Good day and thank you for standing by. Welcome to the Burlington Stores, Inc. First Quarter 2021 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Operator instructions: Please be advised that today's conference is being recorded. Operator instructions: I would now like to hand the conference over to your speaker today, David Glick, Senior Vice President, Treasurer, and Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. We appreciate everyone’s participation in today’s conference call to discuss Burlington’s fiscal 2021 first 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 June 3, 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 2020 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. We're going to structure this morning's discussion as follows. First, I will review our first quarter results; second, I will discuss the outlook for the second quarter; and third, I will provide a high level update on the investments that we are making in our merchandising organization. As you will recall, this is one of the most important initiatives in our Burlington 2.0 full potential strategy. After that, I will hand the call over to John, to walk through the financial details. Then, we will be happy to respond to any questions. As a reminder, the results we discuss for the first quarter of fiscal 2021 are being compared to the first quarter of fiscal 2019. Given the impact of the pandemic last year, our 2020 results do not provide a good basis for comparability. Okay. So, let's talk about our results. In these quarterly earnings calls, we normally focus on comparable store sales growth. In a moment, I will discuss comp sales, but I would like to start my remarks today by highlighting our total sales growth in the first quarter. This includes new stores opened since 2019, as well as comp stores. Of course, total sales is what really matters when looking at what is happening with market share. In the first quarter of 2021, our total sales grew by 35% versus the first quarter of 2019. We see this as early and direct evidence of our ability to take significant market share as the economy and the consumer emerge from the COVID-19 pandemic. Now, I will talk about comp store sales. Comparable store sales in the first quarter increased 20% versus the same period in fiscal 2019. For the quarter to date, through mid-March comp store sales were up mid-single-digits. From then on, they really took off for the balance of Q1; our comp trend averaged over 30% with the biggest surge coming in late March, and then moderating as we moved through April. We believe that there were a number of factors that drove this strong comp performance. These include the latest round of stimulus checks, the pace of the vaccine rollout, pent-up consumer demand, and our own very strong execution. In terms of category and regional performance, our strength in the first quarter was broad based. All our major merchandise categories outperformed their plans, and comp store sales in all regions of the country were well ahead of our expectations. Our gross margin in Q1 increased 230 basis points. This was despite a 110 basis point increase in freight expense. I was especially pleased with the 340 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 turns. The buying environment in the first quarter was very favorable and we were able to find great merchandise values to flow to stores and to fuel our ahead-of-plan sales trend. At quarter end, our in-store inventory levels were down 19% on a comp store basis. This was 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 59% on a comparable basis for Q1. Looking ahead, we are planning average comp store inventories to be down significantly throughout the year. But this does not mean they will necessarily be down at the end of every month and every quarter. We are more flexible, nimble, and opportunistic than ever before. This means that we will manage our receipt flow and our store inventories so we can capitalize on the sales opportunities as we see them. Reserve inventory increased to 35% of our total inventory at the end of the first quarter, versus 34% in the 2019 period. This modest increase disguises the fact that we made very heavy use of reserves during the quarter to chase the sales trend. Our reserve receipts during Q1 actually increased 45% versus the same period in 2019. In other words, we were able to make some great opportunistic and strategic buys to pack away in reserve, but at the same time, we moved up the release of other goods from reserves to fuel our trend. These were items that we had planned to release later in the spring that we flowed early to replenish our stores in April. Our merchants have gotten very skilled at using reserve this way. Now that I have reviewed the main elements of our Q1 results, I would like to take a moment to step back and provide some editorial commentary. The sales opportunity in Q1 was clearly attributable to external factors, especially the latest round of stimulus checks, but it is