Burlington Stores Inc (NYSE: BURL) Q4 2025 Earnings Call dated Mar. 05, 2026
Corporate Participants:
David Glick — Group Senior Vice President of Investor Relations & Treasurer
Michael O’Sullivan — Chief Executive Officer and Director
Kristin Wolfe — Executive Vice President and Chief Financial Officer
Analysts:
Matthew Boss — Analyst
Irwin Boruchow — Analyst
Lorraine Hutchinson — Analyst
Brooke Roach — Analyst
Adrienne Yih-Tennant — Analyst
Mark Altschwager — Analyst
Dana Telsey — Analyst
Presentation:
Operator
Hello, everyone and welcome to Burlington Stores, Inc. Fourth Quarter 2025 Earnings Webcast. [Operator Instructions] I’d now like to turn the call over to David Glick, Group Senior Vice President, Treasurer and Investor Relations. Please go ahead.
David Glick — Group Senior Vice President of Investor Relations & Treasurer
Thank you, operator, and good morning, everyone. We appreciate everyone’s participation in today’s conference call to discuss Burlington’s fiscal 2025 fourth quarter operating results.
Our presenters today are Michael O’Sullivan, our Chief Executive Officer, and Kristin Wolfe, our EVP and 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 express permission. A replay of the call will be available until March 12, 2026.
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 and in our 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. As a reminder, as indicated in this morning’s press release, all profitability metrics discussed in this call exclude costs associated with bankruptcy acquired leases. These pretax costs amounted to $8 million and $5 million during the fiscal fourth quarters of 2025 and 2024, respectively and $35 million and $16 million for the full fiscal years 2025 and 2024, respectively.
Now, here’s Michael.
Michael O’Sullivan — Chief Executive Officer and Director
Thank you, David. Good morning, everyone, and thank you for joining us. I would like to cover three topics this morning. Firstly, I will discuss our fourth quarter results. Secondly, I will review our full year 2025 results. And thirdly, I will talk about our outlook for 2026. Then Kristin will provide additional financial details.
Okay, let’s start with our fourth quarter results. Total sales increased 11%. This was on top of 10% total sales growth last year. The fourth quarter is by far our largest quarter of the year. So to grow total sales by double digits on top of double digits is especially impressive. It shows that we are continuing to take retail market share.
Comparable store sales increased 4%. We knew coming into the quarter that we were up against 6% comp growth from last year, and that we had some tariff-related gaps in our assortment. We expected our sales to be within our guidance range of 0% to 2%. So we were very pleased to handily beat this guidance and to deliver a strong two-year comp stack of up 10% for the fourth quarter. Our buying, planning, supply chain, marketing and store teams executed very well to chase this trend.
I am not going to spend a lot of time dissecting the details of our Q4 comp performance, but I would like to call out two important items. Firstly, our elevation strategy. This has been a focus over the last couple of years, elevating the assortment to offer better, more recognizable brands, higher quality and more fashion, all at terrific values.
There is clear evidence of the success of this strategy in our internal sales data. For example, when we analyze our sales by price point, we see that the highest comp growth rates are in the higher price buckets. In other words, despite the economic pressure she may be feeling, our customer is responding to the great values we are offering at these higher price points. These trends drove a mid-single-digit increase in our average unit retail in the fourth quarter.
The second point I would like to make is that although we’re pleased with our ahead of plan comp growth, as we hindsight the quarter, we can see that there were important categories where we could have done more business. I will explain what I mean and we’ll talk more about this in a few moments when I discuss the full year.
But before I move on to our full year 2025 results, let me just touch on Q4 earnings. In the quarter, we achieved 100 basis points of operating margin expansion and 21% earnings per share growth. Again, this is the largest quarter of the year, so we are especially happy with this performance.
Now let’s discuss our results for the full year 2025. For this discussion, I am going to read the headlines, but then I would like to spend most of the time talking about how, in response to tariffs, our operating strategies shifted in 2025 and how this impacted these sales and earnings results.
The headlines are that in 2025 we delivered 9% total sales growth on top of 11% total sales growth last year, 2% comp sales growth on top of 4% comp sales growth last year. 80, that’s 8-0, basis points of operating margin expansion on top of 100 basis points last year, and 22% earnings per share growth on top of 34% earnings per share growth last year.
What really jumps out from these headline results is that we drove extraordinarily strong earnings growth on a relatively modest comp sales increase. Let’s talk about that. When we started the year 2025, as usual, we planned our business for low single-digit comp growth. We believed or hoped that we might be able to chase to mid-single digit comp growth for the year.
Our initial 2025 focus and operating strategies were consistent with this comp sales outlook. But then in April, things changed. The introduction of tariffs forced us to recalibrate. It was clear that if we ignored the margin impact of tariffs, then this would significantly reduce our earnings growth.
