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Behind the Beat: What Drove Burlington's Strong Earnings and Guidance

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Burlington (BURL) - Get Burlington Stores Inc. Report posted a strong quarter and raised guidance, as the company was able to keep its inventory slim, while some other retailers aren't doing the best job at that. 

The stock rose 1.32% to $211 a share Tuesday. 

Earnings per share came in at an adjusted $1.55 for the third quarter of 2019, beating analysts estimates of $1.41. Total revenue slightly missed Wall Street's expectations, coming in at $1.775 billion versus $1.78 billion. The slight revenue miss was a result of 7 temporary store closures. But the all important same-store-sales came in at 2.7%, beating estimates of 2.6%. 

Management raised full year 2019 EPS guidance to a range between $7.28 and $7.33, up from a previous ballpark of $7.14 and $7.22. 

The biggest key was reducing inventory. Higher inventory can add too much supply, damaging the company's ability to maintain strong pricing. 

Inventory declined 4% year-over-year in the quarter. And CEO Michael O'Sullivan was quick to say on the earnings print "Our disciplined inventory management continued through the third quarter, as our comparable store inventory decreased 4%, enabling us to continue to take advantage of the abundant values available in the marketplace."

Strong pricing usually helps margins rise. While Burlington's gross margin did rise, it only rose to 42.4%, against expectations of 42.8%, as freight cots weighed. Still, strong pricing always supports strong sales growth, which the company indicated will be the case going forward. 

Meanwhile, analysts have been concerned over other retailers' ability to keep inventory down. Kohl's (KSS) - Get Kohl's Corporation Report reported a poor third quarter, with its stock down 17% since the quarter. Wedbush Securities analyst Jen Redding wrote in a post-earnings note "our data show continuing increases in markdowns and elevated inventories as inventory growth of 0.9% outpaces sales contraction of (0.3%)," referring to the quarterly results. 

In early November, Morgan Stanley analyst Kimberly Greenberger warned retail apparel investors "elevated 3Q inventory"  will "leave us cautious about the softline holiday season." Soft lines are clothing, apparel and department store companies. 

BURL and Kohl's are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these? Learn more now.

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