Opening 101 New Stores In 2024 Will Expand Presence In The Specialty Retail Market

Key Takeaways

• Burlington plans to enhance revenue by elevating their product assortment with top brands, boosting quality, fashion, and value.
  
• New store openings and continuous investment in the supply chain and distribution centers aim to expand market presence and improve earnings.
  
• Economic uncertainties and execution risks coupled with higher costs and capital expenditures may pressure Burlington Stores' margins and impact liquidity and shareholder returns.

Catalysts

Operates as a retailer of branded merchandise in the United States.

• Burlington's strategy to elevate their product assortment by incorporating well-known national brands along with improvements in quality, fashion, and value is expected to attract more customers and enhance revenue.
  
• Opening 101 new stores in 2024 and planning to add 100 net new stores each year thereafter is positioned to significantly increase Burlington’s market presence and drive revenue growth.
  
• The company anticipates mid-single digit comp store sales growth through 2028 due to improvements in merchandising, stores, and supply chain, which should help sustain revenue growth.
  
• Burlington's operating margin expansion, driven by better control and allocation of inventory as well as productivity improvements in the supply chain, is expected to improve net margins.
  
• Projected capital expenditures, including strategic investment in distribution centers to better control the supply chain and reduce long-term costs, are anticipated to improve overall earnings while maintaining strong liquidity.

Burlington Stores Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Burlington Stores's revenue will grow by 9.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.7% today to 6.5% in 3 years time.
• Analysts expect earnings to reach $905.9 million (and earnings per share of $14.27) by about April 2028, up from $503.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.2x on those 2028 earnings, down from 30.1x today. This future PE is greater than the current PE for the US Specialty Retail industry at 16.2x.
• Analysts expect the number of shares outstanding to decline by 0.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.35%, as per the Simply Wall St company report.

Burlington Stores Future Earnings Per Share Growth

Risks

• The outlook for 2025 is uncertain with potential economic, political, and geopolitical risks, which could lead to volatility in consumer spending and impact revenue.
  
• The first quarter of 2025 began with weaker-than-expected trends, driven by factors like weather and tax refund timings, indicating potential short-term sales volatility, potentially affecting earnings.
  
• The company's reliance on rapid execution and nimble inventory management exposes it to risks if consumer trends or external conditions rapidly change, which could affect margins.
  
• Higher costs, such as those related to incentive compensation, advertising timing, and potential supply chain disruptions, could pressure profit margins.
  
• Increased capital expenditures due to distribution center purchases may affect liquidity, limiting resources that could otherwise support stock buybacks or reduce debt, impacting shareholder returns.

Valuation

• The analysts have a consensus price target of $334.954 for Burlington Stores based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $405.0, and the most bearish reporting a price target of just $277.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $14.0 billion, earnings will come to $905.9 million, and it would be trading on a PE ratio of 28.2x, assuming you use a discount rate of 8.4%.
• Given the current share price of $242.69, the analyst price target of $334.95 is 27.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.