Burlington Stores, Inc.
Q2 2021 Earnings Call Transcript

Published: 26 Aug 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to Burlington Stores, Inc. Second Quarter 2021 Earnings Webcast and Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, David Glick, Senior Vice President, Investor Relations and Treasurer. Please go ahead.

[David Glick:]

Thank you, operator, and good morning, everyone. We appreciate everyone’s participation in today’s conference call to discuss Burlington’s fiscal 2021 second quarter operating results. Our presenters today are Michael O'Sullivan, our Chief Executive Officer; and John Crimmins, Chief Financial Officer. Before I turn the call over to Michael, I would 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 September 2, 2021. 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 fiscal 2020 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 is Michael.

[Michael O'Sullivan:]

Thank you, David. Good morning, everyone, and thank you for joining us. We are going to structure this morning's discussion as follows

[John Crimmins:]

Thanks, Michael, and good morning, everyone. Let me start with a review of the income statement. As a reminder, the results we discuss for the second quarter of fiscal 2021 are being compared to the second quarter of fiscal 2019. For the second quarter, total sales grew 34%, while comparable store sales increased by 19%. The gross margin rate was 42.2%, an increase of 80 basis points versus 2019’s second quarter rate of 41.4%. This improvement was driven by an approximately 200 basis point increase in our merchandise margins, which was attributable primarily to a reduction in markdowns. This merchandise margin improvement more than offset the significant increase in trade expense, which was approximately 120 basis points higher than 2019’s second quarter rate. Product sourcing costs, which include the cost of processing goods to our supply chain and buying costs were $146 million versus $82 million in the second quarter of 2019 increasing 160 basis points as a percentage of sales. Higher supply chain cost accounted for nearly all of the deleverage. The drivers of this expense pressure were consistent with what we had seen in Q4 and Q1. Higher wage rates and wage incentives and the disruption in the flow of receipts across the global retail supply chain. Adjusted SG&A was $550 million versus $441 million in 2019, decreasing 170 basis points as a percentage of sales. SG&A leverage was primarily due to leverage in occupancy and store payroll. Adjusted EBIT margin increased to 8.3%, 110 basis points higher than the second quarter of 2019. All of this resulted in diluted earnings per share of $1.50 versus $1.26 in the second quarter of 2019. Adjusted diluted earnings per share were $1.94 versus $1.36 in the second quarter of 2019, an increase of 43%. During the quarter, we opened eight net new stores bringing our store count at the end of the second quarter to 792 stores. This included eleven new store openings, one relocation, and two closures. This brings us to total store openings of 37 gross and 31 net for the spring. We still expect to open 100 new stores in fiscal 2021 while closing or relocating 25 stores for a net addition of 75 stores. We ended the period with available liquidity of approximately $1.9 billion including approximately $1.3 billion in unrestricted cash and $534 million of availability on our ABL. Our total balance sheet debt is now $1.8 billion, which includes $961 million on our term loan and $805 million in convertible notes with no outstanding balance on our ABL. During the second quarter, we executed a make-whole call for the $300 million outstanding of our 6.25%, 2025 senior secured notes. Additionally, during the second quarter, we refinanced our term loan extending the maturity to June 2028 from November 2024, while our interest rate spread increased modestly by 25 basis points to LIBOR plus 200 basis points. We continue to remain hedged on $450 million with a $961 million notional value. We extended our current interest rate swap through a blend and extend transaction moving the maturity of the swap out to June 2028 and lowering the LIBOR rate on the swap from 2.72% to 2.19%. Our previous share repurchase authorization expired earlier this month and our Board recently approved a new $400 million authorization that expires in August 2023. As we've said in the past, our first priority remains investing in our long-term growth and reducing our leverage. We are pleased with the recent reduction in our leverage and the progress we've made over the last nine months, paying down to $400 million previously outstanding our ABL by the end of fiscal 2020 and retiring our $300 million in senior care notes in June. Looking ahead, we are focused on deploying excess cash where we see the most accretive use. Now, I will turn to our outlook. Despite the recent strength of our business, the outlook remains very unpredictable. So, we are not providing specific sales or earnings guidance for the remainder of fiscal 2021. But as we did on our last earnings call, we would like to share some high level comments on how we are thinking about our financial performance for the second half of 2021. Like other retailers, we are seeing significant incremental pressure from freight and supply chain costs. As we discussed on our first quarter call, these pressures impact us primarily in three areas

