Ladies and gentlemen, thank you for standing by and welcome to the Burlington Stores Fourth Quarter 2020 Earnings Call. At this time, all participant lines are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference may be recorded. I'd now like to hand the conference over to your host today, David Glick, Senior Vice President, Investor Relations and Treasurer. Please go ahead, sir.

Thank you, operator, and good morning, everyone. We appreciate everyone’s participation in today’s conference call to discuss Burlington’s fiscal 2020 fourth quarter operating results. Our presenters today are Michael O'Sullivan, our Chief Executive Officer; and John Crimmins, Chief Financial Officer. Before I turn the call over to Michael, I would like to inform listeners that this call may not be transcribed, recorded, or broadcast without our expressed permission. A replay of the call will be available until March 11, 2021. We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties. Our remarks and the Q&A that follows are copyrighted today by Burlington Stores. Remarks made on this call concerning future expectations, events, strategies, objectives, trends, or projected financial results are subject to certain risks and uncertainties. Actual results may differ materially from those that are projected in such forward-looking statements. Such risks and uncertainties include those that are described in the company’s 10-K for fiscal 2019 and in other filings with the SEC, all of which are expressly incorporated herein by reference. Please note that the financial results and expectations we discuss today are on a continuing operations basis. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are included in today’s press release. Now here’s Michael.

