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Sizing up Burlington Stores’ Strengths and Weaknesses

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Jan. 20 2016, Updated 2:05 p.m. ET

Analyzing Burlington’s positioning

In previous parts of this series, we’ve discussed Burlington Stores’ (BURL) business model and compared the company with its peers on various parameters. In this part and the next part of this series, we’ll analyze the company’s strength, weaknesses, opportunities, and threats.

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Burlington’s strengths

Burlington Stores has a considerable presence in the lucrative off-price retail space, which has performed well even during tough economic times. The company has been able to consistently grow its revenues. In fiscal 2014 ended January 31, 2015, the company reported a revenue growth of 8.7%.

Burlington Stores’ larger store size compared to off-price retailers TJX Companies (TJX) and Ross Stores (ROST) provides it more opportunity to have a wider assortment. The company is now focusing on expanding smaller store formats to increase productivity. Burlington Stores, TJX Companies, and Ross Stores together account for 2.5% of the iShares US Consumer Services ETF (IYC) and 3.4% of the SPDR S&P Retail ETF (XRT).

Open-to-buy purchasing policy

Burlington Stores has a flexible open-to-buy purchasing policy. Such a policy allows the company the flexibility to purchase less pre-season merchandise with the balance purchased in-season and opportunistically. This helps the company attract more consumers through bargain deals on fresh merchandise.

The company makes optimum use of technology to support its business model. Burlington Stores utilizes a testing methodology to evaluate new initiatives and make data-driven decisions that support growth and minimize costs. The company has used this mechanism to test changes in store operations, merchandise presentation, advertising and marketing, and other areas.

Burlington’s weaknesses

Burlington Stores has a smaller store presence than TJX Companies and Ross Stores. As of October 31, 2015, Burlington Stores operated 566 stores. By comparison, as of October 31, 2015, TJX Companies had 3,594 stores across the US, Canada, Europe, and Australia, while Ross Stores operated 1,448 stores.

Despite having a substantially higher gross margin than both TJX Companies and Ross Stores, Burlington Stores’ operating margin and sales per square foot still lag its peers. As we discussed in Part 9 of this series, Burlington Stores is taking several initiatives to improve its profitability. However, the company is more leveraged (as we discussed in Part 11) than others in its peer group, which makes it riskier.

In the next and final part of this series, we’ll assess Burlington’s opportunities and threats.

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