[Michael O'Sullivan:]

Thank you, John. Let me wrap up my remarks by congratulating the entire Burlington family for our exceptional performance in the second quarter and the first half of fiscal 2021. As I’ve said before, this is a really exciting time to be at the company. We have very strong momentum. We are building and strengthening our team and we are achieving results that are at the top of our retail peer group. Our 34% total sales growth year-to-date reinforces our confidence and our ability to take significant market share over time. Meanwhile, despite the temporary expense headwinds that we are placing, we remain very excited about our ability to significantly expand operating margins over the next few years. With that, I will turn it over to the operator for questions. Operator?

[Operator:]

Our first question comes from the line of Matthew Boss. Your line is now open.

[Matthew Boss:]

Great. Thanks and congrats on another nice quarter. Michael, maybe first on the top-line. Could you just help quantify or provide any additional color around some of the factors that drove your second quarter comp growth?

[Michael O'Sullivan:]

Sure. Well, good morning, Matt. Thank you for the question. As you'll probably recall, in the - for the first quarter, we estimate that the impact of the Federal stimulus checks as being worth 10 to 15 points of comp growth. That analysis was fairly straightforward. The checks were sent out over a very short time period in March of this year and we could see the sales lift in the days and the weeks that followed. So the analysis wasn't hard and we're fairly confident about that estimate. For Q2 As I said in the script, there were several factors that drove – what we think drove back on growth including probably a residual impact from those stimulus checks, plus pent-up demand as life started to get back to normal in Q2. And then the Child Tax Credit payments that were made later in the quarter. We certainly tried to quantify the impact of each of those, but it was much more difficult. For example, how do you quantify pent-up demand. So, we don't really have an estimate that we can share for Q2. But nevertheless, I would say, we are fairly sure that the impact of those items was pretty significant. The reason that that's important is that, is that all of those items are non-recurring. This year, these factors have been like a rising tide. They've lifted all retailers. In 2022, we would expect that that tide is going to recede. And so, as John said earlier, as you think about sales models for 2022, it will be very important to back out the significant impact of those one-time items, not just for us but for every retailer.

[Matthew Boss:]

Great. And then, maybe just a follow-up on freight and supply chain expenses for John. Could you just help provide some color on the higher freight and supply chain expenses that you are seeing today and then maybe more so, what makes you think that these costs are temporary?

[John Crimmins:]

Well, thanks, Matt. Good morning. It's a really good question. I think it's worth taking a couple of minutes to explain in some detail what we're seeing. Coming into this year, we and really all other retailers were tentative and somewhat conservative in our sales plans, nobody was really sure what to expect driven by the government stimulus payments, pent-up consumer demand and other one-time factors, sales levels across the retail industry have gone well beyond what anyone would have expected six months ago. Faced with this surge in demand, all retailers have been competing with each other for capacity along really every link of the global supply chain. The competition for that capacity has driven rates at unprecedented levels. Just as an example that the spot rate for shipping a container from China to a West Coast port shortly before the pandemic has been running around $1,500 bucks. To do that now, it cost $15,000 and the rates are still increasing. There aren't enough containers. There aren't enough ships. There aren’t enough trucks or trains. There is more volume now than any part of the supply chain pipes can adequately handle. Every piece of the pipe is slower and that our backlogs to work through every step of the way. To work around these issues most retailers have increase their orders and tried to accelerate them ahead of the fall and harvest season. This has even further increased the pressure on the supply chain, helping to drive even higher rates. The companies that can afford to, the additional costs are worth incurring temporarily because even after covering these costs, the added operating profit is accretive even if it temporarily hurts operating margins. Temporarily, maybe the keyword in this situation we believe and most economists seem to agree that this situation will moderate over time as demand subside and as capacity is added. So, like many others, we think the global supply chain issues will likely carry into next year, but at some point the imbalance between demand on the one hand and capacity in the other will start to correct itself. When this happens, we would expect freight and the rest of the temporary cost related to the disruption and the DC labor shortage to become a tailwind for most companies including us. And remember, while it continues, we do expect the disruption to help us to be able to continue to find plenty of terrific merchandise values for our customers.

