管理層發言
Hello, everyone, and welcome to Burlington Stores, Inc. Third Quarter 2025 Earnings Webcast. Please note that this call is being recorded. I would now like to hand the call over to Mr. David Glick, Group Senior Vice President, Investor Relations. Please go ahead.
Thank you, operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2025 third 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 expressed permission. A replay of the call will be available until December 2, 2025. 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 on this call exclude costs associated with bankruptcy acquired leases. These pretax costs amounted to $11 million and $0 million, respectively, during the fiscal third quarters of 2025 and 2024 and $28 million and $9 million, respectively, for the first 9 months of 2025 and 2024. Now here's Michael.
Thank you, David. Good morning, everyone, and thank you for joining us. I would like to cover 4 topics this morning. Firstly, I will discuss our third quarter results. Secondly, I will review our updated fourth quarter and full year guidance. Thirdly, I will provide some early thinking on the outlook for 2026. And lastly, I will comment on the progress we are making towards our longer-range financial goals. Then I will turn the call over to Kristin to provide additional details. Okay. Let's start with our Q3 results. Total sales increased 7% in the third quarter at the high end of our guidance. This was on top of 11% sales growth last year. This means that year-to-date, total sales have increased 8% on top of 11% year-to-date growth last year. Comp store sales for the third quarter increased 1%. We started the quarter well with a strong back-to-school trend, but in September, we saw a significant drop-off in traffic to our stores, driven by warmer-than-usual weather. As we have discussed previously, we have very strong brand equity in outerwear. Many shoppers still think of us as Burlington Coat Factory. Outerwear is a great business and a source of competitive strength. But this means that in Q3, our comp trend is very sensitive to weather, much more so than competitors. In some years, the impact is positive. In some years, it is negative. This year, it was negative. That said, in mid-October, once the weather turned cooler, our comp trend picked up to the mid-single digits. And that momentum of mid-single-digit comp growth continued through the first 3 weeks of November. Finishing up on Q3, I would like to comment on earnings. Despite the weather-driven slowdown in our sales trend in Q3, we still delivered margin expansion that was well ahead of last year and earnings growth that significantly beat our guidance. It's worth calling out that this was despite the considerable headwind that we faced from tariffs. Moving on to the fourth quarter. We are maintaining our previously issued comp store sales guidance of 0% to 2%. We feel good about our recent trend, but it is still early in the quarter. And in the coming weeks, we'll be up against very strong comparisons from last year. So it makes sense to remain cautious. That said, given the strong margin and expense trends that we are seeing, we are increasing our Q4 margin and EPS guidance. To be clear, we are adjusting our full year 2025 earnings guidance, passing along all of our beat to earnings in Q3 and factoring in our higher Q4 earnings outlook. I would like to call out that we started this fiscal year with EBIT margin guidance of flat to up 30 basis points. Our updated full year 2025 guidance now calls for expansion of 60 to 70 basis points. This is despite pressure from tariffs, and it is on top of 100 basis points of margin improvement in 2024. We are excited about the progress we are making on margin expansion. I will return to this topic in a few moments when I talk about our longer-range financial goals. But first, I would like to share our initial thoughts on the outlook for 2026. We are early in the budget process, but as a starting point, we are planning for total sales growth in the high single digits. We now expect to open 110 net new stores in 2026. This is higher than previously discussed, and it reflects the strength of our new store pipeline and the performance we are seeing from new stores. We are excited for these new store openings. For comp sales, we are assuming growth of flat to 2% in 2026. This should sound familiar. It is our typical off-price playbook. There is significant economic uncertainty, and we do not know how this might affect our business in 2026. So we will plan our business conservatively at 0% to 2% comp sales growth and then be ready to chase if the trend is stronger. In terms of operating margin expansion, for budgeting purposes, we are assuming that at 2% comp growth, our operating margin would be flat versus this year, then 10 to 15 basis points higher for each point of comp above 2%. Before I turn the call over to Kristin, there is one more topic that I would like to talk about. I would like to provide an update on our longer-range financial goals. As a reminder, 2 years ago, we shared our objective of getting to approximately $1.6 billion in operating income in 2028. The headline is that we feel good about the progress that we are making toward this goal. We are tracking in line