Thank you, David. Good morning, everyone, and thank you for joining us on this morning's fourth quarter earnings call. We are very glad that you could be with us. We're going to structure this morning's discussion as follows. First, I will review our fourth quarter results; second, I will talk about the outlook for 2021; third, I will discuss the market share opportunities that we see ahead of us; and fourth, I will provide an update on our Burlington 2.0 strategy and key initiatives. After that, I will hand the call over to John to walk through financial details. Then we will be happy to respond to any questions. I would like to start my review of the fourth quarter by acknowledging our store teams with their strong execution of safety and social distancing protocols in our stores and for providing a safe environment for our associates and our customers in Q4 and indeed, throughout 2020. This attention to safety in our stores was critical to supporting our business. Okay. So let's talk about our results. Comparable store sales in the fourth quarter were flat versus last year. We were down 10% in November, flat in December and up 17% in January. I would like to provide some detail on the drivers of this month-by-month comparable store sales performance. As we discussed on the third quarter call, we believe that the weak trend in November was driven by unseasonably warm weather. Given the legacy of our brand and our particular strength in outerwear, unusually warm weather in the fall tends to hurt our traffic and sales more than most other retailers. This was the primary driver of the 10% comparable store sales decline for the month. Our sales trend improved significantly in December, as weather normalized, traffic improved and customers responded to the great merchandise values that they found in our stores. We chased over $100 million of sales above our internal plan in December. We were particularly pleased with this improvement in the sales trend in December, given the external environment. The resurgence in COVID-19 cases across the country meant that we faced lower occupancy limits in many stores and reduced operating hours in some of our major markets. We improved to a flat comp in December despite these limitations. Our gross margin in Q4 was up approximately 40 basis points, despite a 70 basis point increase in freight expense. I was very pleased with the 110 basis point increase in our merchandise margin, which was driven primarily by lower markdowns. Our receipts are fresher. We are turning faster, and we are capturing the margin benefits of these faster inventory turns. The buying environment in the fourth quarter was very favorable, and we were able to finance great merchandise values to flow to stores and to fuel our ahead-of-plan sales trend. At year end, our in-store inventory levels were down 16% on a comparable store basis. As a reminder, at the same point last year, they were down 15%; on a two-year basis, we are operating with significantly less in-store inventory. This is deliberate and consistent with our stated strategy of running our business with much leaner in-store inventory levels. In fact, our in-store inventory turns increased 27% on a comparable basis for Q4, evidence that our strategy is working. Reserve inventory increased to 38% of our total inventory at the end of the fourth quarter versus 33% last year. This would have been higher but for the fact that we released some of our reserve early. This was merchandise that we had originally planned to release in February that we accelerated into January to support sales and replenish in-store inventory. Of course, this is exactly what reserve inventory is intended for. I would like to turn now to the outlook for 2021. The consumer environment remains very unpredictable. The pace of vaccine rollouts, the spread of virus mutations, the timing of tax refunds and the potential for additional federal stimulus are all variables that we have no control over and have very little visibility into. These variables could dramatically impact our sales trend in either direction. As John will discuss later in the call, we have planned and we will be reporting fiscal 2021 compared to fiscal 2019. This is to avoid a lack of comparability with our fiscal 2020 results. For internal baseline planning purposes, we are assuming a flattish comparable store sales for 2021 compared to 2019, but it is important to understand that this is just a baseline. We intend to manage our business very flexibly. If our comp during 2021 is stronger than flat, then as demonstrated in Q4, we have the ability to chase a stronger sales trend. Conversely, we can pull back if that turns out to be necessary. I would like to move on now to talk about the exciting longer-term market share opportunities that we see ahead of us. For many years now, long predating the pandemic, the e-commerce and off-price retail sectors have been gaining market share at the expense of department stores. We believe that the aftermath of the pandemic may drive an acceleration of this trend, leading to further consolidation and additional closures of full-price brick-and-mortar retail stores. As we have described before, as these physical stores close, we believe that many shoppers, especially more affluent, time-starved shoppers, will migrate more of their spending online, but we anticipate that other shoppers, more value-oriented shoppers, will find their way to off-price. With all that said, we recognize that none of the shoppers in our stores cares about our market share; what they care about, as they should, is finding great value on a brand, or a style, or an item that they love. Our focus and the central objective of our Burlington 2.0 strategy is to improve our ability to deliver this great merchandise value. I would like to pivot now and offer some updates on Burlington 2.0. As I said earlier, we believe our strong performance relative to our expectations in Q4 was primarily driven by the successful execution of our core Burlington 2.0 strategies: delivering great value to customers by tightly managing liquidity, chasing sales, buying opportunistically, operating lean inventories, getting fresh receipts to the sales floor as fast as possible and flexing our store model based on receipts and traffic. As we move into 2021, we will continue to look for ways to refine and improve our execution of these key strategies. One of the most important long-term enablers of delivering great merchandise value to customers is to invest in our buying and planning capabilities. As I mentioned in our November call, we are pursuing a major multi-year growth plan for our buying and planning organization. We are heavily investing in these capabilities, and we will be growing this organization at a much faster rate than sales. This expansion will happen across all merchandise categories and in each of our buying offices. The growth will be especially significant in our New York City and our West Coast buying offices. Headcount in both these locations will grow several-fold in the next few years. We have very strong vendor relationships today, but we want to further expand and develop these key partnerships. We recognize that, in some cases, having a stronger on-the-ground presence in New York City and Los Angeles will help us to achieve this. The final update that I would like to provide is on our real estate strategy. As discussed on our November call, our real estate and store operations teams have done a lot of work in the past year on a 25,000 square foot store prototype. We are excited about this prototype. We expect that about a third of our new store openings in 2021 will be in this format, and that over time, this smaller prototype will grow to represent the majority of our new store openings. Of course, the key enabler of moving to this smaller prototype is to operate with leaner in-store inventory levels. When you have less in-store inventory, you need less physical space. This has significant economic benefits, translating to lower occupancy costs and higher operating margins. The smaller prototype also provides important strategic benefits, increasing the pool of potential real estate sites and providing the opportunity to open profitable stores in more locations around the United States. We are very excited to announce that based on these factors, we are raising our long-term potential store count to 2,000 stores from our previous goal of 1,000 stores. As a reminder, we had 761 stores as we began this fiscal year. So clearly, we have a lot of runway and opportunity ahead of us. Bringing it back to this year, as John will describe in a moment, we plan to open approximately 100 new stores in 2021, while closing or relocating approximately 25 stores for a total increase of 75 net new stores. Moving forward, we will continue to evaluate the pace of new openings each year. Now, I would like to turn the call over to John to provide more detail on our financials. John?