[Matthew Boss:]

Thanks for all the color and congrats again on the continued momentum guys.

[Michael O'Sullivan:]

Thanks Matt.

[John Crimmins:]

Thanks Matt.

[Operator:]

Thank you. Our next question comes from the Lorraine Hutchinson. Your line is now open.

[Lorraine Hutchinson:]

Thank you. Good morning. John, you achieved similar comp growth in the first and second quarters. But your operating margin expansion was much stronger in 1Q. Can you take us through the factors that drove this difference between the quarters?

[John Crimmins:]

Sure, good morning, Lorraine. Thanks for the question. Let me just frame the question a little bit and then I'll answer it. So, EBIT margin expanded 350 basis points in the first quarter and only 110 basis points in the second quarter. So that's about a 250 basis point difference, obviously on a very similar comp level. So why is that? Well, gross margin was really the key driver of the difference, expanding only 80 basis points in the second quarter versus 230 basis points in the first. So, that's a 150 basis points of the difference. Markdowns was a big driver of the gross margin difference. And this wasn't unexpected for us. You may remember that during the first quarter call, we said that the markdown improvement in Q1 would not be sustainable. Q1 was kind of unique. We were comparing to the first quarter of 2019 that had quite a bit of clearance activity. Historically, first quarter had been a weak gross margin quarter for us. We often carried over holiday clearance merchandise from the fall, which dragged our first quarter margin down and this did happen to us in the first quarter of 2019. But in the first quarter of 2021, we started with incredibly fresh and lean inventory. And then, with the well above planned 20% comp in the first quarter, our inventory turns increased nearly 60%, which we also said would not be sustainable. And it turns out we are right, our inventory turns did slow down in Q2, but they still improved by a very respectable 49%. Aside from gross margin, the remaining 100 basis points difference was largely driven by less SG&A leverage. Most of that was driven by less advertising leverage in Q2, compared to Q1, and more deleverage from incentive comp in the second quarter.

[Lorraine Hutchinson:]

Thanks. And then, my second question is from Michael related to pricing. Several retailers have talked recently about taking up prices to offset some of these cost pressures. What are you seeing in terms of pricing in the market? And could this be an opportunity for Burlington as well?

[Michael O'Sullivan:]

Well, good morning, Lorraine. Great to hear from you. I would say that we are very skeptical about the ability of retailers to sustainably raise prices across the categories that we can compete in. There are really two reasons for that skepticism. Firstly, it's important to grow a distinction between higher realized prices in the short-term versus permanently higher prices longer term. It's clear the inventory levels across the retail industry have been very lean this year and as a consequence, there has been very little promotional activity. That means, that realized prices have been higher for many retailers. But we just don't think that's sustainable. The realized prices are higher up because inventories are lean but the only reason that inventories are lean is that there has been a huge surge in consumer demand at the same time as supply chains have been constrained. So, we think that when the situation normalizes, it's likely realized prices will come back down to more like historical levels. That's the first reason we're skeptical. The second the second factor that maybe feeding into this is that the - is a spike in freight and supply chain costs. If you believe that those costs are permanent and I think you could make a good case that retailers may try to pass those costs on in the form of higher prices, but as we said in the remarks and as John just described, we think those costs are mostly about a moment in time, a short-term imbalance between demand and capacity. It is just picking up on one of the data points that John shared earlier, ocean freight rates are about ten times higher now than they were in 2019. That is not because operating a ship or paying a dock yard worker is ten times higher. It's because demand exceeds capacity. That imbalance won't last. It will normalize. So, we think any price increase that's based on those short-term costs, again it's just not likely to be sustainable. So that's our assessment. Now, let me wrap up my answer by saying, we could be wrong. Maybe prices across retail really will move up in the next year or two and to be clear, we wouldn't mind at all for an off-price retailer like us that would be terrific. It would help to further expand our value differentiation. Through the lens of Burlington 2.0, we would see this as a great opportunity to drive sales, not to drive margin, but to drive sales.