Over the last few years, we have worked hard to build our operating margin, and in 2025 we decided that we were not going to allow tariffs to set us back. So we took numerous actions to offset the impact of tariffs. We talked about these actions in our quarterly calls in May, August and November. They included pivoting away from and planning down receipts in categories which faced the greatest negative margin pressure from tariffs. These categories were mostly in our home businesses. Reducing inventory levels across the store to drive a faster turn and thereby generate lower markdowns, raising retails in select fast turning categories where there was limited resistance or pushback from the customer and aggressively going after expense savings across the P&L.
These actions were very successful. In May, despite the initial shock of tariffs, we were confident enough to reiterate our earnings guidance for the year. In August, we took this guidance up. In November, we took our guidance up again, and today we are reporting actual full-year results featuring 80, 8-0, basis points of operating margin expansion and 22% earnings per share growth. These numbers are well ahead of the original earnings guidance that we issued on this call in March last year.
But let’s talk about sales. As I said a moment ago, at the start of 2025 we planned our business for low single digit comp growth but hoped we would be able to chase to mid-single digit. We didn’t. We didn’t because the actions we took in response to tariffs were a drag on sales. Of course, we knew this. We knew that cutting receipt plans for businesses most impacted by tariffs was the right thing to do for earnings growth, but that it would likely dampen our sales upside. This impact showed up in Q3 and Q4.
In Q3, unseasonably warm weather hurt our outerwear business. That can happen. We don’t control the weather. But in the past, when this has happened, we have been able to lean on non-seasonal businesses, particularly home categories, to pick up some of the slack. That did not happen because our home assortment was the most impacted by the shift away from businesses with the greatest margin pressure from tariffs. Without these assortment gaps in Q3, we would likely have driven more sales. That said, given tariffs our earnings growth would have been lower.
My commentary is similar for Q4. I know it seems like an odd thing to say given that we are reporting strong 4% comp growth on top of 6% comp growth last year, but I am convinced that we could have done even more sales in the fourth quarter. There are categories that are very important in Q4, for example, toys, gifting, and housewares, where we could have done more business and driven higher comp growth across the chain. At the start of 2025, we had much higher full year sales plans for these businesses, but once tariffs were introduced, it made sense to pull back.
We could have made a different decision. This would likely have delivered a stronger comp increase, but with lower earnings growth.
Wrapping up on the full year, let me reiterate that we are very pleased with our results. 80 basis points of operating margin expansion on top of 100 basis points last year. 22% EPS growth on top of 34% last year. One of the reasons why I have taken a few minutes to go through all this and to provide a full analysis of the drivers of our 2025 results, is that it helps inform how we are thinking about the sales outlook for 2026.
In fact, this is a good segue to talk about that sales outlook. I tend not to use the word bullish very often, but I am going to use it now. We feel very bullish about our sales outlook in 2026.
Barring some Black swan event, we think that we have an opportunity to really drive sales this year, comp store sales and total sales. There are several external and internal factors that are driving this optimism. On the external side, based on our trends in the fourth quarter, our view is that our customer looks quite resilient right now.
Add to that, we expect that the current tax refund season is going to be more favorable than recent years. As we have said in the past, our core customer is very sensitive to tax refund payments, and the early signs and expert predictions are very positive. So we think there may be sales upside, especially in the first quarter.
Staying on external issues, we don’t know what will happen with tariffs this year. It is very uncertain, but we believe that the industry and our supply base have now adjusted to them and that tariffs are unlikely to represent the same margin challenge that they did last year.
Let’s move on to the internal drivers of our optimism. There are two things to highlight. Firstly, in 2026, we will be up against our easiest comp sales comparisons for some years. In Q1, in Q3, and even in Q4, we look at the comp numbers that we posted last year, and we feel like we have tremendous opportunity. As I explained a moment ago, in the back half of 2025, we had significant tariff-related gaps in our assortment, especially in our home businesses. These gaps held back our sales trend. Now that the industry and our supply base have adjusted to tariffs, we plan to go after these assortment opportunities in the back half of 2026.
Secondly, we expect continued progress on our Burlington 2.0 initiatives, including the completion of our store experience 2.0 remodel for the balance of the chain. And we are also excited about the rollout of additional merchandising 2.0 capabilities, especially regional and store-level localization.
Since our last quarterly call in November, these favorable external and internal factors have caused us to reconsider and take up our sales plans for 2026. That is why we are raising our comp guidance to 1% to 3% for the full year. This is modestly higher than our typical model.
That said, you can divine from my comments that we think there may be potential upside to this guidance, and we are positioned to chase the sales trend. There is one other important point to make. Although we are very excited by the sales outlook, we do not plan to go after this sales opportunity at the expense of margins. We have made huge progress expanding our operating margin over the last couple of years. We are confident there is more to come, and we anticipate that any ahead of plan sales in 2026 will drive further operating margin leverage.
At this point, I would like to turn the call over to Kristin. Kristin?