Thanks, Michael, and good morning, everyone. Let me start with a review of the income statement. For the fourth quarter, total sales increased 4%, while comparable store sales were flat. The gross margin rate in the fourth quarter was 42.5%, an increase of 40 basis points versus last year's rate of 42.1%. This improvement was driven by a 110 basis point increase in our merchandise margins, which was attributable primarily to a reduction in markdowns. This merchandise margin increase more than offset a significant increase in freight expense, which increased 70 basis points over last year's rate. Product sourcing costs, which include the cost of processing goods through our supply chain and buying costs, were $143 million in the fourth quarter of 2020 versus $89 million last year, increasing 230 basis points as a percentage of sales versus last year. Higher supply chain costs accounted for 180 basis points of this deleverage. This was consistent with the expectations that we discussed in our third quarter call last November. The major drivers were higher wage rates, higher wage incentives, the impact of lower average unit retail and product mix and inefficiencies caused by safety protocols and the general disruption in the flow of receipts across the global retail supply chain. The balance of deleverage in product sourcing costs came from higher buying costs. This is consistent with Burlington 2.0 and our strategy of investing in our merchandising capabilities. Adjusted SG&A was $554 million versus $499 million last year, increasing 160 basis points versus the prior year. SG&A deleverage was primarily due to increases in store-related and corporate costs, including $39 million in COVID-related expenses. Adjusted EBIT decreased by $70 million to $224 million. All of this resulted in diluted earnings per share of $2.33 versus $3.08 last year. Adjusted diluted earnings per share were $2.44 versus $3.21. During the quarter, the company paid down the $250 million previously outstanding on its ABL facility, ending the fourth quarter with no outstanding balance. We ended the period with available liquidity of approximately $1.9 billion, including approximately $1.4 billion in unrestricted cash and total balance sheet debt of approximately $1.9 billion. Before I provide our outlook, I wanted to comment on how we are approaching, planning our business and reviewing our performance during this year. As you know, fiscal 2020 was a highly unusual and volatile year, making comparability of fiscal 2021 results to fiscal 2020 very difficult. Accordingly, not only are the plans we have developed benchmarked against fiscal 2019, but our comparable store sales results and many of the financial measures we will be reporting in fiscal 2021 will be compared to fiscal 2019 as well. Given the uncertainty caused by the ongoing pandemic, we are not prepared at this time to give specific sales or earnings guidance for fiscal 2021. That said, we can provide some guidelines to help you model fiscal 2021. Let's start with sales. As Michael said, for internal planning purposes, we are using a baseline of flat comparable store sales in fiscal 2021 versus fiscal 2019. In a moment, we will discuss the cost headwinds that we expect to face in fiscal 2021, but before we do that, it's important to call out that as we compare 2021 to 2019, we will have naturally incurred two years of expense growth. Typically on a flat comparable, our EBIT margin would decline 20 basis points to 30 basis points on a one-year basis or 40 basis points to 60 basis points over two years of expense growth. Staying with sales for a moment, as you think about total sales growth for FY 2021 versus FY 2019, you should factor in two years of new stores over that time period: 34 net new stores in fiscal 2020 and 75 planned net new stores in fiscal 2021. Moving on to gross margin, we expect higher freight costs to continue to pressure our reported gross margin in fiscal 2021, but we do expect merchandise margin improvement to offset higher freight costs as we continue to plan our comparable store inventories down, which should result in further reduction in our markdown rate. Moving down the P&L, we expect continued cost pressure and deleverage from product sourcing costs in 2021 primarily from higher supply chain costs. We expect significant deleverage versus 2019, driven by similar headwinds to those we experienced in the fourth quarter. In terms of SG&A in FY 2021 versus FY 2019, you should also factor in ongoing COVID-related SG&A expenses in fiscal 2021. After combining the deleveraging effect of a two-year flat comp, the incremental expense pressures that I just outlined, and various offsets and mitigation strategies that we have identified so far, our modeling would suggest an EBIT margin decline of 70 basis points to 80 basis points, if comparable store sales are actually flat in fiscal 2021 versus fiscal 2019. Again, to be clear, this is based on comparable store sales growth being flat on a two-year basis. If our comparable store sales growth is stronger than this, then we would expect our operating margin performance to be better. Finally, let me share some specific outlook items for your modeling purposes. Net capital expenditures for fiscal 2021 are expected to be approximately $470 million net of landlord allowances. In fiscal 2021, we expect to open 100 new stores, we are closing or relocating 25 stores, resulting in 75 planned net new stores. This includes 18 new stores that were shifted from fiscal 2020 into fiscal 2021. Depreciation and amortization expense, exclusive of favorable lease cost, is expected to be approximately $260 million. Interest expense, excluding $32 million in non-cash interest on the convertible notes, is expected to be approximately $80 million, and we expect our effective tax rate to be approximately 24% to 25%. With that, I will turn it over to Michael for closing remarks.