[Lorraine Hutchinson:]

Thank you.

[Michael O'Sullivan:]

Thanks, Lorraine

[Operator:]

Thank you. Our next question comes from the line of Ike Boruchow. Your line is now open.

[Ike Boruchow:]

Hey. Good morning, Michael, John, David. Michael, a question for you to start. Just couple long-term questions actually. Just, I guess, based on the comments today, I am curious if you could help us on how you are thinking about 2022, given what you are up against in 2021. Is there a way you could help us understand how you are planning the business next year in anyway?

[Michael O'Sullivan:]

Well, good morning, Ike. Yes. Thank you. It's a very good question. Having just done a 20% comp for the spring of 2021, it is pretty challenging to think about well, how should we plan spring of 2022. We are getting to a point where we are starting to work on that, because typically, as we move into October November, we start working on our plans for the following spring. I don't have a lot of details to share. But let me do this. Let me offer up a possible scenario to 2022 in terms of what the year could look like. We think that it's possible that 2022 will be a very difficult and turbulent year across the retail industry and I'm not saying that with any sense of doom or pessimism on the contrary difficult turbulent years in retail are often very good for off-price. So as I sort of lay out why we think the year could be difficult and you should interpret this as me feeling upbeat and not the opposite. So, really two reasons why I am saying I think 2022 could be a difficult year in retail. But the first reason we kind of touched on earlier, in 2021, every retailer has benefited from significant one-time items that have driven much higher sales levels than they otherwise would have achieved. When retailers anniversary those items in 2022, comps could welfare negative that mathematically that seems very lightly. Secondly, in 2021, that surge in sales was accompanied by global supply chain constraints and very lean inventory levels, which means that many retailers have seen just a remarkable recovery in margins. Again, if you scroll forward to 2022, if consumer demand does falloff and it's likely that those supply chain constraints are going to ease. So you could see an increase in the flow of merchandise into the country. At the very time the comp sales trends have turned negative. Now the scenario I've just described, a negative sales trend across retail and a loose out supply of merchandise could create huge disruption. But the consequences for off-price and for Burlington 2.0 in particular, we think it'd be very favorable. It could offer the potential to further accelerate our ability to take share. Now, I don't want over tell the scenario I've just described for the past eighteen months have demonstrated that there are serious hazards to anyone making predictions. So, but that’s actually - that's kind of the point. For 2022 given the uncertainty, we think that we're going to need to be very flexible and very nimble. So we can respond to any scenario we face including the scenario I just described and if there is an opportunity, so that we can - we're in position to take advantage of it.

[Ike Boruchow:]

Got it. So a follow-up, actually, just you heated it up pretty well, to take advantage, it seems like having a lot of with the Burlington 2.0 strategy. Are there aspects of the strategy that you could accelerate or leverage you guys could pull or accelerate going forward you get this is in fact, how the environment actually shakes out?

