New Jersey-based retailer Burlington Stores (BURL)  reports its second-quarter results on Thursday, Aug. 29. Those results may help to reinforce bullishness about Burlington's stock and the off-price space in general, a sub-sector that has been handily outperforming other retail stocks lately.

What To Expect This Quarter

Analysts are estimating revenues will increase by 8.6% over 2018 levels, while predicting earnings per share to stay largely flat year-over-year, at $1.14. The revenue growth mix is likely to lean heavily towards new store sales, as Burlington continues to expand its footprint rapidly. The company will probably report an increase of about 40 locations in its store fleet, representing roughly 6% to 7% growth in the brick-and-mortar network, compared to the same period last year.

Burlington's national store footprint. Source: June 2019 investor slides.
Burlington's national store footprint. Source: June 2019 investor slides.

Upside to consensus could come in the form of better-than-expected comps. Last quarter, Burlington failed to impress as the retailer dealt with a problem that has become commonplace across the entire sector: a weak women's apparel business, which produces nearly one-fourth of Burlington's total revenues. This is probably the result of consumer preferences shifting fast to active casual fashion and retailers not being able to adapt quickly enough.

But during the company's most recent earnings call, management disclosed that comps had improved in the month of May to the 1% to 2% range that was expected for the entire quarter. The early-period trend seems highly encouraging, especially since investors recently learned from peer Kohl's  (KSS) that bad weather hurt retail sales in the first few weeks of the second quarter. Burlington's June and July comps, therefore, are likely to have increased sequentially.

Always an important metric for retailers, operating margin for Burlington will likely pull back once again, maybe by as much as 70 basis points. Profitability will probably be impacted by the usual suspects: higher freight and wage costs. Burlington's main challenge will be to keep merchandise margin flat to slightly higher, as the company managed to do last quarter, especially on the heels of the announced tariff hikes.

Should Burlington outperform on comps or cost management, the company could deliver yet another earnings beat this quarter for the twentieth consecutive time.

A Good Stock to Own

Predicting with much accuracy what a company's earnings results will look like is a tough proposition. But regardless of financial performance in the most recent quarter, Burlington seems to be a good stock to own for several reasons.

First, the company is a rare example of a retailer that has been successful at expanding its physical presence across the country. While comps have not impressed much lately, inorganic growth has been helping to lift Burlington's revenues to levels that most brick-and-mortar peers have failed to reach.

Second, the stock is likely to endure periods of macroeconomic distress better than those of most other retailers due to the off-price model that appeals to consumers in both good and bad spending environments. Although Burlington has yet to face a recession as a public company, the stock's resilience was evident in the fourth quarter of 2018, when it lost only 0.2% of its market value while the S&P 500 (SPY) dipped into bear territory.

Lastly, Burlington is not as expensive a stock as its trailing P/E of nearly 30x seems to suggest. The company has a much more appealing forward earnings growth profile than most of its peers, making its PEG of less than 2.0x look de-risked compared to Ross Stores' (ROST) and TJX Companies' (TJX) comparable multiples.

Save 57% With Our Labor Day Sale. Join Jim Cramer's Action Alerts PLUS investment club to become a smarter investor! Click here to sign up!

Burlington and Kohl's are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells these stocks? Learn more now.

The author has a long position in TJX.