important to recognize that even when you get a slow pitch down the middle of the plate, you still have to make good contact. Even when the sales environment is favorable, you still have to chase it. That is what happened. We really connected with the ball in Q1, and we maximized our share of this sales opportunity. Our success in doing this was driven by strong execution of our core Burlington 2.0 initiatives. We recognize that our customers had a lot of choices in the first quarter as to where they could spend their stimulus dollars. We operate in an extremely competitive industry. We know that we have to earn our customers' business by offering the best merchandise value across the assortment every day. Burlington 2.0 is enabling us to do this. I was very pleased with how well we executed in Q1 in all areas of the company: buying, planning, supply chain, stores, marketing, and all areas of the company combined together to deliver our strong Q1 results. Now, I would like to talk about the outlook for Q2. Based on our results for the first quarter, we have raised our internal baseline comp sales plan to positive 10% for Q2. At this point, we have not adjusted our baseline comp sales plans for Q3 and Q4. We have held those plans flat for now. I anticipate that we will make adjustments to Q3 and Q4 once we have greater visibility. As we have said before, it is important to understand that this baseline comp sales plan is just a planning tool. In this environment, the sales trend is extremely difficult to predict. By now, most of you know our playbook pretty well. We intend to manage our business flexibly: if our comp trend during the second quarter exceeds 10%, then as we demonstrated in Q1 we have the ability to chase the stronger sales trend. And conversely of course, we can pull back if that turns out to be necessary. The other aspect of the outlook that I would like to call out is that we continue to face significant challenges driven by industry-wide supply chain issues. These issues are causing huge volatility and delays in receipt flow, and they are also driving significantly higher freight and supply chain expenses. In the first quarter, we were able to stay on top of these challenges. Our planning, distribution, and logistics teams did an outstanding job anticipating and working around these issues. This meant that despite the challenges, we were able to get fresh receipts to our stores in a timely fashion to fuel a strong sales trend. Meanwhile, our merchandise margin performance and the expense leverage on ahead-of-plan sales in Q1 helped offset significant freight and supply chain expense headwinds. But, as you have heard from other retailers, these issues have not gone away. In fact, over the last few months, they have deteriorated. As John will describe in his remarks, we now believe that these issues will be with us for at least the balance of the year, and they will put some pressure on our margin recovery. I would like to move on now to provide an update on one of the core priorities within our Burlington 2.0 strategy, investment in our merchandising capabilities. We had ambitious growth plans for our merchandising organization coming into the year. And I am pleased to report that we're running ahead of these plans, both in terms of new hires, and promotions. One important milestone to share is that we recently signed a lease to double the square footage of our New York City buying office. I should also note that last year, we relocated our West Coast buying office to substantially bigger space. We are excited about our plans to grow our on-the-ground presence in New York and Los Angeles over the next few years. I'm also happy to report that we have a robust pipeline of candidates. There are three factors that are driving our ability to attract great merchandising talent. Firstly, candidates can see that we have a unique opportunity to grow our business over the next several years. Secondly, Burlington 2.0 is creating a huge amount of buzz, excitement, and energy around the strategic direction of the company. And thirdly, candidates are attracted to our culture. We do not often talk about this third point, but it is very important. So, let me spend a few moments on it. I believe that the bedrock for any lasting and successful strategy is a strong culture, an inclusive and diverse workplace, where people are valued and respected, and where they are supported and encouraged to achieve their own full potential. We recognize that nurturing this culture is a journey, not a destination. That said, I believe that our culture is a major competitive advantage for us. In fact, we were recently voted to Fortune's 100 Best Companies to Work For. We were one of only seven retailers to be recognized on this list for 2021. We are proud of this award. It is a tribute to our associates, and to our managers and leaders throughout the company. Now, I would like to turn the call over to John to provide more detail on our first quarter financial performance. John?