Thank you, John. As I wrap up my remarks, I would like to thank the entire team at Burlington. It is an understatement to say that we operated in a very difficult environment in 2020. I am proud of how the Burlington organization handled these challenges, and I'm amazed at the progress we made on our strategic priorities. To express this appreciation, we announced earlier today that we will be paying a special thank-you bonus to the majority of our store, supply chain and corporate office associates in recognition of their hard work and commitment in 2020. This is a very exciting time for us at Burlington. We are all energized by the significant growth opportunities we see ahead of us and by the strategies we are pursuing to go after these. With that, I will turn it over to the operator for your questions. Operator?

In the interest of time, we ask that you limit yourself to one question and one follow-up. Our first question comes from Matt Boss with JPMorgan. To express our appreciation, we announced earlier today that we will be paying a special thank-you bonus to the majority of our store, supply chain, and corporate office associates in recognition of their hard work and commitment in 2020. This is a very exciting time for us at Burlington. We are all energized by the significant growth opportunities we see ahead of us and by the strategies we are pursuing to go after these. With that, I will turn it over to the operator for your questions. Operator?

Great. Thanks and congrats on the material improvement. So Michael, first, how did you arrive at the baseline comp assumption that you're using for planning purposes this year? And more so, could you just elaborate on your thinking behind this forecast overall?

Sure. Matt, good morning. Great to hear from you. There were really two main thoughts behind this baseline. Firstly, 2021 is a very difficult year to forecast. There are a number of potential positives: the rollout of vaccines and the potential for additional stimulus spending; but there are also risks: the possible spread of additional variants and the continuing high unemployment rate, so a lot of uncertainty. With all that uncertainty, we need a baseline that we can plan against, but one that will give us flexibility so we can chase the trend if our comp growth turns out to be stronger or we can pull back if we need to. Our feeling is that by starting with a flattish baseline, we could move it in the right direction. The second thought is that our recent trend gives us confidence that this is a good baseline to start with. So let me talk about Q4, and then I'll talk about the quarter to date. Q4, obviously, we just reported a flat comp for Q4, but there are a couple of important puts and takes to this number. We know that the federal stimulus checks helped us in January. Conversely, we also know that the unseasonably warm weather really hurt us in November. After adjusting for these specific factors, we estimate that our underlying comparable store sales trend in Q4 was approximately down 1%. The other data point is our quarter-to-date trend. We are only about 4.5 weeks into a 13-week quarter, but at this point our quarter-to-date trend is flat. In other words, at this point in the quarter, our trend is consistent with the baseline plan that I've just described. To summarize, 2021 is going to be a tough year to forecast. Lots of things that could help or hurt sales. We need to plan our business and be ready to react to a stronger or weaker trend as we did in Q4. Given the data we have right now, a flat comp seems like a reasonable assumption for baseline planning purposes.