with where we thought we would be at this point. We are especially pleased with the progress we have made in driving operating margin. This means that at the high end of our updated 2025 margin guidance, we will have achieved 170 basis points of the 400 basis points of opportunity that we identified 2 years ago. And of course, we will have achieved this despite the negative headwind from tariffs. Apart from margin expansion, the other drivers of our long-range financial model are new store sales and comp store sales growth. On new store sales, we are even more bullish now about our new store opening program than we were 2 years ago. Originally, we had assumed that we would open 100 net new stores a year in the period 2024 to 2028. In fact, this year, we will open 104. And in 2026, we are now planning to open 110 net new stores. Based on our new store pipeline, there is a possibility that we could sustain or even exceed this stronger pace of new store openings. The other major driver of our long-range model is comp sales growth. As I discussed in the context of our Q3 results, leaving weather aside, we feel good about the underlying comp trends that we are seeing. We believe that we can achieve average annual comp sales growth in the range of 4% to 5% over the remaining years of the long-range plan, in other words, between now and 2028. Of course, we recognize there are a lot of external variables that can affect comp growth. So in the nearer term, as we always do, we will plan our business conservatively and then chase. Now I would like to turn the call over to Kristin to review our Q3 results, updated 2025 guidance and high-level outlook for 2026 in more detail. Kristin?
Thank you, Michael, and good morning, everyone. I will start with some additional color on Q3, then I will talk about our updated guidance. Lastly, I will comment on our initial outlook for 2026. Starting with the third quarter, total sales grew 7%, while comp store sales increased 1%, both within our guidance range. As Michael described, our comp trend in the third quarter fell off significantly after the back-to-school period, driven by warmer weather, but then picked up to mid-single digits in mid-October. The gross margin rate for the third quarter was 44.2%, an increase of 30 basis points versus last year. This was driven by a 10 basis point increase in merchandise margin and a 20 basis point decrease in freight expenses. Moving down the P&L. Our Q3 product sourcing costs were $214 million versus $209 million in the third quarter of last year. Product sourcing costs decreased 40 basis points compared to last year. This was primarily driven by leverage in supply chain through continued cost savings and efficiency initiatives. Adjusted SG&A costs in Q3 levered 20 basis points versus last year. This leverage was primarily achieved in store-related costs. Our store teams drove significant leverage in store payroll through numerous efficiency and productivity initiatives. Q3 adjusted EBIT margin was 6.2%, 60 basis points higher than last year. This was well above our guidance range of down 20 basis points to flat. Our Q3 adjusted earnings per share was $1.80, which came in well above our guidance range. This represents a 16% increase versus the prior year. At the end of the quarter, comparable store inventories were down 2% versus the end of the third quarter of 2024. Let me provide a little more context here. In Q3, we saw a significant slowdown in our comp trends, a weather-driven slowdown. But using our merchandising 2.0 tools, our planners and merchants were able to react very quickly to adjust receipts, especially in cold weather categories. So despite the slowdown, our store inventories are well balanced, current and very clean going into the fourth quarter. Moving on to our reserve inventory. Reserve inventory was 35% of our total inventory versus 32% of our inventory last year. In dollar terms, reserve inventory was up 26% compared to last year. We are pleased with the quality of the merchandise and the values and brands that we have in reserve. And as a reminder, we use reserve inventory as ammunition to chase the sales trend. For example, our reserve includes great outerwear buys that we made earlier this year that we've been pulling out over the last few weeks to fuel the trend since the weather turned cold in mid-October. We ended the third quarter with approximately $1.5 billion in liquidity. This consisted of $584 million in cash and $948 million in availability on our ABL. We had no outstanding borrowings on the ABL at the end of the quarter. During the third quarter, we repurchased $61 million in stock. And at the end of the quarter, we had $444 million remaining on our repurchase authorization. In Q3, we opened 73 net new stores, bringing our store count at the end of the quarter to 1,211 stores. This included 85 new store openings, 10 relocations and 2 closings. We now expect to open 104 net new stores in fiscal 2025, up from our original estimate of 100 net new stores. Now I will turn to our outlook for the fourth quarter and full year for fiscal 2025. We are maintaining our fourth quarter fiscal 2025 guidance for comp sales and total sales. We are guiding comparable store sales to be flat to up 2%, with total