Thanks, Michael and good morning, everyone. I will start with a review of the income statement. As a reminder, the results we discuss for the first quarter of fiscal 2021 are being compared to the first quarter of fiscal 2019. For the first quarter, total sales grew 35%, while comparable store sales increased by 20%. The gross margin rate in the first quarter was 43.3%, an increase of 230 basis points versus 2019’s first quarter rate of 41.0%. This improvement was driven by a 340 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 was 110 basis points higher than 2019’s first quarter rate. Product sourcing costs, which include the cost of processing goods through our supply chain and buying costs, were $141 million in the first quarter of 2021 versus $79 million in the first quarter of 2019, increasing 160 basis points as a percentage of sales. Higher supply chain costs accounted for 140 basis points of this de-leverage. These expense pressures were consistent with what we had seen in Q4, with similar underlying drivers: higher wage rates and wage incentives, inefficiencies caused by safety protocols, and the disruption in the flow of receipts across the global retail supply chain. The balance of de-leverage 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 $518 million, versus $428 million in 2019, decreasing 260 basis points as a percentage of sales. SG&A leverage was primarily due to leverage in store related costs and marketing expense, as well as overall leverage and fixed costs achieved on a 20% comp. Adjusted EBIT margin increased by 360 basis points to 10.9% versus 7.2% in the first quarter of 2019. All of this resulted in diluted earnings per share of $2.51 versus $1.15 in the first quarter of 2019. Adjusted diluted earnings per share were $2.59 versus $1.26 in the first quarter of 2019. During the quarter, we opened 23 net new stores bringing our store count at the end of the first quarter to 784 stores. This included 26 new store openings, one relocation, and two closures. We ended the period with available liquidity of approximately $2.1 billion including approximately $1.5 billion in unrestricted cash and $549 million of availability on our ABL. Our total balance sheet debt is now $2.1 billion, which includes $959 million on our term loan, $805 million in convertible notes, $300 million in high-yield senior secured notes, and no outstanding balance on our ABL. Given the improving visibility on the sales, earnings, and cash flow trajectory of our business, we are beginning to get more comfortable utilizing excess cash on our balance sheet to reduce our gross leverage. Accordingly, concurrent with our earnings release this morning, we announced that we initiated the process to execute a make-whole call that will fully redeem the $300 million outstanding of our 6.25% high-yield senior secured notes. Given the strength and momentum of our business, we think that now is a good time to begin to reduce our leverage. Despite the recent strength of our business, the outlook remains very unpredictable. So, we are not providing specific sales or earnings guidance for the remainder of fiscal 2021, but as we did on our last earnings call, we would like to share some high level comments on how we are thinking about our possible financial performance for the full-year 2021. As Michael mentioned earlier, we will continue to plan sales cautiously and adjust to the trends that we see just as we did in the first quarter. Our current baseline comp sales plan for the second quarter is 10%. For the back half of the year, we are currently assuming a flattish comp, but we'll update these plans as visibility improves. This translates to a full-year comp baseline planning assumption of approximately 7%. As you think about total sales growth for the balance of FY 2021 versus FY 2019, you should remember to factor in two years of new stores over this time period. We opened 23 net new stores in Q1. Expect to open 9 net new stores in Q2, and 43 net new stores in the second half of 2021. The growth in new store and non-comp sales, combined with our comp baseline assumption of 7% will deliver approximately 20% total sales growth for the full fiscal year. One final point to make on sales. If you look further out and begin to model 2022, it will be important to back out the impact of one-time macro factors, such as the federal stimulus checks that contributed to our extraordinary sales performance in Q1. Of course, we will provide more information on our 2022 sales outlook much later this year or early next year. On our last earnings call we explained that our modeling would suggest an EBIT margin decline of 70 basis points to 80 basis points if comp sales were flat in fiscal 2021 versus fiscal 2019. Obviously, our stronger sales trend year to date should help this margin performance, but it's also important to call out that we now expect more severe expense pressure from freight and supply chain costs. These increased freight and supply chain expenses will drive more de-leverage than we had previously estimated. As a result, given our updated full-year comp baseline assumption of 7%, our modeling now suggests a full-year operating margin decline of 20 basis points to 30 basis points. Finally, we expect operating margin in the second quarter to be under more pressure than later in the year, as a result of increased freight and supply chain cost and the timing of some expenses. Specifically, we expect the operating margin to be down 70 basis points to 80 basis points in the second quarter due to the aforementioned factors. With that, I will turn it over to Michael for closing remarks.