Kristin Wolfe — Executive Vice President and Chief Financial Officer
Thank you, Michael and good morning, everyone. I’ll provide more details on the financials. First, starting with the fourth quarter, total sales grew 11% and comp store sales grew 4%, well above the high end of our guidance.
As Michael noted earlier, this Q4 growth is on top of last year’s 10% total sales growth and 6% comp store sales growth. Our Q4 adjusted EBIT margin expanded 100 basis points versus last year. This was 50 basis points above the high end of our guidance. The gross margin rate for the fourth quarter was 43.7%, an increase of 80 basis points versus last year. This was driven by a 60 basis point increase in merchandise margin and a 20 basis point decrease in freight expenses.
Product sourcing costs were $232 million versus $217 million in the fourth quarter of 2024. Product sourcing costs levered 30 basis points as a percentage of sales, driven by supply chain productivity and cost savings initiatives. Adjusted SG&A costs in Q4 were 40 basis points lower than last year. The leverage in SG&A was primarily driven by leverage from store payroll and occupancy costs on higher sales in the quarter.
Q4 adjusted EBIT margin was 12.1% and our adjusted earnings per share in Q4 was $4.99. Both of these were well above the high end of our guidance. Our Q4 adjusted EPS represents a 21% increase versus the prior year. At the end of the quarter, comparable store inventories were up 12% versus the end of the fourth quarter in 2024.
Our reserve inventory was 40% of our total inventory versus 46% of our inventory last year. We are very happy with the quality of the merchandise, the brands, and the values that we have in reserve.
We ended the quarter in a very strong liquidity position with approximately $2.2 billion in total liquidity, which consisted of $1.2 billion in cash and $926 million in availability. On our ABL. We had no borrowings outstanding at the end of the quarter on our ABL. During the quarter, we repurchased $59 million in common stock, bringing our annual share repurchases to $251 million. At the end of Q4, we had $385 million remaining on our share repurchase authorization, which expires in May of 2027.
In Q4, we opened one net new store, bringing our store count at the end of the year to 1,212 stores. In Q4, we had two new store openings and one closing.
I’ll now move on to discuss our full year 2025 results. Total sales increased 9% on top of 11% in 2024. Comp store sales increased 2% on top of 4% in 2024. Our operating margin for the full year expanded by 80 basis points. Merchandise margin increased by 40 basis points despite the negative impact from tariffs. Freight expenses improved by 20 basis points and product sourcing costs levered by 20 basis points.
We also achieved 30 basis points of leverage on adjusted SG&A. This leverage was offset by 20 basis points of deleverage and higher depreciation and amortization costs.
In terms of store openings for the full year, we opened 131 new stores while relocating 18 stores and closing nine stores, adding 104 net new stores to our fleet. I’ll now move on to our 2026 guidance. This guidance excludes expenses associated with bankruptcy acquired leases of approximately $8 million in 2026 versus $35 million in 2025.
For 2026 we expect total sales growth in the range of 8% to 10%. This assumes 110 net new store openings. We anticipate that approximately 60% of these new stores will open in the first half of the year, with the balance opening in the fall. We are forecasting comp store sales for the full year to increase 1% to 3% and our adjusted EBIT margin to be in the range of flat to an increase of 20 basis points versus last year. This results in adjusted earnings per share guidance in the range of $10.95 to $11.45, an expected increase of 8% to 13%. Capital expenditures, net of landlord allowances, are expected to be approximately $875 million in fiscal 2026.
I would now like to move on to guidance for the first quarter of 2026. This Q1 guidance excludes expenses associated with bankruptcy acquired leases of approximately $6 million each in 2026 and 2025. We expect total sales to increase 9% to 11%. Comp store sales are assumed to increase 2% to 4% for Q1. We are expecting adjusted EBIT margin to be in the range of down 60 to down 100 basis points over the first quarter of 2025, which results in an adjusted EPS outlook in the range of $1.60 to $1.75 versus last year’s first quarter adjusted earnings per share of $1.67.
I would now like to turn the call back over to Michael.
Michael O’Sullivan — Chief Executive Officer and Director
Thank you, Kristin. Before I turn the call over to questions, I would like to reinforce a few of the key points that we have discussed this morning. Firstly, we are very happy with our Q4 performance. 11% total sales growth, 4% comp sales growth, 10% two-year comp stack, 100 basis points of operating margin expansion, and 21% increase in earnings per share.
Secondly, we are also pleased with our full year results. We achieved 80 basis points of operating margin expansion on top of 100 basis points last year and 22% earnings per share growth on top of 34% last year.
In 2025, in response to tariffs, we had to adjust and make choices. We took actions to address the margin impact of tariffs and to drive earnings growth. The results are clear. This strategy was spectacularly successful.
And thirdly, we are feeling bullish about 2026. There are external and internal factors that are driving this optimism. We think there may be upside to our sales guidance, and we anticipate that any ahead of plan sales should help drive additional operating margin expansion. I would now like to turn the call over for your questions.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from the line of Matthew Boss of JP Morgan. Please go ahead.