sales to increase 7% to 9% for the fourth quarter. We are raising our adjusted EBIT margin and adjusted earnings per share guidance for the fourth quarter. We now expect our adjusted EBIT margin to increase by 30 to 50 basis points. This margin outlook now translates to an adjusted earnings per share range of $4.50 to $4.70, an increase of 9% to 14% versus the fourth quarter of last year. For full year fiscal 2025, after factoring in our actual Q3 results and our improved outlook for Q4, we expect comp store sales growth of 1% to 2%, total sales to increase approximately 8% and EBIT margins to range from an increase of 60 to 70 basis points. As Michael noted earlier, this fiscal 2025 EBIT margin guidance is 40 basis points higher than our original full year guidance at the high end, and this is despite the significant pressure from tariffs. Finally, factoring in Q3 actuals and updated Q4 guidance, adjusted earnings per share are now expected to be in the range of $9.69 to $9.89, an increase of 16% to 18% for the full year 2025. Finally, I would like to touch on our preliminary FY '26 outlook. We are in the early stages of the budgeting process, so this could change. But at this point, we are planning on total sales growth in the high single digits. We are assuming at least 110 net new stores, and we're planning comp store sales in the range of flat to up 2%. For operating margin, as Michael said, we are assuming that at a 2% comp growth, our operating margin will be flat to this year, and we expect leverage of 10 to 15 basis points for each additional point of comp. And now I will turn the call back over to Michael.
Thank you, Kristin. Before I turn the call over to the operator for your questions, I would like to summarize a few of the key points from today's call. Firstly, Q3 was impacted by warmer weather in September through early October. Once the weather normalized, our trend improved to mid-single-digit comp growth. And we are off to a strong start to Q4 with comps up mid-single digits for the first 3 weeks of November. Secondly, we are pleased with our margin trends. We are updating our full year 2025 guidance to reflect the earnings beat in Q3 as well as our improved earnings outlook for Q4. At this point, we are maintaining our previously issued Q4 comp guidance of 0% to 2%. Thirdly, we are pleased with how we are tracking towards our long-range financial goals, especially the pace of margin expansion. And within this long-range financial plan, we think there may be additional upside in terms of our new store opening program. Now I would like to turn the call over for your questions.
分析師問答
Your first question comes from Matthew Boss of JPMorgan.
So on relative performance, your comp this quarter came in below both of your off-price peers. This is a clear reversal from results in the second quarter and over the last year. Clearly, you cited weather was a factor, but how concerned are you by this change in your relative comp versus peers?
Thank you for the question. You're right. Just to lay out the facts, we ran a 1% comp in Q3. Our peers were 6% and 7%, very impressive. That's a very significant difference. I can't give you a complete bridge, but at a high level, let me try and dissect that gap. I'll start with the obvious. We know that weather was the biggest driver of our slowdown in Q3. That's not an excuse, but it is a partial explanation. We changed our name some years ago, but shoppers still call us Burlington Coat Factory. So mild weather in September and October has a huge impact on our business. This is a real thing, and it is unique to us, I think, versus our peers. Now in September and October, cold weather merchandise balloons to more than 20% of our assortment. In the third quarter, our comp sales for ladies and men's coats, jackets, boots and cold weather accessories, all these important categories were down double digits. Now they bounced back in mid-October once it turned cold. But by then, it was too late to really drive the quarter. Let me go a little further and try to quantify the weather impact on our comp in Q3. If you strip out the drag on our overall comp from cold weather categories, the categories I just listed, and if I make an adjustment for the impact that lower weather-related traffic had on the rest of the store, then I can get to the low end of a mid-single-digit comp. In other words, I do not get to 6% or 7% comp. So in my view, weather only explains half of the gap versus peers. Now usually, in off-price, when your comp is lower than your peers, it's just the customer telling you that they preferred the value and the assortment that they found elsewhere. In the second quarter, when we ran a 5% comp growth ahead of our peers, the customer was voting for us. But in Q3, that changed. And we have some hypotheses on why, but we have more work to do to really tear that apart and then aggressively go after that performance difference. But before I leave the question, let me just call out a silver lining. The comp numbers that our peers have just reported reaffirm that the off-price shopper at all income levels is alive and well. Leaving aside the weather, the major implication for us is that we need to take better advantage of that than we did in the third quarter.