That's great. Congratulations on the performance in February, particularly given the weather that I know certain parts of the country have seen. As a follow-up for John, how best to think about 2021 margin pressures, maybe in the context of your goal to close the margin gap versus peers over time? Meaning, do you see any structural barriers that might make this more difficult?

Yes. Good morning, Matt. It's a good question. Maybe the best way to answer is to separate into two periods. First, the period from now until we get through the pandemic, which could be the next 12 months. Second, the period after we emerge from the pandemic, likely 2022 and beyond. For the first period, up to the next 12 months, the sales trend is still difficult to predict. Traffic into our stores is probably going to continue to be off, industry-wide supply chain issues are likely to continue, putting pressure on freight and supply chain expenses, and the various COVID-related safety measures in our stores and distribution centers will likely remain in place for some time. As I said in the prepared remarks, if you combine the deleveraging effect of a two-year flat comp plus the expense pressures and the offsets we've identified, this would suggest an EBIT margin decline of 70 to 80 basis points if comparable store sales are flat in fiscal 2021 versus fiscal 2019. We typically don't expect margin leverage unless we achieve a 2% to 3% comp sales growth in a year, which would require two-year comp growth of 4% to 6% versus 2019. If the recovery accelerates and our comp trend picks up, then we could be back on track, but that all depends on external factors. For the period after the pandemic, we do not see structural expense changes that would interfere with our longer-term margin opportunity. We see three main drivers of operating margin improvement: sales productivity, gross margin via faster inventory turns and lower markdowns, and occupancy costs where our stores are larger and less productive than peers. By reducing store size and improving productivity, we expect operating margin expansion over time. We have initiatives in place to pursue each of these areas, and despite the challenges of 2020, we are confident that with good execution we will drive a significant improvement in operating margin in the next several years once the pandemic is behind us.

Great color. Best of luck.

Thanks, Matt.

Our next question comes from Ike Boruchow with Wells Fargo.

Hey, good morning, everyone. Two questions. First for John, on the product sourcing costs, a major source of deleverage in the fourth quarter. Just any more detail you can give us on the puts and takes on that line item? And then to that point, it's been approximately $143 million in the last two quarters. Is that a good way to think about the next couple of quarters as we start the first half?

Yeah, good morning, Ike. The product sourcing cost is complicated, so let me explain the way we think about it. As I mentioned in our prepared remarks, product sourcing costs delevered by 230 basis points in the fourth quarter. Higher supply chain costs represented 180 basis points of that deleverage. It's useful to break that into a few buckets. First, 90 basis points of the supply chain deleverage came from higher wage rates and from wage incentives. The higher wage rates accounted for about half of that 90 basis points, and we expect that increase to be permanent. Over time, we're likely to find some efficiencies that could partially offset the higher costs; the other half came from temporary wage incentives used to increase staffing when extra work was needed to overcome situational factors like receipt flow volatility, COVID-related safety measures, and other disruptions. We expect these temporary factors to abate over time. Another bucket includes components such as AUR, which was down slightly, meaning we process more units; category mix, which included a shift toward higher-handling cost items like home; and less overall efficiency in our distribution center processing, resulting partly from safety protocols and timing volatility of receipts. We had more goods moving into and out of reserve during the quarter as we reacted to the disruption and our stronger than original plan sales trend. These factors together drove about 60 basis points of the supply chain deleverage. Many of these factors are directly or indirectly related to COVID and the disruption in the global retail supply chain, and once the pandemic is behind us, we would expect much of this to improve. The last 30 basis points of supply chain deleverage was driven by occupancy, where we added some new currently underutilized capacity and deleverage on our fixed cost base at a flat comp. With higher sales and fully utilized warehouse and DC capacity, we would expect leverage on these expenses to improve and drive operating margin expansion in the future. The remaining deleverage in product sourcing costs came from higher buying costs, consistent with our investment in merchandising capabilities. Over time, we expect continued deleverage as we continue to invest in the team. Regarding the specific dollar amount moving forward, we are staying away from providing fixed dollar forecasts because we do not know the sales volume trajectory and receipt timing; our variable costs will move with sales. I hope that helps.