Matthew Boss
Great. Thanks and congrats on another nice quarter.
David Glick
Thanks, Matt.
Matthew Boss
So Michael, to break down the fourth quarter further, could you elaborate on what drove your ahead of planned sales? And in particular, what makes you think that you could have done even more sales in the fourth quarter than your reported results?
Michael O’Sullivan
Well, good morning, Matt. Thank you. Thank you for the question. As I said in the script, overall, we were very pleased with our trend in Q4. A strong 4% comp growth on top of 6% comp growth last year. So 10% two-year stack.
That said, the breakdown of this comp growth by business was very, very different to how we had originally planned it. Let me explain that.
Over the last few years, we have had enormous success growing our home businesses, especially in the back half of the year. Home has been a real engine of growth for us with categories such as gifting, home decor, housewares, bedding, toys, and seasonal decor.
Now, our original plan for 2025 was to significantly expand those areas starting in Q3 and then into Q4. We believed that we had a significant sales opportunity. Now, with the introduction of tariffs in the spring, we faced a different set of economic choices. If we’d maintained our original plans in those areas, we could have driven higher sales. But because of tariffs, we had to adjust. You know, the way I think about this is our mission is not just to chase sales. It’s to chase profitable sales. And looking back, I’m very pleased with how smartly and flexibly our teams responded in that situation.
When tariffs were announced, we set about remixing our plans to focus on businesses that were less impacted by tariffs, certain categories in apparel, footwear, beauty, and accessories. So, not surprisingly, then, coming back to your question, our comp growth in Q3 and Q4 was strongest in these specific businesses.
I would say that our merchandising teams in those categories did a great job delivering terrific assortments that drove our comp sales in the back half. The flip side, of course, was that our comp growth in our most important home and holiday categories was lower.
Of course, it was. As I said, we deliberately lowered the mix of these businesses in response to tariffs. And it was that remixing that really enabled us to drive such extraordinary earnings growth in 2025. Now, the last part of your question, which businesses could have delivered more sales then? It’s all the categories that I mentioned, gifting, home decor, housewares, bedding, toys, seasonal decor. Now, despite the gaps in the assortments in those businesses, we still turned very fast.
So that tells me that if we had had more receipts, then for sure we could have done more business. But those additional sales would have come with unacceptably low margins. Let me wrap up my answer by looking forward, though. You know, we’re excited for 2026. The math is different now. The industry has had the chance to adjust to tariffs. You know, tariffs are still here, but they’re lower now than they were last summer. You know, as I’ve described, last year, we started out with ambitious sales plans in our home businesses, but we had to shelve those plans in response to tariffs. That opportunity — that sales opportunity has not gone away. And in 2026, unlike 2025, we see the chance to go after that opportunity aggressively and profitably.
Operator
Question comes from the line of Ike Boruchow of Wells Fargo. Your line is now open.
Irwin Boruchow
Hey, good morning, everyone. First question for Michael. I think I have a question on the comp guidance just for ’26. 1% to 3%. It is higher than you normally give us. I know it’s relatively small, but it is a deviation from your typical guide. Can you give us a little bit more color on how we should interpret this along with your, can’t help but hear the word bullish, and I think that’s a change from you as well. So just how should we interpret this?
Michael O’Sullivan
Yeah. Good morning, Ike. Growing up in the UK, bullish isn’t really part of the vocabulary. But yeah, I’m using bullish this time around.
So let me answer your question. As you know, we typically plan our business and guide to flat to 2% comp growth, with the goal being to chase any sales upside. In the fall, when we started to put together our 2026 budget flat to 2% was our starting point. And that was the — obviously that was the initial guide that we discussed in November. So over the last few months we’ve had a chance to sort of really look at the outlook for 2026 and obviously we’ve torn apart and analyzed our 2025 performance.
Now, based on all that, we see a lot of potential upside. Again, as I said in the prepared remarks, there are sort of external and internal factors that are driving our optimism. On the external side, based on our fourth quarter sales trends, our customer looks pretty resilient to us. We also we think that tax refunds are likely to create some momentum certainly in the first quarter. And while we don’t know what will happen with tariffs, we think they’re unlikely to present the same margin challenge that they did last year.
Now, on the internal side, specific to Burlington, if you like, as we look at Q1, Q3, and even Q4, we see an opportunity to drive sales as we lap issues in those quarters, especially tariff-related assortment issues in the back half.
Now, with all that said, let me reassure everyone that we’re an off-price retailer. Our overall playbook has not changed. We’re still going to plan sales conservatively, manage the business flexibly, and then chase any upside. I should also make the point that although raising guidance to 1% to 3% is not a very significant change, it does matter.
It gives our merchants a little more open to buy so they can be more aggressive, especially as we start the year, as we start the quarter. It gives them more of a head start, if you like, as they chase the sales trend.