[Michael O'Sullivan:]

Yes. So, it's a really good question. In fact, for the last several months, I've been working with the executive team on exactly this question. Can we move faster? Again, I don't have a detailed answer, but let me offer up a few comments. Number one, we're mindful that we're building a company for the long-term here where everything we do needs to be done in a very high quality way. So we are not going to accelerate anything if we have to compromise how well we do it. That's point number one. Point number two, I would say that there are there are areas where if the opportunity presents itself, then we will absolutely move faster. The best example of this is the investment we're making in our merchandising organization. If we see strong talents in the market or strong flow talent in the market, we'll move on it very quickly. We won't be held back by existing hiring plans or budgets. And then, I guess, the third point is that there are or there may be some other initiatives that we can accelerate. But we need to do more homework first before we make a decision to formally adjust our plans. The key thing, I guess, bringing it back to this year, the key thing is that, for the balance of 2021, we need to focus heavily on doing what we've been doing, offering great value, planning the business conservatively and being ready to change. So, we'll certainly in parallel, sort of work on some of those longer term opportunities and possibly accelerating some of those longer term opportunities. But then our main focus for the next six months needs to be to keep doing what we are doing. It's been a winning game for us, so far of this year.

[Ike Boruchow:]

Got it. Thanks so much.

[Michael O'Sullivan:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of John Kernan. Your line is now open.

[John Kernan:]

Good morning, Michael, John, David. Congrats on strong execution and huge market share gains here. I have a couple of questions for John. First, can you just give us more color on the operating margin outlook based on the freight and supply chain cost? It sounds like for the full year 2021, you expect operations - operating margins to be flat on a 14 comp. How do we think about the margin structure going forward? Do you still see the same opportunity you saw several months ago to increase margins over time?

[John Crimmins:]

That’s okay. Well, first of all, good morning, John. Thanks for your question. I'll start with the first part, this year's is EBIT margin. Back in May, when we spoke, we shared that freight and supply chain costs were rising faster than what we had originally planned for. And while we had planned for these costs to continue to increase, we underestimated the magnitude of the increase. It looks considerably worse now than it did then. So, today, we shared our Q3 adjusted EBIT margin outlook is down 250 basis points on a ten comp. Our updated full year adjusted EBIT margin plan implies a similar decline for Q4, based on our updated fall comp plan of 10%. Our strong first half margin rate performance is being roughly offset in the back half as we do expect operating margins to be down by over 200 basis points if we perform in line with our 10% comp planning assumption for the fall. And yes, assuming a 10% comp performance for the fall, we would expect our operating margin rate to be flat. This full year performance is driven by 450 points of deleverage, mostly from freight and supply chain costs and to a lesser degree by the incentive comps cost. We expect to be able to fully offset these costs with about 450 basis points of combined gross margin expansion, driven by lower markdowns and leverage on SG&A cost. So while the impact of these incremental costs and this year's operating margin is disappointing, there are few other things to keep in mind. Our updated planning assumptions that we shared today, if realized would deliver 28% total sales growth with the flat operating margin that would mean 28% EBIT dollar growth also. And as we've mentioned a few times today, we think that with the exception of some permanent changes in DC wage rates, the rest of the drivers, the 450 BPS of deleverage are temporary, we estimate the DC wage deleverage impact in these estimates to be less 100 BPS of that 450. So, for the second part of your question, how do we think about operating margins going forward? Well, we still see fundamentally the same long-term operating margin opportunity that we've been describing. We expect freight supply chain cost to improve. We expect to continue to drive faster inventory turns, which should result in lower markdowns. We expect to see occupancy leverage increase accelerated by our new smaller stores and we see opportunities to drive better operational efficiency creating other expense leverage. So, yes, we still see the same path to the continued operating margin expansion that that we've been talking about.

[John Kernan:]

Got it. That was a lot of detail. Thank. I have another one for you, John. It sounds like you're excited about what you're seeing with the new smaller prototype. Is there any more you can tell us about the new store format? Any detail on how the unit economics of these stores compare to the older larger format?