Thank you, John. Let me wrap up my remarks by reiterating the point that I made earlier. The sales opportunity in Q1 was attributable to external factors, especially the federal stimulus checks. But our success in maximizing our share of this opportunity was driven by our own strong execution of our Burlington 2.0 strategy. This execution was clear across buying, planning, supply chain, stores, marketing, and all areas of the company. So, let me finish by thanking everyone at Burlington for such a strong all around team performance. With that, I will turn it over to the operator for your questions. Operator?

Operator instructions: Our first question comes from the line of Matthew Boss from JPMorgan.

Great thanks, and congrats on the material momentum. So, first for Michael. So, if we think about the second quarter here straight with relative comp performance well ahead of peers, is it fair to take this as a sign that Burlington 2.0 is working? And if so, should we expect this level of relative outperformance to continue as we look forward?

Well, good morning, Matt. Nice to hear from you. Thank you for asking that question. You know, I’m going to focus my answer on our performance rather than relative performance. Of course, we care about how we compare versus other retailers. Of course, we do, but we don't know what is going on in other companies. And of course, we have no control over what they do. The only thing that we control is our own performance. So with that said, let me talk about Burlington 2.0. As you know, we started telling the story of Burlington 2.0 back in February or March of 2020, which obviously was great timing, but despite the pandemic, we were able to push forward with the strategy throughout last year. You know, it's gratifying that in the last couple of quarters, we've started to see some of the early benefits. You know, it feels like we've been telling the story. And now it's really nice to be delivering some strong results to go along with it. As a reminder, the core premise of Burlington 2.0 is that we can be more off-price, more flexible, and more responsive to the trend. And that by doing this, that we'll be able to drive significantly improved sales and profitability. Maybe what I should do is just take a few minutes to peel the onion a little bit and describe what that flexibility and responsiveness looked like across the company in Q1. I'll start with the merchandising team. In the first quarter, under Jennifer Vecchio’s leadership, our merchants massively shifted the assortment from where it had been in 2019. Remember, that's what we're comparing ourselves against 2019. They did that based upon what the customer has been telling us and they chased into the hottest categories and trends. We controlled our liquidity extremely carefully. So, when the time came, we were able to support and fund our buyers as they went into the market and took advantage of some great opportunistic buys and some wow deals. Great value is what drives sales in off-price and great value is certainly what drove our business in Q1. Moving on to planning, with all the uncertainty and volatility of the past year, our planners have become very agile and flexible, forecasting, and re-forecasting the business, and taking up and moving around open-to-buy dollars based upon trend and availability. Our planning team played a critical role as we chased from a baseline plan of a flat comp in Q1 to an actualized comp store sales growth of 20%, obviously that's a serious chase. Next, supply chain and logistics: some of the biggest challenges we faced in Q1 were in supply chain and logistics. Global and domestic transportation networks were and continue to be a mess. Despite those issues, we processed more receipts in the month of March than we did in the comparable timeframe leading up to holiday last year. And normally, for holiday, we spend months preparing for peak receipt flow, but in an incredibly compressed timeframe, our supply chain and logistics teams, again demonstrated remarkable agility, and they were able to overcome the challenges that we faced. And then finally stores, we experienced huge sales volume in our stores in March. Again, comparable to the equivalent time period leading up to holiday, but unlike holiday, we didn't have time to go out and recruit seasonal staff. Our field and store teams had to react very quickly with what they had. They did an amazing job flexing up to support the huge increase in sales. Hopefully, what comes across and what I've said is that we were very flexible, nimble, even entrepreneurial in Q1. We saw the sales opportunity and we went for it. I think it was a really, really good early demonstration of Burlington 2.0. Let me finish up just on the second part of your question. Should you expect this kind of relative performance going forward? I guess, I could answer that by saying that we're enjoying this, we're pleased that we've had a couple of good quarters, but we know that it is just two quarters. We operate in an extremely competitive space. I would expect that the relative performance gap versus our peers that we've seen in the last couple of quarters is going to disappear or perhaps at least narrow in the coming months. I'd be very surprised if it didn’t.

Great. And then maybe as a follow up for John, in the prepared remarks you mentioned a worsening in industry-wide supply chain and freight issues, do you now regard these higher expenses as permanent or should we think of them as transitory? And how do you think they might affect your long-term margin potential?

Yeah. Good morning, Matt. Thanks for your question. Obviously, a complicated situation. Earlier this year, we thought or maybe we hoped that some of the industry-wide supply chain issues would have started to settle down by now, but that clearly hasn't happened. In fact, the whole global supply chain situation seems to have gotten maybe even a little bit worse. There are really three key areas where the situation impacts us the most. I'll start with ocean freight as the first one. You've heard from everyone, there are significant capacity issues and delays with imports, especially shipments coming into the West Coast ports. The demand for ocean freight is far exceeding the supply right now, and it's significantly driven up freight rates. At Burlington, we don't directly import a lot of merchandise ourselves, but the problem is that a lot of what we sell is imported, not by us, but by our vendors. So, the higher rates do affect us both in the small part of our business where we import the product that we sell and in the product that's imported by our vendors. These higher ocean freight costs end up hurting our merchandise margin. Second area where we have exposure is domestic freight. It continues to be significant congestion in domestic freight networks, all modes of transportation. This congestion is affecting both the speed that we're able to move merchandise along with the cost. And the third area where we're impacted is in supply chain, particularly supply chain wages. In the areas of our country where our distribution facilities are located, we've seen some significant labor shortages. We've talked about this previously. Starting late last summer, we began to aggressively raise wages and wage incentives to attract and to retain the workers that we need. That's worked for us. It's provided the stability that we need, but these pressures haven't totally gone away. And the volatility in receipt flow has added to these pressures by driving lower efficiency in our distribution centers. We're not able to plan when receipts are going to come in reliably, so we have to make a lot of adjustments and that has a negative impact on our ability to be efficient. And remember, throughout this year, we're comparing to 2019, so we have two years of wage inflation and we don't have the benefit of comparing to the increases in wages that we made in the fall of 2020. To the second part of your question, are these costs permanent or transitory? Typically, external freight rates, whether it's ocean freight, road, or rail, have tended to be driven by supply and demand. We don't really see a structural change here. We think that the issues we've been talking about are cyclical, and that over time, they will correct themselves. It does seem to be very much driven by an out-of-balance supply and demand equation, exacerbated and extended by the huge pent up demand we're seeing with so many consumer products. So, we do think that the situation will get better. We just don't see that happening in 2021. On the supply chain expenses, we do believe that some portion of these costs, specifically the higher wage rates, will be permanent, as we talked about on our Q4 call. That said, we do have a pretty good track record of finding offsets to these types of costs through process changes, automation, or other productivity improvements. We already have a number of initiatives underway and we would expect to be able to at least partially offset these higher wage costs over time, but it will take a little time. And finally, we don't see anything in the current environment that causes us to doubt our ability to significantly increase our operating margin over the longer term. In our business, there are always headwinds and pressures, but we don't see anything that might materially impact our ability to achieve our longer-term margin potential.