Great. And then, Kristin, as a follow-up, could you provide more color on the 60 basis points of operating margin expansion in the quarter, particularly just given as we think about the pressures that you faced from tariffs and the 1% comp?
Matt, thanks for the question. Yes, first, it's worth reiterating that we really are pleased with the 6.2% operating margin in the quarter, up 60 basis points versus last year on a 1% comp, as you noted in your question. Let me provide the major puts and takes. Starting with gross margin. First, our merchandise margin increased 10 basis points. And within merchandise margin, there was a lot going on. Tariffs had a negative impact on markup, but we were able to offset this impact through numerous actions such as negotiating with our vendors, adjusting the mix and driving a faster turn. The net impact of all this was much more favorable than we originally guided back in August. This was really driven by our tariff mitigation strategies. Now staying in gross margin, freight levered by 20 basis points. This was due to greater efficiencies and cost savings initiatives, particularly in transportation. So our overall gross margin increased 30 basis points versus the third quarter of last year, all this despite the impact from tariffs. On product sourcing costs moving down the P&L, we drove 40 basis points of leverage here. This was driven by supply chain and efficiency initiatives in our DCs. We're excited about the consistent progress we've made in streamlining our supply chain costs. And moving on to SG&A, we showed about 20 basis points of leverage here on a 1% comp, and this was driven by efficiency initiatives in stores such as speeding up checkout times at point of sale. Offsetting this leverage was higher depreciation, which delevered about 20 basis points, driven by increased CapEx in supply chain and new stores. So taken all together, this drove the 60 basis points of EBIT expansion in the quarter.
Next question comes from the line of Ike Boruchow of Wells Fargo.
I guess my question kind of piggybacks off of Matt's. So the comp growth in Q3 was lower than peers, but the margin and earnings were actually pretty much better. How should we reconcile that? And then really more importantly, are there choices that you made during the quarter that may have driven the higher margin in Q3 at the expense of sales?
Thank you for your question, Ike. The straightforward answer is yes. We made certain decisions that improved our margin in Q3 but may have negatively affected our sales. For context, our margin and earnings performance in Q3 was strong, with margins increasing by 60 basis points and adjusted EPS growing by 16%. We’ve also raised our full-year earnings guidance. Regarding same-store sales, I want to emphasize that the main reason for the slowdown we experienced was due to weather conditions. If we adjust our sales for weather, our results would have been quite satisfactory. However, this explanation only accounts for part of the difference between our 1% comp growth and our peers' 6% to 7% growth. To address your question directly, yes, the choices we made contributed to our strong margin and earnings performance while also resulting in weaker comp growth in Q3. These decisions were part of our strategies to mitigate tariff impacts. For example, when tariffs were first implemented, we adjusted our sales and inventory plans for categories where the margin impact was substantial. We didn’t feel we could increase prices in those categories without suffering margin compression. Consequently, our inventory levels and product assortments were quite limited in Q3, particularly in certain home categories, which led to lower sales in those areas. This was not a mistake; it was a calculated decision that proved to be economically sensible and benefitted our earnings in Q3. As tariff rates have decreased, we've adjusted our sales and inventory plans in most affected categories, so I anticipate a lesser impact in Q4. Another step we took, as Kristin mentioned earlier, was reducing inventory levels across various businesses to enable quicker turnover. This strategy helped counteract the margin pressure from tariffs, although we only implemented this in Q3, as we were already turning inventory rapidly in Q4. While this approach enhanced our earnings, it might have negatively impacted sales. Overall, both examples illustrate that our decisions were effective. We successfully managed tariff pressures on our margins and achieved strong growth in both margins and earnings in Q3, despite facing a slowdown in comp sales due to weather. Typically, such a slowdown would lead to margin deleverage. We now need to conduct a thorough review of Q3 to analyze our performance against our competitors and assess what we could have done differently.
Got it. And then maybe, Kristin, just to elaborate maybe a little more on the 2026 initial outlook, key risk opportunities in the outlook, anything else you could share?