[John Crimmins:]

Thanks, John. We are really excited about the performance of all of our new stores. But particularly, the 16 stores we opened this spring that are 30,000 square feet or smaller. Most of them are about 25,000 feet - 25,000 square feet. Some of them are actually a bit smaller. On average, this group of new stores that we opened this spring are running well ahead of our underwriting targets. And this is - it's also true for the group of smaller stores. One of the most exciting things about this smaller store format is the potential it has to help us improve leverage and occupancy costs. As I just mentioned, it's a big part of our long-term margin opportunity. But the hypothesis there is always been that we can drive similar sales volumes in smaller, less expensive boxes, that's going to help us drive operating margin expansion. Still early days, but what we've seen so far with the new batch of smaller stores is really encouraging and it only strengthens our confidence in the potential of the new format. And now that we have several of these stores open, we should have enough of this sample to begin to work through the learning curves of how to best operate in the smaller size. The economics in the new stores should be a great operating margin tailwind and the availability to boxes in the size range should provide plenty of very attractive sites for future new stores. So, yes, we're really pleased with what we've seen so far this year.

[John Kernan:]

Awesome. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Kimberly Greenberger. Your line is now open.

[Kimberly Greenberger:]

Okay, great. Thanks so much. Very nice quarter here. I wanted to just come back to one of the comments that you've made on the call today that August here is running well ahead of the 10% comp plan here for the third quarter. I am wondering, if you can just give us a little more color on trends here for Q3. What are you seeing in your business? And as you look out to the balance of Q3, I know you'll monitor the business, but what are the risks and opportunities as you see them for the quarter?

[Michael O'Sullivan:]

Sure. So, good morning, Kimberly. It's Michael. I'll take that question. It's a good question. And I can see ordinarily after such a strong start to the quarter, we would have taken up the plan for the quarter by now. But in this particular situation, we're being a little cautious, I think for two reasons. The first I kind of mentioned in the remarks that the surge in COVID cases related to the Delta variant. Now so far, there is absolutely no evidence that that had any impact on our business. But if the situation deteriorates, then obviously that could change. So that's one reason to be in a little bit cautious. The second reason we're being a little bit cautious is the third quarter, much more so than any other quarter of the year weather that really matters. Given I know we've talked about this before, given our legacy of as Burlington Coat Factory, I would say that the good or bad, weather affects us in the third quarter most - more than it does most other retailers. When weather turns cooler, shoppers naturally think of outerwear. And so, if the weather turns cooler, earlier in the quarter, and that really helps us versus other retailers, if on the other hand, it remains warm until later in the quarter, then that can hurt us. Right now, most of the long range forecasts, weather forecasts are saying that October and even November could be unusually warm. We never really know how much face to place in those forecasts. So that they could be wrong, but it makes sense for us given that outlook to be cautious in Q3. If the forecasts are wrong, we know that we can chase and actually, in our reserve inventory, we have a pretty good outerwear position. So, if the weather did turn cool out sooner, then we would chase the trend.

[Kimberly Greenberger:]

Fantastic. That's great color, Michael. Thank you for that. And John, just a follow-up on that. If in the third quarter, for example, you were able to deliver a 15 comp instead of your 10 plan, how would that change your outlook for the - and maybe just take it to the second half of the year? How would that change your outlook for the operating margin decline?

[John Crimmins:]

Sure, Kimberly. A good question. So I'm going answer the question in two pieces. So, if we were to perform that at 15 comp, obviously, yes, that would give us an opportunity to get some additional leverage on our fixed cost base that component of SG&A and which we're already showing really good leverage. And it would also help our gross margin performance because we would expect to drive even lower markdowns on a higher sales demand. So that part of – the way that we would typically think about we our flow through on incremental sales is very much in place. It's even there. If you look at the 10 comp, even though it's a flat margin, you were getting 450 basis points of leverage on a full year performance on our SG&A and on our gross margin. It's just all been eaten up by the product sourcing cost, supply chain cost and some incentive comp. So, we're very comfortable with that part of our algorithm. But the freight and supply chain costs are very difficult to predict. So, I don't want to give you an exact how it would flow through, because we just don't know. We think we have some pretty conservative assumptions in here realistic. But, it's just not clear how that situation is going to play out and that's why we’ve stayed away from giving specific guidance.