That's great color. Congrats on the performance, guys.

Thanks Matt.

Operator instructions: Our next question comes from the line of Ike Boruchow from Wells Fargo. Your line is now open.

Hey, good morning, everyone. So, two questions. One for Michael and follow-up for John. So, Michael, in your comments, you mentioned some of the external drivers of the Q1 comp performance, can you just give some more color on these? In particular, I'm curious about how much you think the stimulus checks may have helped or been worth to the trend? And then lastly, can you give any insight on the month-to-date trend in May, perhaps?

Sure. Good morning, Ike. On the first part of your question, the drivers of our comp growth in Q1, maybe the best place to start is probably by going back to mid-March. At that point, our quarter-to-date comp was running up mid-single-digit. From that point on, the trend really accelerated. Our average comp growth for the remainder of the quarter, as I mentioned in my remarks, was in excess of 30%. The biggest spike, as you'd expect, came in late March. And then the trend started to cool off in April. It held up pretty well, but obviously it cooled off after that spike in late March. Now, we think there were a few factors that drove that sales trend. Most significant by far were the federal stimulus checks. During March, the government published data every day, showing the value of checks that were sent out in the previous day. So, it was not difficult for any retailer to correlate that data with their own sales trend. Our own modeling suggests that those checks were worth 10 percentage points to 15 percentage points of comp store sales growth in Q1. Now, of course, our overall comp growth actualized at 20%. So, we think the remaining 5 points to 10 points of comp is explainable from two other factors. Firstly, obviously, the pace of the vaccine rollout accelerated during the quarter, and somewhat related to that, we think that there was some pent-up demand that helped drive the trend, as consumers saw a path whereby their lives might start to return to normal. It's hard to quantify the impact of those factors, but we believe that they helped sustain our comp trend through April and even into May. And I'm going to talk about the month-to-date trend in a moment. The other important factor with our own performance, I think that we have to give ourselves some credit here for our comp growth in Q1; our strong execution in the quarter really helped to maximize our share of the sales opportunity. That's a good segue, I think, to the second part of your question about the month-to-date trends in May. As a reminder, our baseline comp plan for Q2 is 10%. And at this point, obviously, we're 3.5 weeks into May. Our comp sales trend is running ahead of this baseline. So that gives us confidence in our Q2 baseline of 10%. So, let me finish up as I usually do by saying that we are ready to chase the sales trends, whatever it turns out to be, or to pull back, depending upon how things play out, just as we did in Q1.

Got it. Quick follow up for John, if I may? Just a number of other retailers and off-pricers have talked about the COVID related costs as a big source of margin leverage and strong sales; I don't think I heard you even mention these. I'm just kind of wondering how those have affected your margins. Are you seeing much less of an effect than others and why or why not would that be? Any color would be great there.

Yeah, Ike, thanks. Good question and good morning, by the way. Yeah, so I can't really speak to other retailers, but happy to add a little more color around how we think about our COVID costs. So, let's look backwards first. As you know, when we talked about the third and fourth quarter last year, we shared that we had COVID costs of $20 million in Q3, and $39 million in Q4. The $39 million in Q4 included the significant year-end thank you bonus for our non-exempt associates. I think what causes some confusion comparing to others is we've got a kind of narrow definition, I think, for our COVID costs. We've included only what we see as the direct costs. So that means we include what we spend on personal protective equipment, on cleaning supplies, and incremental cleaning, and we include the cost of our front-door ambassadors. Of course, there are many other costs that have been indirectly impacted by the pandemic. But we don't include them in this bucket that we use to collect what we're calling COVID costs. Back at the end of the fourth quarter, we said we were expecting quarterly COVID costs to be similar to the $20 million we had in Q3 for at least the first couple of quarters of 2021 or until the pandemic was behind us. We're still continuing with the same level of safety and cleaning protocols that we had in place for 2020, but our COVID costs for Q1 were only about $14 million. So, let me explain that. We significantly overbought PPE and cleaning supplies during 2020. So we were able to spend much less on replenishing those supplies during the first quarter. We're still prioritizing the safety and comfort of our customers and associates and are continuing with all of our safety protocols. And we'll keep doing that until it's clear that they're no longer needed.

