Burlington's improved inventory turnover puts it 'on track' to open at least 35 new stores

Dive Brief:

Burlington posted an improvement in inventory turnover — down 7% in the first quarter of 2018 year over year — but said freight costs will rise throughout fiscal year 2018 due to higher fuel costs and higher contract rates, according to the earnings call transcript.
The retailer is also "on track" to open 35 to 40 new stores in FY 2018, boosted by total sales increasing 12.8% year over year in the first quarter and gross margin increasing by 35 basis points.
Burlington also reported its product sourcing costs rose by 5 basis points in the first quarter, and attributed its lower effective tax rate — at 17.4% — to the Tax Cuts and Jobs Act.

Dive Insight:

Burlington is another one of those off-price retailers — similar to TJX Cos. — solving the inventory management puzzle and expanding its brick-and-mortar presence at the same time, reminding the industry that traditional retail isn't dead.

Burlington has figured out how to accurately gauge and meet consumer expectations, resulting in decelerating inventory turnover and the opportunity and capital to open new stores.

Take Burlington's response to a potential inventory crisis, for example. When one analyst mentioned that other apparel retailers cited negative impacts of uncharacteristically colder weather in their first quarter results, Burlington CEO Thomas Kingsbury replied that weather did impact the company's apparel business, but Burlington found a way to mitigate the negative effects.

"Apparel in total did come slightly below the chain average while coats clearly underperformed the chain," he said in the earnings call, "however, growth in those underdeveloped, less weather-sensitive businesses such as home and beauty among others helped us not only overcome the weather but outperformed in total once again in the first quarter."

Adjusting inventory levels to meet demand based on unpredictable weather patterns requires a nimble supply chain. Burlington isn't the only retailer manipulating inventory management to grow its gross margin: Target and Verizon also widened margins and improved their financial outlooks by adjusting inventory management techniques.

Due to the opening of new stores and a sleek supply chain, Burlington expects growth to continue throughout the year and projected total sales to increase another 8-9% in the second quarter.