Yes. Thanks. And then just a quick second one: on inventory in Q4 and any comments on what you're seeing regarding merchandise availability out there? We know the port congestion has been talked about, but any high-level comments would be great.

Good morning, Ike. Thanks for the question. First, on in-store inventories, we were really well controlled throughout the fourth quarter. On a comparable basis, they were down 20% to 30% for most of the quarter. Think about that: we delivered the same comp sales as last year but with 20% to 30% less inventory during a pandemic. Operating with leaner inventories is a core element of our Burlington 2.0 strategy, and this faster inventory turn expressed itself in higher merchandise margin during the fourth quarter. At the end of January, our in-store inventory levels were down 16% compared to two years prior. Remember that we began to cut inventory levels in the fourth quarter of 2019; this 16% cut is on top of a 15% reduction at the end of January 2019. In other words, we're now operating with much lower inventory levels than historically. We expect to continue to manage our in-store inventory levels downward overall versus 2019, with quarter and seasonal variations. Overall, in-store inventory levels will be down double-digits throughout 2021 compared to 2019. On reserve inventory, our reserve was 5% higher at the end of Q4, but that statistic doesn't capture all the movement during the quarter. Our January reserve receipts were up 42% versus last year, and our reserve releases were up 62% versus last year. We accelerated reserve releases to fuel our ahead-of-plan sales, pulling merchandise originally planned for release in February into January to support sales and replenish in-store inventory. Reserve is a very important tool our merchants use to chase sales and take advantage of opportunistic buys. That makes forecasting reserve balances at the end of each quarter difficult—they could move up or down depending on our sales trend versus plan and the availability of opportunistic buys. Regarding availability, we were very happy in the fourth quarter. Our merchants bought terrific merchandise at great values to support our ahead-of-plan sales and to transition assortments to spring. We're pleased with the merchandise in our stores now.

Got it. Thanks so much.

Thanks, Ike.

Our next question comes from John Kernan with Cowen.

Good morning. Nice finish to a challenging year. Can you talk about the impact of industry-wide supply chain issues? You reported a nice quarter, particularly versus sell-side expectations. I'm wondering how incremental supply chain costs and headwinds affected borrowings and, perhaps more importantly, how they're going to affect the model in 2021?

Good morning, John. That's a great question. I'll provide high-level commentary on what we're seeing in the industry and how we're working around those issues, then I'll ask John to address the financial impact. The supply chain issues across the retail industry over the last several months have been extraordinary. The magnitude of bottlenecks, congestion and delays getting merchandise into the country and moving it around is unprecedented. It's understandable: industry supply chains slowed or shut down last year, retailers and vendors were cautious after reopenings, and then in the fourth quarter there was a rush to bring in merchandise for the holidays and now for spring. Ports, major transportation hubs and vendor warehouses have struggled to operate at normal capacity because of COVID-related precautions and staffing issues. A few months ago I thought the situation would correct itself after the holidays, but that did not happen. There are still significant delays at ports and transportation hubs. To cope, we've had to juggle timing of purchase orders, reserve releases and inbound receipts. We learned lessons last summer and our buying, planning and supply chain teams have stayed on top of the situation. We've been able to secure the merchandise we need to support sales, but there is a financial impact in terms of higher freight rates and supply chain expenses. John will provide more detail on how those might affect us in 2021. One final point: historically, when merchandise orders are disrupted or delayed, these situations often increase off-price supply. When these issues unwind, there could be strong off-price buying opportunities for us.