Super helpful. Thanks, Michael. Thanks, John, and thanks, David.

Thanks, Ike.

Thanks, Ike.

Operator instructions: Our next question comes from the line of Lorraine Hutchinson from Bank of America. Your line is now open.

Thanks. Good morning, everyone. John, you just delivered significant operating margin expansion in the first quarter. Can you give us a little more color as to why you'd expect operating margins to still deliver a 20 basis point to 30 basis point decline if you're doing a 7% comp for the year, and then also maybe help us understand the extra pressure in the second quarter operating margin that you called out?

Yeah, good morning Lorraine. Thanks. Good question or questions there. First, let me start off by just saying that, you know, obviously, we're really pleased with our operating margin performance in the first quarter, but it was just so outstanding that we have a bunch of unique factors that we wouldn't expect that kind of sales performance for the second quarter or the balance of the year. You know, it was the 20% comp and the 35% sales growth that drove the 360 basis point operating margin improvement. About two-thirds of the improvement was from gross margin and the other third from expense leverage. And all this was despite a 110 basis point headwind in freight and a 160 basis point headwind in product sourcing costs, but again, both the gross margin expansion and the SG&A leverage were really driven by the exceptional comp sales performance. So, as we've said earlier in my remarks, we're not planning for sales performance to be anything like we saw in the first quarter. We're planning for approximately a 10% up in Q2 comp sales and flattish for Q3 and Q4. These comp baseline planning assumptions would deliver a full-year comp performance of about 7% when you factor them in with our Q1 sales. Back in March, we said that our modeling would suggest an operating margin decline if comp sales were flat; our new outlook of a 20 basis point to 30 basis point de-leverage at the 7% comp includes the benefits of the strong flow through we saw in the first quarter. But it's more than offset by the increases we now expect in freight and supply chain costs for the balance of the year. And by some extent, timing will affect us in the last three quarters of the year. So, as for the pressure on the second quarter, along with the incremental cost for freight and supply chain, the second quarter margin is going to be affected by some expense timing. So, let me try to explain what I mean by that. First, as we said in our remarks, we used reserve inventory to chase the high sales demand we saw during Q1. So that means during the second quarter, we're going to work to increase our incoming receipts to replenish our reserves to planned levels. And that's going to cause incremental expense in the second quarter. Then take some of the timing issues. We have an accounting policy that capitalizes freight as it's incurred, and then expenses it later when the inventory is ultimately sold. So what that means is, some of the increased costs we saw in Q1 will hit our P&L a little later in the year, including in the second quarter. And then we also have some annual expenses that are accrued on a straight-line basis for the full year. So, this would include incentive comp accruals, which of course have been increased based on our new estimates of performance for the full year. The straight-line annual expenses are going to have a negative impact on flow through in Q2, Q3 and Q4. So, combining all these factors along with the second quarter being typically our smallest sales quarter for the year, that's how we got to our expectation of a 70 basis point to 80 basis point operating margin decline in the second quarter.

Thanks. And then if I could just ask a follow up question on a different topic. How does the redemption of the high yield notes fit into your forward looking views on the capital structure? And then any thoughts on when we should expect the share repurchase to resume?

Hi, Lorraine, this is David, I'll be happy to take that question. First, I'd say that, our overarching philosophy is to maintain a conservative and flexible balance sheet. We feel really good about the ongoing recovery and our sales and EBITDA. At the end of the first quarter Lorraine we had over $1.5 billion of cash on the balance sheet. So, now we believe that the combination of our business momentum and strong liquidity positions us well to start to address some of our highest cost debt that we issued last April. As a reminder, we've stated in prior quarters that coming out of the pandemic our priority for excess cash is to reduce our gross leverage. And to address your question around share repurchases, we've analyzed all of our potential uses of our excess cash. Keeping in mind that conservative balance sheet philosophy, we just think it makes sense to redeem our high-yield notes first, which we announced this morning. And then we will reassess the operating environment before we take more cash off our balance sheet to either pay down more debt or return excess cash to shareholders through share repurchases. So, really the first step is to reduce our gross debt before we consider when to resume share repurchases. We'd really like to see a more sustained, positive trend in our sales and EBITDA growth before we go beyond redeeming the high-yield notes.

