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Burlington Stores' (BURL +7%) top and bottom-line beats in Q4 (Jan), impressive comparable sales growth, and solid guidance proved aces up its sleeve, keeping its current stock rally active today as shares break to one-year highs. The off-price clothing retailer had to follow a few tough acts after peers TJX (TJX) and Ross Stores (ROST) posted decent JanQ reports over the past week. However, downbeat FY25 (Jan) earnings forecasts from both TJX and ROST provided an opening where BURL could outperform, which it did, guiding FY25 adjusted EPS mostly ahead of consensus.

• Off-price retail remains an attractive outlet for shoppers amid the inflationary environment. BURL rang up +2% comp growth in Q4, well ahead of its negative 2% to flat outlook. Meanwhile, revenue growth of 13.9% yr/yr to $3.13 bln represented a second straight quarter of accelerating growth.
• Management chalked up the buoyant numbers to two primary variables. For one, disinflation is easing the cost-of-living burden among BURL's core lower-income customer base. Secondly, BURL's strides at targeting slightly higher-income shoppers who are trading down are paying off. Given how many higher-income shoppers have started frequenting its stores, the company expressed mild disappointment that comps were not higher.
• Notably, BURL's comps on clearance merchandise fell by double digits in the quarter, underpinning robust demand for regular-priced merchandise. BURL noted that comps on purely regular-priced merchandise were +4%. This dynamic supported a 140 bp improvement in merchandise margins yr/yr, helping fuel BURL's 24.7% jump in adjusted EPS to $3.69, marking its widest beat in over two years.
• BURL is optimistic trends will persist throughout the year, projecting adjusted EPS of $7.00-7.60, the midpoint of which was above consensus, revenue growth of +9-11% yr/yr, and comps of 0-2%. While the trade-down activity among higher-income shoppers has been encouraging, BURL's core lower-income base remains fragile, driving uncertainty for the year. Still, buoyant merchandise margins and easing supply chain costs will spur a 10-50 bp expansion in adjusted operating margins.
• Long-term financial targets remain unchanged. BURL continues to target low double-digit annual revenue growth over the next five years alongside average comp growth in the mid-single digits and operating margins climbing to 10%.

The lower-income shopper historically has been BURL's primary growth driver. However, starting around early 2022, when inflation began taking off, higher incomes traded down. BURL quickly enacted several strategies to pounce on this trend, delivering a higher mix of recognizable brands and elevating its assortments in certain businesses. While management conceded it should have been more aggressive, its actions have propped up comps despite weakness across its core customer base.

The year ahead still offers the opportunity for BURL to expand its base of higher-income shoppers, which will remain its focus. If it continues to succeed on this front, BURL is positioned to outperform its relatively conservative FY25 comp guidance, which would likely keep its stock trending higher.