Thanks, Michael. Good morning, John. There are two P&L areas impacted: freight and supply chain. These industry-wide issues haven't gone away and continue to pressure ports, rail and trucking systems, significantly impacting freight costs. We don't believe most of this cost pressure is permanent; at some point supply and demand for freight should return to equilibrium, but we don't know when. We expect to face similar headwinds well into 2021. Regarding gross margin for 2021, we believe merchandise margin improvement, driven primarily by lower markdowns from leaner inventories and faster turns, should help offset higher freight costs. On supply chain costs, the primary impact is unpredictability in receipt flow, which creates inefficiencies in our distribution centers. To handle ebbs and flows, we have to add shifts and weekend staffing when receipts arrive, which increases wages and incentive costs. Once the industry situation normalizes, we expect these pressures to abate, but there is no clear sign of normalization yet. One additional point: when these issues resolve, we could see a very good off-price buying opportunity. So while the situation drives expense headwinds now, there could be a silver lining in the future.

That's helpful. Thank you.

Our next question comes from Lorraine Hutchinson with Bank of America.

Thanks. Good morning. I'm interested to hear more about the increase in your store potential. Can you talk about what the thinking was behind that? How did you come to the 2,000 store number? And how confident are you in this potential?

Good morning, Lorraine. We've done a lot of work on this over the last 12 months, and we're very excited about the opportunity. Our previous target of 1,000 stores was dated and based on assumptions around store prototype, store economics and market share opportunity that no longer apply. First, the store prototype: we're introducing a new smaller 25,000 square foot prototype. Real estate, merchandise planning and store operations teams have developed detailed operating plans for this prototype. Over the next couple of years we expect this smaller format to become central to our new store openings. The key enabler is operating with leaner in-store inventory levels, a core element of Burlington 2.0. The smaller prototype delivers lower occupancy costs and higher operating margins. It also improves real estate availability for new stores and relocations. We worked with a third-party analytics firm to analyze the new prototype, customer demographics, and market real estate opportunities. The updated store count potential is based on that detailed modeling. We also did a reality check on market share trajectory over several years, considering department store closures, specialty and mass retail dynamics, and e-commerce penetration at our price points and customer segments. From all of that analysis, we feel very confident about the market share opportunity and our potential to reach 2,000 Burlington stores.

Thanks, Michael. Can you share any additional details on the economics of the 25,000 square foot prototype?

Sure, Lorraine. Operating in a smaller box brings down the cost base. If we can drive similar sales volume in a smaller box, the costs related to operating the box are lower. Performance we've seen, especially in the second half of the year as we've operated with very lean inventories and driven sales volumes, gives us confidence that we can operate in these smaller stores and deliver similar sales levels to some of our larger boxes. Cost savings come on the occupancy line and across other operating expenses: utilities, cleaning, maintenance—all reduced in a smaller space. These savings will be a tailwind as we look to improve overall operating margins. We're excited about the opportunity, and a smaller store format also opens up many more viable sites, which can be a top-line driver as we open more stores while also improving four-wall operating margins.

Thank you.

Our next question comes from the line of Kimberly Greenberger with Morgan Stanley.

Great. Thank you so much for taking the question. Michael, I wanted to follow up on your comments that you chased over $100 million of sales above plan in December. By my math, this would suggest about a 10 percentage point delta. Is that the right zip code? And do you think that the opportunity to continue chasing and fine-tuning this skill over time will allow you to chase an even larger delta to sales?