Thank you.

Thanks, Lorraine.

Operator instructions: Our next question comes from the line of John Kernan of Cowen. Your line is now open.

Good morning Michael, John, and David. I also have two questions both are on Burlington 2.0. First is for Michael and then a follow-up for John. Michael, you now have two quarters in a row of comps and margins well above expectations. If you take a step back, would you say that you're further along with Burlington 2.0 than you initially expected it to be at this point? And are there any details on your major Burlington 2.0 initiatives? What are the big things that are still left on the table?

Good morning, John. Thank you for the question. I think the easiest way to answer that question is probably to separate out our Burlington 2.0 priorities and initiatives into a couple of major buckets. Firstly, there are things that we're doing, changes that we're making, and we have been making that are already affecting the business and already driving performance. So, I'll talk about those in a moment. And then secondly, there are other things that we're doing and investments that we're making that by design will take time to really impact the business. So, first bucket includes a number of very important changes and priorities, including a much greater focus on value, more conservative planning to set up a stronger chase, tighter control of liquidity, lower inventory levels, tighter control of expenses, more flexible operating processes. And these are all things that we started doing last year. And I think they've really helped to drive that performance over the last couple of quarters. Now, to answer your question, are we further along on these areas than I would have anticipated a year ago? I would say, yes, absolutely. We're much further along. It's been very impressive to see how our merchants and our operators have embraced Burlington 2.0 over the past year. Now, that's not to say that we can't get better in all of those areas, we know that we can. There are other changes and improvements that we're planning to make across the business that should make the chase more effective across buying, planning, supply chain, and stores. So that's the first bucket. The second bucket includes changes, priorities, and investments that we're moving full steam ahead with, but that will take time to really impact the business. I stress that in many ways, these items will be much more important in terms of their longer-term benefits to the company. Just to dwell on two of those for a moment. Of course, the one big one, which I mentioned earlier, is the investment that we're making in our merchandising capabilities; this is going to be critical to our ability to offer great value to customers. And that's really the key to driving our sales over the longer term. Now, as I said in my remarks, we're very pleased with the progress that we're making in strengthening our merchandising organization. The other longer-term item to call out is the work that we've been doing on our new store prototype and our new store opening program. We talked a little bit about those on the March call. Again, I feel like we've made a lot of progress, but realistically, the big significant savings from this new store program are going to express themselves in three, four, five years' time. I'm very confident that that program is going to drive longer-term shareholder value. So, again, to answer your question on this second bucket, yes, we're moving very fast. And I would say again, we're much further ahead than I could have anticipated a year ago.

Got it. Thank you. John, longer-term gross margin question. When you first launched Burlington 2.0, I think you indicated there might be 100 basis points to 150 basis points of upside in the merchandise margin over time, really just through faster turns and lower markdowns. Q1 merchandise margin was up 340 basis points, do you think that the opportunity on the merchandise margin line might be even greater than you first thought?

Thanks, John. Good question. So, a couple things. First, I think you have to really put our Q1 gross margin performance into context, both in terms of the history of our first quarters and then a lot of unique stuff happened in Q1. Let me talk about the history first. Historically, Q1 hasn't been a good gross margin quarter for us. If you look back to 2019, for example, it was our lowest gross margin quarter of the year, about 80 basis points below our full-year gross margin. So, why has Q1 historically been a little weak for us? We've usually turned inventory slower in the first quarter. Usually we've carried over some clearance merchandise from the fall, which has a tendency to hurt our transition into the spring. Now, let's take a look at Q1 of 2021. Very unusual to say the least, we put up a 20% comp, executed an incredibly fast sales chase, and increased our inventory turns by nearly 60%, an unprecedented improvement, and one that would be very difficult to sustain. So, these extraordinary turns are not something that we would ever plan for. And they were driven by way ahead-of-plan sales. And back in Q4, we also benefited from chasing ahead-of-plan sales that helped us to end Q4 with less fall merchandise than we would typically have. So, there was less to markdown in Q1, and it was easier to transition quickly to spring. So, that's kind of a long way of saying that we had plenty of room for improvement historically in our first quarter. And we just put up a quarter that'd be very difficult to replicate due to all the unique circumstances we have this year. Having said all of that, we continue to believe that we still have further room to reduce our comp store inventory levels, which should over time reduce our markdowns and drive even more improvements in our merchandise margin. And we would also expect that trade expense over time would normalize and put less pressure on our gross margin in the future. So, let's not extrapolate from one unusual exceptional quarter. We do think we can continue to make progress, but it's going to be really hard to predict that pace until we get into a more normal environment.

