Burlington Stores, Inc. (NYSE:BURL) Q2 2020 Earnings Conference Call - Final Transcript
Aug 27, 2020 • 08:30 am ET
Thank you. [Operator Instructions]. Our first question comes from the line of Matthew Boss with JP Morgan. Your line is now open.
Great. Thanks and good morning. Michael, so it sounds like things were going well to start the second quarter. And then you ran into logistical, rather than merchandise availability issues, when you tried to replenish your store level inventories. I guess, is that the right way to think about it, and can you elaborate on the issues, and to what degree have the logistical issues been resolved at this point?
Good morning, Matt. Thank you for the question. Yes, that's right. The way that you've characterized what happened is accurate. Our performance in Q2 was not driven by merchandise availability. There was plenty of availability. As I described in my remarks, we turned our clearance inventory very rapidly. So in late May, we were able to go back into the market and take advantage of some terrific buying opportunities. We were very pleased with the availability that we saw, and we were able to make some great deals. The problem was, that having written new orders, having bought the goods, we could not get the receipts to the stores as fast as we needed. Many vendors were struggling with their own warehouse operations and getting them up and running.
So we really needed to merchandise that we really needed to flow to stores. And in June, we weren't able to get to stores and for July, that delay in receipts was a matter of weeks. But it meant the inventory levels fell well below, when we didn't [Indecipherable]. I would say that since then, it has taken us a lot longer than it normally would, to get through the receipt backlog. In the areas where our BCs are located, we've seen staffing shortages and that hindered our ability to get our own facilities up to full capacity.
Now on the last part of your question, whether these issues have been resolved, I would say that, yes, largely they have been resolved. Our vendors' distribution facilities are up and running, and for some weeks, we've been getting a very good flow of receipts. That said, there are lingering issues. To be clear, these issues are not specific to Burlington. I would say, they are right across the industry. As distribution facilities have ramped up, there have been significant staffing shortages in major distribution hubs like Southern California. Those issues are subsiding, but they haven't completely gone away. In fact, I would say that there is a risk that they could cause additional program, as retailers start to ramp up in the fall, the holiday. I'd also anticipate those issues are going to lead to an increase in supply chain costs across the retail industry this year.
Great. And then to follow up, Michael, when would you expect inventories to be back to the levels where you would ideally want them? And how will you manage inventories going forward?