The other data point that I should call out is our inventory level. At the end of Q4, our comp store inventories were up 12%. Now that kind of increase is very unusual for us, but it was deliberate, and it’s another indicator that we see potential sales upside in 2026, especially in Q1.
Irwin Boruchow
Got it. And then a quick follow-up for Kristin on the margins. Just the 1Q down 60 to 100. Can you just elaborate what exactly are the moving pieces there? Because the full year seems pretty solid, but what’s going on in the first quarter that we shouldn’t take note of?
Kristin Wolfe
Hi, good morning. Thanks for the question. It’s a great question. Glad you asked. Let me start with the full year, and then I’ll touch on the Q1 dynamics specifically. So for full year 2026, 1% to 3% comp store sales growth and operating margin flat to 20 basis points.
Going down the P&L, we are assuming relatively flat merchandise margin as we invest and reinvest any favorability from cycling tariffs to better support, better brands, higher inventory levels in stores. All of this to drive sales.
Similarly, for the full year, we’re expecting relatively flat freight and product sourcing costs as our continued productivity and cost-saving initiatives are still there, but mostly offset by new DC startup costs this year.
Then in SG&A for the full year, we expect to see about 20 basis points of leverage at a 3% comp. That’s what’s driving the full year guidance. And it’s worth reiterating, we continue to expect 10 to 15 basis points of incremental leverage for every point of comp above 3%.
So now to your specific question about the first quarter. It is an outlier for the year. We’re guiding lower margin in Q1, but we absolutely expect margins to increase Q2, Q3, and Q4. We have some unique factors going on in the first quarter. First, we have some pressure on gross margin. We will not have anniversary tariffs, so that puts some modest pressure on markup.
And we also have a markdown timing shift into Q1 from Q2. Secondly, as it relates to our supply chain costs, we’re anticipating some deleverage specifically in Q1 that’s related to the startup costs from our new Savannah distribution center, which we plan to open in the second quarter.
And then the last thing going on in Q1 is we’re lapping a few one-time favorable items from Q1 last year. Michael talked about how aggressively we went after expense savings across the P&L in response to tariffs. And there were some levers that we pulled specifically in April of last year to drive savings that we’re now lapping in Q1.
These are the primary deleverage items that drive the down 60 to 100 basis points for Q1. And again, just to reiterate, we do expect EBIT margins to increase to varying degrees for each of Q2, Q3, and Q4 to offset the lower operating margin in Q1 and net out to that flat to plus 20 basis points for the full year.
Irwin Boruchow
Thanks so much.
Kristin Wolfe
Thanks, Ike.
Michael O’Sullivan
Thanks, Ike.
Operator
Your next question comes from the line of Lorraine Hutchinson of Bank of America. Your line is now open.
Lorraine Hutchinson
Thank you. Good morning. Michael, we’re expecting tax refunds to be much higher than last year. In 2021, you saw a significant sales lift from these stimulus checks. Should we think of higher refund checks in the same way?
Michael O’Sullivan
Good morning, Lorraine. Thank you for the question. At a very high level, I would say that the answer is yes. Whether it’s a tax refund check or a stimulus check, it puts extra money in our customers’ pockets, and that’s always a good thing and helps to drive comp sales.
That said, there are a couple of very important differences, I think. Firstly, the stimulus checks back in 2021 were much more significant and more expansive. They went to everybody. For the One Big Beautiful Bill, it looks like there are many different pieces to it, and it doesn’t affect everybody equally. So it’s difficult to tell how much it will impact our customers. Our expectation is that the impact will be much less significant than the 2021 stimulus checks.
The second point to make is that the 2021 stimulus checks, they were a one-time thing. So in 2022, you’ll remember we were up against them. The One Big Beautiful Bill is a change in the tax code, and in that sense, it’s permanent. So any sales lift that comes from it should be sustained rather than a one-time event. Anyway, I guess boiling it all down, it’s difficult to know how big an impact it might have. We’ve built in some upside to our plans and we’re ready to chase.
Lorraine Hutchinson
Thank you. And then I wanted to follow up on inventory. You spoke earlier about the comp store inventory up 12%, but your reserve penetration was lower than last year at the end of the fourth quarter. Are you happy with your inventory levels? And maybe more broadly, how are you feeling about merchandise supply and off-price availability?
Kristin Wolfe
Good morning, Lorraine. This is Kristin. I’ll take the first part of your question on inventory. Michael kind of spoke to it on the higher inventory levels in an earlier question, talking about our approach for 2026 sales guidance. But at the end of Q4, our comp store inventories, as you noted, were up 12%. This was deliberate, and we feel very good about the amount of inventory and the freshness of that inventory. The primary driver of the higher inventory is we wanted to be prepped and stocked for higher traffic and sales anticipated in Q1 due to the higher tax refunds as well as the underlying trend of our business.
