Store Expansion And Supply Chain Improvements Will Strengthen Future Operations

Key Takeaways

• Strategic expansion through new store openings and lease acquisitions is driving significant sales growth and positioning for further expansion.
  
• Focus on optimizing merchandise mix, enhancing supply chain, and managing inventory improves operational efficiency and enhances margins.
  
• Burlington faces risks from weather dependency, economic uncertainties, tariffs, execution on new store strategies, and distribution center transitions impacting revenue and margins.

Catalysts

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

• Expansion through new store openings is a major growth driver, with plans for 100 net new stores in 2025, which is expected to significantly boost total sales.
  
• The company's focus on optimizing the merchandise mix and investing in better brands could lead to increased customer attraction and higher revenue.
  
• Implementation of productivity initiatives and advancements in supply chain management are anticipated to enhance operational efficiency and improve net margins.
  
• The strategic acquisition of leases from bankrupt retailers is expanding store locations, positioning the company to potentially exceed their 500 net new store opening goal from 2024 to 2028, which should drive store sales growth.
  
• Resilience in managing inventory, including the increase in reserve inventory, and strong inventory quality could enhance gross margin and contribute positively to earnings.

Burlington Stores Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Burlington Stores's revenue will grow by 9.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.5% today to 6.4% in 3 years time.
• Analysts expect earnings to reach $878.5 million (and earnings per share of $14.11) by about December 2027, up from $470.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.5x on those 2027 earnings, down from 39.5x today. This future PE is greater than the current PE for the US Specialty Retail industry at 16.7x.
• Analysts expect the number of shares outstanding to decline by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.36%, as per the Simply Wall St company report.

Burlington Stores Future Earnings Per Share Growth

Risks

• Burlington's significant reliance on cold weather categories, which are heavily impacted by warmer temperatures, poses a risk to their sales and comp growth, as evidenced by a negative impact in Q3 results. This could adversely affect revenue.
  
• The potential for tariffs and other economic policies, although uncertain, could increase costs or reduce discretionary spending power for Burlington's core low-income customer base, potentially impacting revenues and operating margins.
  
• Burlington's substantial investment in new store openings and relocations represents an execution risk, particularly if sales in newly opened or relocated stores fall below expectations, potentially affecting revenue growth and net margins.
  
• Uncertainties related to the broader economic environment, such as inflation, a possible economic slowdown, or changes in fiscal policies, could negatively impact consumer spending, affecting Burlington's sales and earnings.
  
• The transition to owning rather than leasing distribution centers involves significant capital expenditure, which might strain cash flow or result in higher-than-expected costs, impacting net margins and earnings.

Valuation

• The analysts have a consensus price target of $326.45 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 $350.0, and the most bearish reporting a price target of just $280.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $13.8 billion, earnings will come to $878.5 million, and it would be trading on a PE ratio of 28.5x, assuming you use a discount rate of 7.4%.
• Given the current share price of $295.49, the analyst's price target of $326.45 is 9.5% 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.