recent cohorts.

Our next question comes from Adrienne Yih with Wolfe Research.

Hello?

Hello. We can hear you now.

You could hear me now. That was -- Okay.

We can.

I was not mute though. Great. Tom, my first question is for you on the packaway strategy. So I was wondering if you were able to take advantage of some other retailers on maybe issues at the latter end of the quarter, and how quickly can you redeploy the current packaway that you have? And then, Marc, as you layer in higher density store locations, are you finding that your new store productivity is improving?

As far as packaway goes, right now, we're comfortable with the level of pack and hold that we have. We really don't want to talk about how we source our product, to be honest with you. As I mentioned, there is tons of product available. And we can move on pack and hold and bring it into our stores if we need it. I mean, we have done that successfully with coats when it got colder in prior years, but we can deploy it, and we have a lot of liquidity, meaning we have a lot of open to buy. So we can continue to buy products every single day if we need to. Our merchants are still on the market, every single week looking for great deals, and some of it will be put on the selling floor, some of it will put in pack and hold. But overall, we have the agility to really move in any direction we need to, to support the business.

And Adrienne, our new store productivity, the answer is, absolutely. These new stores have a higher sales per square foot. I think the stat that we did give at the end of the year was our stores less than 60,000 square feet were 22% more productive from a sales per square foot point of view.

Okay. Probably makes sense. And my last housekeeping question. Your average hourly rate increase, is that already in the Q1 numbers or did that go into effect in 2Q?

Everything's baked into our guidance.

Yes.

Yes, in the guidance. But I'm just curious, if some people -- some retailers have the implementation of AHR in -- on a July annual basis. Is that the case?

We have various things that happen throughout the year depending on the market, it's just one time.

Our next question comes from Michael Binetti from Crédit Suisse.

This is Casey Katten on for Michael. So looking at EBIT margins. So EBIT margins in the second quarter look like they are implied be up in the range of about 60 to 70 basis points. But the full year margins are guided to be a little bit lower, up 20 to 30 basis points. If we're right on some of those trends, it actually looks like the second half margin expansion pace should slow pretty significantly, but it looks like you're actually up against a little bit easier margin comparison in the second half. Can you maybe talk through some of the puts and takes we should be thinking about on margins as we go into the second half?

We guide conservatively. So as of right now, EBIT margins 20 to 30 basis points for the year, and those are all come in with a 2% to 3% shifted comp. Obviously, as we move through it, I think we've proven that is -- our sales outperform that number so we can have a pretty nice flow-through on the incremental sales. But we would like to be conservative within our guidance.

Okay, great. Makes sense. And then maybe on the top line, obviously, shifting to the second quarter and the rest of the year, you're going to be up against some tougher same-store sales compares. I know that you typically target comps in the 2% to 3% range, but this does require a light acceleration in the 2-year stock rates relative to what you did in the first quarter. I mean, you clearly have some big opportunities in home and beauty and women's apparel, but can you maybe talk through what you see as a biggest near-term driver to help drive comps higher as you start to get into these tougher compares?

Well, I think we're going to deploy the current strategy that we have right now that drove the first quarter results. As I mentioned, we have big opportunities in home, which we continue to -- we'll continue to see that in the future. In beauty, our gifting strategy, we're really excited about our gifting strategy in the first quarter and that will continue and obviously peak during the fourth quarter, overall. But it's the same as we've talked about a lot. I mean, we need to continue to execute our off-price model superbly, and that will obviously help us in the future.

Operator, we have time for one more question.

Our last question is from Laura Champine with Loop Capital.

Also on women's apparel side, I think you mentioned that you believe home can eventually become 20% of sales. You under-index on women's apparel, and you're hiring new management to drive growth there. Can you give your thoughts on a similar basis for what the penetration rate should be on women's apparel at Burlington?

We think it should be around 30%, so we have a big opportunity there. Again, we had some really strong business -- businesses in the first quarter, ladies sportswear was strong, overall, really led by a better sportswear business our active business, and then, we saw some improvement in our moderate sportswear business. But yes, we really feel that we have a big opportunity relative to some of our peers out there that run in the 30% range.

Thank you. And this concludes the question-and-answer session. I'd like turn the call back over to Tom Kingsbury for closing remarks.

Thanks, operator. Thanks for joining us today. We look forward to speaking with you when we report second quarter results in late August. Thank you.

Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.