In addition, the other dynamic is we did a great job delivering transitional receipts in Q4 such that our assortment was fresh. There’s newness in the store as we moved from holiday and into spring. And we’re continuing to improve our capabilities to better localize assortments by geography and climate. And these strategies contributed slightly to slightly higher comp store inventory levels at the end of Q4 versus last year. So that’s on in-store inventory.
On reserve inventory, our reserve penetration was lower than last year, but at 40% of total inventory, it’s really more in line with historical levels at the end of Q4 in 2023. For example, it was slightly higher than we saw 39% at that time, at the end of 2023. And as we look at that inventory that we have in reserve, we really feel good about the quality and the values in the brands, that will help support sales and support our ability to chase in 2026.
Michael O’Sullivan
Let me jump in on the last part of the question. On off-price merchandise availability. I would describe the buying environment for off-price right now as excellent. I think you’ve probably heard the same thing from other off-price retailers. There is plenty of supply in the market across most categories. You know, I mentioned in the prepared remarks that we think there may be sales upside in 2026. Well, it’s important to add that we see plenty of off-price merchandise availability to help fuel that sales trend.
Lorraine Hutchinson
Thank you.
Operator
Your next question comes from the line of Brooke Roach of Goldman Sachs. Your line is now open.
Brooke Roach
Good morning, everyone. Firstly, I have a quick question about the monthly cadence of comp sales in 4Q. In particular, I’m wondering how your business performed in January and your comp trend exited the quarter. Thank you.
Kristin Wolfe
Good morning, Brooke. It’s Kristin. I’ll take the question. It’s a good question. As we look at it, it makes the most sense given the timing of holiday to look at and speak to November and December combined. And for that two-month period in Q4, our comp sales increased mid-single digits. And as we got closer to Christmas, that trend accelerated. So we were really pleased with this holiday performance and the sales trend we saw, particularly given the strength of our holiday season last year.
Then as we moved into January, that strong trend and momentum continued. January also ran a mid-single digit comp, and I’ll point out that our comp in January would have been even stronger if not for the significant winter storm that impacted many of our major markets late in the month.
It was widespread and led to several hundred store closures. This disruption cost us about a point of comp on the full quarter and several points for the month of January.
Now, to the last part of your question. Once we dug out from the winter storm, we resumed that strong comp store sales trend. Momentum has continued into February such that Q1 is off to a very strong start. We have a lot of the quarter ahead of us of course, but so far so good.
Brooke Roach
That’s great to hear. As a follow-up, I was hoping you could speak to sales trends by customer demographic. What are you seeing in terms of sales trends by different income groups, and are there any call outs on trends for other demographic groups that we should be aware of? Thank you.
Michael O’Sullivan
Yeah, good morning, Brooke. It’s Michael. I’ll take that. It’s a good question. It’s something we look at all the time. We slice and dice our internal sales data just to see if there are any pockets of weakness or pockets of strength. So let me tell you what we’re seeing.
On sales trends by different income segments, as we analyze the performance of stores based on median household income of the surrounding area, our comp sales trends in the fourth quarter were very broad-based. It’s true that our stores in lower income trade areas had a slightly higher comp than the rest of the chain, but it was very close. In other words, all income cohorts performed well in the fourth quarter.
So when you segment our customers based on household income every segment is looking fairly resilient right now. On the second part of your question, other demographic groups, again, there’s not much to call out. When we look at the performance of our stores based on ethnicity of the surrounding area, again, the trends look fairly broad based. For example stores in high Hispanic trade areas, if I exclude the southern border, those stores are pretty much right in there with the rest of the chain, in terms of comp performance.
So overall, as we look across demographic segments, income and ethnicity, etc. we’re not seeing any major pockets of weakness at this point.
Brooke Roach
Thanks so much. I’ll pass it on.
Michael O’Sullivan
Thank you.
Operator
Your next question comes from the line of Adrienne Yih of Barclays. Your line is now open.
Adrienne Yih-Tennant
Great. Thank you very much. It is really nice to see Burlington 2.0 kind of really coming into its own.
Michael O’Sullivan
Thank you.
Adrienne Yih-Tennant
Michael, I guess — you’re welcome. A little bit more color on the elevation strategy. How should we be thematically thinking about the pyramid of sort of good, better, best, where it was, where it’s going to, your other off-price competitors that are doing a similar strategy, and they’re also opening stores in your market. So just how do we think about how you’re differentiated on the product?
And then Kristin, a little bit more on the supply chain, but maybe more from a qualitative benefit over a multi-year horizon. How do you think about productivity, capacity utilization? And are you running anything in tandem? Like, are you running legacy DCs or something that we can roll off in the next 12 to 18 months? Thank you.
Michael O’Sullivan
Good morning, Adrienne. Thank you for the questions. Obviously, I’ll take the first one on the elevation strategy. Yeah, we’re very pleased with what we’re seeing in our elevation strategy. It’s been a major focus for us for the last couple of years, elevating the assortment to offer better, more recognizable brands, higher quality and more fashion, all at great values.