[Kimberly Greenberger:]

Understood. Thank you so much.

[John Crimmins:]

Okay. Thanks, Kimberly.

[Operator:]

Thank you. Our last question will come from the line of Michael Binetti. Your line is now open.

[Michael Binetti:]

Hey guys. I would add my congrats on a nice quarter and thanks for all the detail here today. So the merch margins were 200 basis points lower in 2Q. Sorry, up in 2Q, but were low – I am sorry, they were up - less than 1Q. I am curious, Michael, if you just maybe give us some comment on what drove that moderation. And then I think you said 3Q would be 200 basis points from both merchandise margin and SG&A leverage. So it seems like you are baking in further moderation of the merch margin in the third quarter in the second half, but given how tight supply chains are and inventories that you spoken to are getting back up into the market, I am trying to think what - what would be some of the incremental headwinds to merch margin as you look at to the plan in the second half?

[Michael O'Sullivan:]

Sure. So, good morning, Michael. Yes, everything you said is correct in terms of the comparisons of the quarters. So, we saw a nice merch margin improvement in Q2, but it wasn't as big as the improvement in Q1. That's really driven by the point that John was making earlier that Q1 was with the anomaly. Q1 we were much cleaner coming into Q1 than we've been historically. And as a result, we took off fewer markdowns in Q1. So that was really - that was really what drove that difference between Q1 and Q2. Looking forward to the back half, obviously, our back half baseline comp assumption is a 10% percent comp. If we do a 20% comp in the back half of the year, I would be hoping or I would be expecting much stronger inventory turns, much stronger markdowns and as it drives a stronger, merch margin performance than we've indicated. Just linking this though to the point you’re making about availability of merchandise, I would say that so far this year, availability has been pretty good - pretty good. We've had no problem - across our business, we had no problem overall chasing our receipts here. We've gone from a - we started the year with a flat comp as a plan and we've obviously at 20. So we’ve been quite nimble to find the goods. As I think about the backlog in supply chains, I think the availability is going to get better, much better even than the pretty good availability we've seen. But I think that improvement in availability may not happen for a few months. We are going to get into a point here probably in October, something like that when goods that have been ordered that haven't arrived in the United States aren't going to make it for holiday. And I think at that point, it could be a good - a good buying opportunity for off-price. But, we'll see. And a lot of that merchandise we would end up putting in reserve anyway. But, we do think there is going to be some opportunities in the months ahead.

[Michael Binetti:]

Is it safe - thanks for that, Michael. Is it safe to say that the - even on the pathway and the inventory in the channel as you spoke about I think earlier in the remarks you mentioned the reserves - your intake of reserves inventory was up, I think 86%. Do you - would that suggest that in August you are seeing the ability to continue bringing in reserve flows at a bit of a slower pace and then - but you have confidence that it picks up through the quarter? Or what kind of a pace relative to that 86 that you assume as you thought about the 10 comps?

[Michael O'Sullivan:]

Yes. It's a good question. We are kind of assuming that that reserve inventory over the next month or two is going to kind of come in at a similar rate to what we've been experiencing. But we do think that there is a buying opportunity down the road, probably though for merchandise that we wouldn't necessarily flow to stores. So it wouldn’t necessarily hit the 10 comp. Some of it might, but most of it might be packed away for the next year, because it would be seasonal merchandise.

[Michael Binetti:]

Okay. Thanks a lot again guys.

[Michael O'Sullivan:]

Thanks, Michael.

[Operator:]

Thank you. This concludes today’s Question-and-Answer Session. I will now turn the call over to Michael O'Sullivan for closing remarks.

[Michael O'Sullivan:]

Thank you everyone for joining us on the call today. We appreciate your questions and your interest in Burlington Stores. We look forward to talking to you again in November to discuss our third quarter results. Thanks again.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.