Yes, thanks, Ike. It's still somewhat early in the process, and we are actively working through the budget for 2026. The outlook for next year is difficult to predict due to significant economic and political uncertainty that could impact consumers' discretionary spending. There are potential positives, such as higher tax refunds early next year, but also challenges like tariff-driven price increases that could add inflationary pressure on our core customers. As Michael mentioned earlier, because of this uncertainty, we plan to adhere to our off-price strategy. This includes planning comparable store sales growth at flat to 2%, while remaining flexible to capitalize on stronger trends. Regarding new store openings, we are optimistic about our pipeline and plan to open at least 110 net new stores in 2026. This, combined with our sales guidance, should drive a high single-digit rise in total sales. On the operating margin front, we're expecting our margin to remain flat compared to last year at the 2% comp level, with an expectation of 10 to 15 basis points of leverage for every point above a 2% comp. There are several factors affecting the margin, including slightly higher merchandise margins to counteract tariff impacts, particularly as we enter the fall season next year. We anticipate continued productivity gains in our supply chain, although there will be some offsets due to start-up costs and the ramp-up of our new Southeastern distribution center, scheduled to open in the first half of 2026. We expect fixed cost leverage as total sales grow in the high single digits, but we also foresee higher depreciation costs due to increased capital expenditures in our supply chain and the rise in the number of new stores. These are the primary points for consideration regarding 2026 at this time.
Your next question comes from the line of Lorraine Hutchinson of Bank of America.
Michael, one of your off-price peers is accelerating comps with more focus on marketing, more in-store inventory and a store refresh. Do you see any risk that Burlington will lose market share?
Thank you for your question, Lorraine. It's a pertinent one. While I'm not going to discuss specific competitors, I can address your question in broader terms. We value innovation and fresh ideas and firmly believe in off-price retail. Anything that increases awareness and excitement in the off-price space is beneficial. A strong off-price sector is essential to us, so it's encouraging that our peers are performing well. However, your concern was about the risks facing Burlington. Let's consider two important points. First, when discussing off-price with one another, analysts, and investors, there's a tendency to view it as a distinct segment of retail. However, customers do not see it that way. If they need an item like pants or a dress, they might shop at Burlington or any of our competitors without sticking to off-price. Our own research shows that customers also shop department stores and specialty retailers. They prioritize finding great deals and value over the definitions of off-price. It's crucial for off-price investors to recognize that. The off-price market isn't just three companies fighting for market share; it encompasses a vast, competitive market for apparel, accessories, footwear, home goods, and beauty products. Off-price is merely a fraction of this larger market, and our true opportunity lies in capturing customers from non-off-price retailers. We have been successfully doing this over a long period. To provide some context, we reported a 7% increase in total sales in Q3, following an 11% growth last year. These growth rates indicate that we are gaining market share, as are our off-price peers. However, these gains do not come at each other's expense; they are coming from non-off-price retailers. I believe the transition from traditional full-price retail to off-price will likely continue. The second point is that, despite everything I've mentioned, it is essential for us to keep a close eye on our off-price competitors. They are relevant and operate similar business models. Their success offers valuable lessons for us. We need to be attentive to their new processes, innovative marketing strategies, and in-store ideas. While not all will be applicable to us, we must remain open to new concepts that could enhance our business and the off-price sector overall. In conclusion, regarding your concern about risks to Burlington, I see the off-price sector as quite robust. For 2025, we anticipate an 8% increase in total sales on top of last year's 11% growth. At the upper end of our guidance, we expect to achieve an 18% growth in EPS following a 34% increase last year. Those are strong metrics, and I believe our off-price peers will also continue to thrive, but I don't view that as a risk. In fact, a thriving off-price market benefits us all.
And I wanted to follow up on pricing. Did you take price in 3Q? And what impact did that have on your comp? And then what's your strategy on pricing for the fourth quarter?