We’re very encouraged by the results. And our internal data shows us that by elevating our assortments, we’ve been able to drive higher customer perception scores, stronger comp growth in higher price buckets, and ultimately, higher average unit retail and higher transaction size, which is what you should be seeing if you have a successful elevation strategy.
Now, one aspect of this that I’m especially pleased about is that we’ve successfully pursued this elevation strategy without taking a hit to margin. That’s always been the major challenge in off-price. When you increase the mix of better brands or you raise the quality or you take more fashion risks, then that can really pressure your merchant margin. When you elevate the assortment like that, and the AUR goes up, the typical pattern is that markup is pressured and markdowns increase. It takes skill to elevate the assortment without hurting merchant margin.
So the fact that we’ve been able to elevate the assortment and at the same time we have actually expanded our margins is, I think, a clear testament to the strength and the talent of our merchant teams. By offering a terrific assortment with great value at higher price points, we’ve been able to convince the customer to trade up and to spend more. And yeah, as I say, over the past couple of years, we’ve elevated the assortment. But it’s really important to point out that we, at the same time, have expanded our margins.
And Kristin, do you want to take the second question?
Kristin Wolfe
Yes, Adrienne, on supply chain. Appreciate the question. I’ll speak to both qualitatively and quantitatively. We do continue to make significant progress reducing supply chain expenses as a percentage of sales. That’s certainly been a focus. We’re doing this through numerous productivity initiatives in our DCs and cost savings projects across supply chain. So for 2025, supply chain costs levered 20 basis points, and this was on top of 50 basis points of leverage in supply chain in FY 2024. So we are seeing that leverage.
This spring 2026, we’re going to go live in our newest DC in Savannah, Georgia. We’re really excited about this new asset. It’s more than twice the size of our current largest DC. It’s highly automated. It’s built for off-price processing. Now kind of near term, as you would expect, there’s significant startup expenses associated with opening a new facility of this size, and that will drive some deleverage in 2026.
And for 2026 overall, we expect supply chain costs as a percentage of sales to be relatively flat for the year, as these new DC startup costs are then offset by our continued efforts around productivity and cost savings initiatives elsewhere in the supply chain.
You see this dynamic more in Q1 where we’re expecting about 10 to 20 basis points of deleverage on this line. And then as the year goes on we expect that deleverage to moderate as we offset with these cost savings initiatives.
Now, sort of on the qualitative point, in your question, it does typically take two or so years for a DC to be fully ramped up. Over time, we absolutely expect this state-of-the-art design for off-price DC to drive cost efficiencies for us, notably significantly faster processing time.
And additionally, based on the physical locations of our vendors and our store bases, we believe over time we can see some modest leverage in freight related to this new DC. We’re continuing to invest in new distribution centers, and over time, we’ll modify our DC footprint to have the majority of our supply and processing go through our more efficient DCs. That will take time, but that’s the plan that we’re continuing to execute.
Adrienne Yih-Tennant
Fantastic. Thank you very much. Best of luck.
Kristin Wolfe
Thanks, Adrienne.
Michael O’Sullivan
Thank you.
Operator
Our next question comes from the line of Mark Altschwager of Baird. Your line is now open.
Mark Altschwager
Great. Thank you for taking my question. Michael, can you talk about the pipeline for new stores and relocations?
Michael O’Sullivan
Yes. Good morning, Mark. Yeah, I’m glad you asked this question. I am really very excited about our new store program and our new store pipeline over the next couple of years.
When we — going back a little bit, when we laid out our long-range plan back in November 2023, we said at the time that we thought we could open roughly 500 net new stores over the next five years, or approximately 100 net new stores per year on average. Now we’re running slightly ahead of this and not only are we ahead in terms of number of stores, number of new stores, we’re also very — it’s important to say, we’re also very happy with how those stores are performing.
We expect new stores to achieve about $7 million in sales in their first full year. Our new stores are running in line with that. We then expect them to compare above the chain for their first few years in the comp base. And again, recent cohorts are actually performing — outperforming these expectations for comp growth. That means that our overall investment returns for new stores are very strong, well above our hurdle rates.
The other aspect of our new store program that I’m excited about and I want to call out is our store relocation and downsizing programs.
As you know, we have a lot of older, oversized stores in the chain. In 2025, we relocated 18 of those stores to smaller format locations, mostly in busier nearby strip centers. Now with those relocations, we’re seeing a good sales lift and a reduction in occupancy costs, so driving much improved earnings. In 2025, we also physically downsized about 20 existing stores. Now this is a new and growing program for us. When we downsize the store, we reduce the footprint of the store and we either return the excess space to the landlord or we sublease it to a co-tenant.
Now, as we reduce the footprint, we refurbish, modernize, and improve the reduced space. Now with our downsized projects, we’re seeing very strong returns driven by significantly lower occupancy costs. And in many cases, we’re also seeing a sales lift. We have many stores in the chain that are candidates for our downsizing program. So we expect that program to grow over time and become more important.
