On Wednesday, Telsey Advisory Group adjusted its outlook on shares of Burlington Stores (NYSE:BURL), increasing the price target to $320 from $310, while keeping an Outperform rating on the stock.
The firm's decision follows Burlington's third-quarter earnings report, which presented a complex picture due to the impact of unseasonably warm weather on sales of cold weather merchandise, which accounts for 15% of the company's third-quarter revenues.
Burlington's revenues were slightly below consensus, with comparable store sales (comps) growing 1%, which is within the company's guidance range of 0%-2% but below the consensus estimate of 2.1%. Excluding the cold weather categories, comp growth stood at 4% for the quarter, consistent with the trend since March.
Despite the revenue shortfall, Burlington achieved a notable operating margin expansion of 120 basis points for the quarter, surpassing the consensus estimate for a 110-basis-point increase. This margin improvement, coupled with a slightly lower tax rate, allowed the company to meet earnings per share (EPS) expectations for the quarter.
The company has decided to maintain its fourth-quarter outlook and has raised the lower end of its EPS guidance for the year. However, the high end of the guidance range remains below consensus. Telsey noted that the warm weather has affected the entire apparel sector in the third quarter, but an improvement in November trends was observed as temperatures began to drop, with Burlington reporting a positive start to November.
Telsey remains optimistic about Burlington's potential for store growth compared to its peers, which could contribute to incremental top-line growth over time. The company's five-year plan, unveiled in the third quarter of 2023, outlines strategies for achieving top-line gains through new store openings and comp growth, which are expected to lead to margin expansion.
The new stock price target of $320 is based on a forward price-to-earnings multiple of 30.4 times the two-year forward EPS estimate of $10.53, aligning with the five-year next twelve months (NTM) average multiple of 30.3 times.
In other recent news, Burlington Stores reported an 11% increase in total sales and a 41% rise in adjusted earnings per share to $1.55 in its third quarter. Despite weather-related challenges, the company's same-store sales rose by 1%, slightly below the anticipated 2% increase. Analysts from Evercore ISI and Citi both increased their price targets for Burlington, reflecting confidence in the company's financial performance and resilience.
Burlington's expansion strategy is progressing well, with 147 new stores opened and projections for 101 net new stores by year-end. The company has set a long-term goal of adding 500 new stores between 2024 and 2028. The company's strategic initiatives, known as "Burlington 2.0," aim to enhance merchandising, supply chain, and store operations.
In a recent development, Burlington appointed Shira Goodman, former CEO of Staples, to its Board of Directors and Audit Committee, effective January 1, 2025. Goodman's extensive retail industry experience is expected to bolster the board's oversight of the company's strategic growth initiatives. Amid these developments, Burlington continues to demonstrate resilience in the face of external economic challenges.
InvestingPro Insights
Burlington Stores' recent performance and Telsey Advisory Group's optimistic outlook are further supported by real-time data from InvestingPro. The company's market capitalization stands at $18.07 billion, reflecting its significant presence in the retail sector. Burlington's revenue growth of 12.62% over the last twelve months and a quarterly growth of 13.38% as of Q2 2025 align with Telsey's positive view on the company's top-line potential.
InvestingPro Tips highlight that Burlington is trading near its 52-week high, with a strong return of 67.14% over the last year. This performance underscores the market's confidence in the company's strategies and growth prospects. Additionally, Burlington operates with a moderate level of debt, which could provide financial flexibility as it pursues its five-year expansion plan.
While the company's P/E ratio of 40.01 suggests a high earnings multiple, an InvestingPro Tip indicates that Burlington is trading at a low P/E ratio relative to its near-term earnings growth. This could imply that the stock still has room for appreciation, supporting Telsey's increased price target.
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for Burlington Stores, providing deeper insights into the company's financial health and market position.
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