Good morning, Kimberly. Yes, your math is right. We did approximately just over $1 billion in December. We came into the fourth quarter running a comp of minus 10% in November, which was our original plan for the quarter. In mid-November, many were anxious about the upsurge in COVID-19 cases. Our original plan going into December was minus 10%, and we ran approximately 10 points above that to hit flat for December. That required a lot of work by planners, merchants and supply chain to find merchandise and flow it to stores to support sales, including moving reserve releases. Regarding whether we can chase more than that, I hope we don't have to in the long term; I hope things settle down. In a pre-pandemic world, planning a one to two percent comp and chasing to five percent would have been satisfactory. The past 12 months have been abnormal. In a post-pandemic world, I expect things to be steadier. Chasing skill will remain important, but I don't expect this level of volatility to continue long term.

We all share that wish. My follow-up, Michael, is on the investments in the buying department. I think you mentioned that is an ongoing investment for 2021. Could you maybe just talk about where those investment dollars are going? Is it broader coverage, more buyers in certain categories? And can you talk about some of the support you're giving buyers to enhance in-season chase?

Sure. It's all of the above. On merchants, the plan shows significant headcount growth across all areas of the business, though some areas where we're underpenetrated relative to peers will see larger additions. Growth will happen across the board and at all levels. The planning group is also growing substantially to support merchants. The growth will be disproportionately higher in our New York City and West Coast buying offices; our New Jersey buying office will also grow, but not as much. Regarding support for buyers, we are investing in professional development, training, better tools and better visibility into the business. We are making improvements to merchandising and planning systems so we can react more quickly to what we see, and we are optimizing the interface between merchant teams and supply chain so the flow to stores is smoother. There is a lot that we are doing in that area.

Very exciting. Thanks so much.

Thanks, Kimberly.

Our last question will come from Michael Binetti with Credit Suisse.

Hey, guys. Good morning. Congrats on a great holiday, and obviously a tough environment. Michael, I want to talk about the opportunity that's attractive to the investment community. What has to be done to close the 300 to 400 basis point gap you have versus the off-price peer group? That target was with the 1,000 store view. You just told us about 2,000 today. I'm curious what adding 1,000 stores to the long-term fleet does to that margin target?

Good morning, Michael. I would anchor the answer to the framework John outlined earlier. There are three levers to close the margin gap: driving sales productivity, improving gross margin via faster turns and lower markdowns, and reducing occupancy costs by right-sizing stores. The 2,000 store opportunity helps by increasing the pace and pool of new store openings and relocations, which allows us to accelerate moving into smaller, more efficient boxes and capture occupancy and operating cost benefits. That accelerates margin improvement as we grow the fleet.

Michael, if I could add: as we evaluate new sites, one of our financial hurdles is that an individual store must be accretive to the company's EBIT margin, so by definition the stores we approve should help close the operating margin gap.

Okay. Thanks for that, John. If I could ask a follow-up: Michael, you referenced the 2% to 3% same-store sales leverage point historically. You sold the same revenue this year with 20% to 30% less inventory. What is the evolution of that 2% to 3% leverage point since you arrived? Based on the investments you talked about for this year, where will that be at the end of this year and looking out to more normal years ahead?

Great question. I have been at Burlington for almost 18 months. The fundamentals and the opportunity have not changed; if anything, the opportunity looks larger now. The pandemic forced us to adapt and change faster than we otherwise might have. Core to Burlington 2.0 is delivering great value by tightly managing liquidity, chasing sales, buying opportunistically and operating with lean inventories. We executed these strategies more aggressively in 2020 out of necessity, accelerating progress that would have taken longer in normal circumstances. I'm pleased with the progress, but we are not done. We have a lot of work ahead and it's only one quarter of data—let's assess over a longer horizon. Over time, as the business normalizes, we expect to realize the historical operating leverage while also benefiting from the structural improvements we are implementing.

Thank you so much, guys.

Thanks.

That concludes today's question-and-answer session. I'd like to turn the call back to Mr. O'Sullivan for closing remarks.

Well, thank you, everyone, for joining us on the call today. We appreciate your questions. We look forward to talking to you again in late May to discuss our first quarter results. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.