Dive Brief:
- Lower freight costs bumped Burlington’s gross margin up 2.8 percentage points YoY to 41.7% in Q2, according to an Aug. 24 earnings release.
- The retailer renegotiated its freight contracts, took advantage of the softening freight market and fuel rates, and is optimizing its inbound and outbound transportation processes, resulting in a 1.3% YoY improvement in freight expenses, CFO Kristin Wolfe said during a Q2 earnings call.
- “There are a number of things that we've been doing over the last few years in freight and supply chain to get our supply chain and transportation system much more flexible, much faster in moving goods,” Burlington's CEO Michael O'Sullivan said in the call.
Dive Insight:
The relief in transportation expenses comes as Burlington has been dealing with a tail of headwinds in terms of high freight costs for the past few years, according to the retailers earning calls from the past year.
“We've run into some serious headwinds just in terms of the freight constraints, the higher freight rates, et cetera. And I feel like this year we've made some real progress in driving down the freight costs,” O’Sullivan said.
In a Q4 2022 earnings call, Wolfe said the company was "up against extraordinarily high freight costs from last year" but expected to see lower freight expenses “especially in Q1 and Q2,” she added.
The retailer expects freight expenses to continue to improve — especially ocean freight. "Going forward, we expect freight savings to primarily come from the domestic freight line as we've largely anniversaried the decline in ocean freight at this point," Wolfe said.
On the other hand, Burlington continues to navigate higher product sourcing costs. Expenses were $183 million versus $157 million in the second quarter of 2022, the CFO said.
Other shippers have also reported an ease in transportation costs.
Gap reported improved operating margins as a result of lower air cargo rates. Earlier this year, At Home dropped its prices after seeing improvements in freight costs and other supply chain savings while Under Armour reported financial benefit from falling ocean and air freight expenses.