All right, thank you.

Thanks, John.

Thanks, John.

Operator instructions: Our next question comes from the line of Kimberly Greenberger from Morgan Stanley. Your line is now open.

Okay, great. Thank you so much. Really fantastic Q1 here. I'm just looking — my question is on new store productivity. There's a huge spread, obviously, 15 point spread here between comp growth and total sales growth. So, it looks to us like new store productivity is coming in north of 100%. Were there some one-time benefits also helping your new store productivity numbers? And if you could sort of parse through the performance there and talk about where you would contemplate new store productivity trending for the year? That would be fantastic. Thanks.

So, Kimberly, this is John. I’ll try to answer that one. So, a couple of things to keep in mind. We're talking about new and non-comp stores so that covers a couple years of growth for the stores. And they're all benefiting from the same circumstances: the pent-up demand, the extra cash in customers' pockets, similar to what we saw in our comp sales trend for the quarter. Having said that, we're extremely pleased with our new store performance. They're doing very well against our underwriting assumptions. Like any other batch of stores there's some variability across the entire cohort, but overall, we're extremely pleased with the performance of the cohort. I don't know that there's anything unique that I would call out about the new stores. I think the circumstances that are driving their performance are pretty much the same things we talked about for our comp store performance during the quarter.

Thanks so much.

Thanks Kimberly.

Operator instructions: Our last question comes from the line of Michael Binetti from Credit Suisse. Your line is now open.

Hey, guys, thanks for taking our question here. Michael, I just want to ask why not take up the third quarter and fourth quarter sales off this performance? I mean, there's fairly visible stimulus coming later in the year, you obviously got at least your share in the first quarter. I'm just trying to think about what other puts and takes you might have put into the scenarios where you see flat comps in the back half of the year, knowing the stimulus is coming? And then, I guess, if we do see an upside sales scenario — maybe this one for John — but if we do see an upside sales scenario, I think the way you changed your plan for this year, you took the sales up about $500 million and I think EBITDA up about $85 million so about mid-to-high teens incremental margins. Is that the right way to think about sales upside through the rest of the year, John, if you beat the plan?

Good. Well, good morning, Michael. I'll take the first part of that question. On Q3 and Q4, it's a good question. I guess where I would start is just by reiterating that our baseline plan is just a baseline. And right now, Q3 and Q4 are planned flat and that provides our merchants with a plan that they can buy against, and it provides our operators with a starting point for capacities, staffing, and expense planning. That's all we really need now, at this point. That's all our merchants and our operators really need. We know that if the trend picks up or if the trend remains pretty strong, we can adjust the baseline. We look at the baseline literally every week. So, we can adjust the baseline. We can chase the sales. And I feel very confident that our merchants and our operators have that skill set and can chase the sales as they did in Q1 and before that in Q4. Now, I agree with you. We do see some positive factors on the horizon: the continuation of the vaccine rollout. Hopefully that means that life will start to normalize a little bit. In the second half we're already starting to normalize, but will normalize even more. And then the child tax credits, which I believe will start to be rolled out in late July. Anything that puts more money in our customers' pockets is a good thing. We saw that in Q1. So that can be positive for the back half of the year. The only reason to be wary or cautious is that the country hasn't yet fully recovered from the pandemic. Right now the situation is certainly looking better and more positive. But if there's one thing that the past year has taught us, it's that things can change pretty quickly. So the action implication for us is to plan and manage the business conservatively and then be ready to chase a stronger trend and that approach has served us pretty well the last couple of quarters.

And then Michael I think you had a bit of a question on the flow through we would think about with incremental sales. It's really difficult to project and that's one of the reasons why we kind of stayed away from trying to give any guidance here. One of the elements of the chase is the importance of moving receipts very quickly. And with the volatility we see in the freight networks and the pressure on the global retail supply chain, it's hard to anticipate what might cost us to move those receipts quickly enough to feed a trend. So, that may temper the flow through a little bit. It's a variable that we really can't predict right now.

Okay. Thanks a lot, guys and congrats again.

Thanks Michael.

Thanks Michael.

Operator instructions: At this time, I'm showing no further questions. I would like to turn the call back over to Michael O'Sullivan for closing remarks.

Well, thank you, everyone, for joining us on the call today. We appreciate your questions and your interest in Burlington Stores. We look forward to talking to you again in August to discuss our second quarter results. Meanwhile, we tend to close by wishing you all a very, very nice Memorial Day holiday. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.