Now, wrapping up my answer we have — obviously we have a much, much smaller store base than our off-price peers, and we therefore have much, much more room for growth.
So we’re very excited about our new store program and our new store pipeline, including the 110 net new stores that we plan to open in 2026. And we’re also excited by our relocation and downsize programs as I described. These programs are not only going to help us expand our store base, but they’re going to help us transform it.
Mark Altschwager
That’s very good color. Thank you. And just a follow-up. In the prepared remarks, you talked about some of the localization initiatives and how that seems to be ramping up. Can you give us a little bit more detail there?
Michael O’Sullivan
Yeah, sure. It’s actually another really great question. Localization, it’s hard to overstate this, but I think localization is a major opportunity for us. It’s a capability that our off-price peers have had and have invested in for many, many years. And it’s an area where we frankly are a long, long way behind. There have been times over the last several years, there’s even times now when I’ll walk into one of our stores, say, in a beach community or in the South in the summer, I look around, and it looks like Burlington Coat Factory has come to town.
So we need to — we have a huge opportunity to improve and get better at customizing and localizing our assortment, not just based on the region and the climate, but also based on income levels and demographics of the trade area. Now this is a business problem where people, process, and technology, including, by the way, artificial intelligence, can make a huge difference.
And we’ve known for some time now that it’s a major opportunity for us. Indeed, we’ve talked about it with investors. But we also recognized that it would be difficult for us to make significant progress on localization until we had really strengthened and upgraded sort of our foundational merchandise planning and allocation systems.
Over the last couple of years, through Merchandising 2.0, that’s what we’ve done. And we’re now in a position to really start going after localization. Now, I know from experience that this is not a capability that we can build overnight. But I’m very excited about some of the initiatives that we’ve begun to roll out. Better store and class level planning and forecasting, much stronger localization analytics, new store assortment planning and trending, seasonal flow and event planning, assortment distortions based on income and demographics, and an expansion and redesign of our merchandise planning regions.
If you go back and look at the history and the growth of our off-price peers over time, you’ll see that localization was a major unlock in their evolution and growth. And as I say, we’re a long way behind. We have a lot of work to do, and it’s going to take some time. But I think that over the next several years localization is going to be a key driver for us.
Mark Altschwager
Thanks again.
Michael O’Sullivan
Thanks, Mark.
Operator
Our last question comes from the line of Dana Telsey of Telsey Group. Your line is now open.
Dana Telsey
Hi. Good morning, everyone, and nice to hear the progress. Your operating margins were very strong in the fourth quarter, as well as for the fiscal year. Can you just walk us through the puts and takes of the margin drivers? Thank you.
Kristin Wolfe
Good morning, Dana. Thanks for the question. I’ll start with Q4 and then I’ll go into full year. As Michael has discussed and we’ve talked about on this call today, we took deliberate actions in 2025 to drive our operating margin and earnings growth.
In Q4, the biggest contribution was an increase in gross margin. There was 80 basis points versus last year. 60 of that 80 basis points came from merchandise margin. Merchandise margin was driven by lower shortage as well as the actions we took to mitigate tariffs as Michael’s talked about today. The other 20 basis point came from lower freight expenses.
Similarly, on product sourcing costs, supply chain cost savings helped us lever 30 basis points in the quarter and then we achieved 40 basis points of leverage in SG&A. This was mostly driven by sales leverage in store payroll and in occupancy expenses. And all of these items more than offset deleverage we saw from higher depreciation expenses in the quarter.
For the full year, many of the same levers drove the 80 basis points of improvement in EBIT margin. And as a reminder, this 80 basis points of improvement was on top of 100 basis points of improvement in ’24.
Gross margin for the year increased 60 basis points. That was made up of merch margin, 40 basis points, freight expenses, 20 basis points. Supply chain savings drove a 20 basis point of leverage for the year with cost savings initiatives and SG&A drove 30 basis points due to many of the cost savings initiatives we put in place earlier this year that we described. These improvements more than offset 20 basis points of deleverage we saw in depreciation for the year.
And just one last point on margin. I want to reiterate that we believe the margin gains we achieved in 2025 are absolutely sustainable, and we believe we have further margin expansion opportunities ahead of us. We’ll be laser-focused on driving sales in 2026, but we have opportunities over time to drive faster turns, generate more supply chain savings, leverage SG&A expenses, particularly as we deliver a stronger comp store sales increase.
Dana Telsey
Thank you.
Kristin Wolfe
Thanks, Dana.
Dana Telsey
Thank you.
Operator
That concludes our question and answer session. I’d now like to turn the call back to Mr. Michael O’Sullivan for final remarks.
Michael O’Sullivan
Let me close by thanking everyone on this call for your interest in Burlington Stores. We look forward to talking to you again in May to discuss our first quarter 2026 results. Thank you for your time today.
Operator
[Operator Closing Remarks]