Where to buy all your clothes when the tariffs make everything expensive? Burlington Stores, Inc.

Burlington Stores operates in the resilient off-price retail industry, which benefits from economic downturns and rising price sensitivity among consumers. The company's strong double-digit sales growth (11% in 2024), successful comparable store sales expansion (6% in Q4 2024), and operating margin improvements (+100bps in 2024) indicate effective execution of its Burlington 2.0 strategy. The retailer is well-positioned to capture additional market share, particularly as it plans 500 new stores by 2028, increasing its footprint toward 2,000 locations.

Tariffs in the new Trump administration may become a significant driver going forward. Tariffs present both challenges and opportunities for Burlington's business operations and strategy.

• Tariffs can create uncertainty and disruption in supply chains, as merchandise ordered months in advance may be subject to unexpected tariffs upon arrival. This disruption could potentially impact Burlington's cost structure and pricing strategies

• Despite the potential negative impact, tariffs may also create buying opportunities for off-price retailers like Burlington. As supply chains are disrupted, Burlington may have the chance to acquire merchandise at favourable prices, enhancing its value proposition to customers

• Tariffs could drive up inflation, which may negatively affect discretionary spending by consumers but also drive-up discount hunting behaviour. This could impact Burlington's sales as consumers become more price-sensitive

Overall, while tariffs introduce risks, Burlington's strategic approach aims to leverage potential opportunities arising from market disruptions while managing the associated challenges.

Industry drivers such as stagnant wages, inflationary pressures, and the growing demand for bargain retail continue to favor Burlington’s business model. The off-price retail market is projected to grow at 6.2% CAGR, and the sector is dominated by TJX (TJX), Ross (ROST), and Burlington (BURL), which collectively hold nearly 90% market share

Despite its successes, Burlington faces operational risks. Inventory management improvements are needed, as reserve inventory levels increased to 46% in 2024. Additionally, margin expansion in 2025 is projected to be slower (0–30bps vs. 100bps in 2024) due to rising supply chain and mark-on pressures. Furthermore, capital expenditures are increasing ($950M planned for FY 2025), particularly due to distribution center purchases, which could impact cash flow and debt levels.

Key catalysts for stock volatility include inflation trends, tariff policies, consumer confidence, and management execution of Burlington 2.0. While risks exist, Burlington’s growth trajectory, cost efficiency improvements, and market position in the expanding discount retail sector suggest long-term upside potential.

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