Yes. That's a good question. I would sum up our pricing strategy in 3 words. Be very careful. We recognize that because of tariffs, prices are going up across the retail industry, but we will not raise prices unless we've seen them go up elsewhere. And even then, we will test and monitor the impact of those price increases. We've said this many times before, we have a very price-sensitive customer. We know that the reason that they shop at Burlington is that they're looking for a great deal. Our core strategy is to offer great value. And of course, that means keeping prices low. Now our approach to tariffs this year has been to avoid retail price increases and to focus instead on finding other margin and expense offsets. Kristin described those actions earlier. We're very pleased with how that approach has worked. It's allowed us to avoid price increases, but still to grow margin and earnings this year. Now of course, we have tested some things. We've tried some higher prices. And in Q3, when we saw other retailers take prices up, we tested higher retails in some categories. But I would say that those pricing tests were in a very limited number of areas. And mostly the higher retails worked. We saw very little resistance from customers. So going forward, I would say that we will probably get more aggressive, but we kind of have to see what happens in Q4. And also, of course, we need to see what happens with tariff rates going forward.
Your next question comes from the line of John Kernan of TD Cowen.
Michael, sounds like you see an opportunity to take up the number of new store openings and the cadence of growth. Can you expand a bit upon this? What are you seeing in terms of the new store pipeline, both from a real estate perspective and also potential new store productivity?
John, it's Kristin. I'll take this one. We're really pleased with the performance of our new stores across the board, they've been delivering results that are in line or better than expectations as well as our financial hurdles. It really reinforces the strength of our site selection process and the appeal of Burlington really across markets. And it's worth pointing out just some data. Our Q3 comp, of course, was at the midpoint of our guidance, but our total sales growth in Q3 was at the high end of our guidance, up 7%, and this was driven by new stores. And based on our Q4 guidance, our total sales increase is planned at 9% at the high end as we benefit from the slew of new stores we just opened in the third quarter, 73 net new. Now as I mentioned in the prepared remarks, we now expect to open 104 net new stores this year. This is a modest step-up from our original plan of 100 net new. And this increase reflects really two things. First, the ability to pull forward some openings that were originally slated for 2026; and secondly, the strength of our real estate pipeline. Looking ahead to 2026, we're raising that new store target to at least 110 net new stores. This is supported by this robust pipeline, but also by 45 leases we secured from the Joann Fabrics bankruptcy. These incremental sites really give us confidence in sustaining the high level of growth next year. And as for the pipeline for 2027 and beyond, it's still early to provide specific numbers, but I will say we feel very good about the long-term opportunity. Our real estate team continues to identify attractive locations, and we already have a very healthy pipeline for new stores beyond 2026.
Got it. Maybe as a follow-up, obviously, all 3 off-price retailers are resonating strongly with consumers. I liked how Michael framed the industry's opportunity. You're clearly feeling more bullish on the number of stores, maybe a little bit more cautious on comp sales, but more bullish on the potential margin expansion potential for the business. Is that the right way to think about it?
Great. Yes. John, thanks for that question. It's a good question. So 2 years ago, we shared our objective of getting to approximately $1.6 billion in operating income by 2028. The headline is that we feel very good about the progress we're making toward this goal. We're tracking in line with where we thought we would be at this point. And we're especially pleased with the progress we made in driving operating margin at the high end, Michael said this earlier, but it's worth repeating, at the high end of our updated 2025 margin guidance, we will have achieved 170 basis points of the 400 basis points of opportunity that we identified 2 years ago. And we will have achieved this despite the negative headwind from tariffs. So really, to sum up, we're pleased with the progress. But the way you characterized the long-range model and your question is about right. It's true, we're more bullish on new stores, and we are more bullish on margin expansion. On the comp, we still believe we can drive an average annual comp growth of 4% to 5% over the remaining 3 years of the long-range plan, but we recognize that there is external uncertainty, so we are slightly more cautious here.
Question comes from the line of Brooke Roach of Goldman Sachs.
Michael, I'd like to ask you about the trends that you're seeing with the lower income customer. How did these customers perform in the third quarter? And are there any other callouts in terms of customer demographics that are worth sharing?
Thank you for the question, Brooke. We feel very positive about the lower-income customer segment. We've been closely monitoring this demographic all year as it is critical for us. Despite the economic uncertainty and cost of living challenges, we've noticed that lower-income customers have shown great resilience. Our stores in these areas have been outperforming the overall chain for several quarters. Furthermore, other retailers are observing similar trends, with many reporting strength among lower-income consumers. Additionally, I want to mention Hispanic customers as another significant demographic. We've also been monitoring this group closely throughout the year. We operate many stores in areas with a high percentage of Hispanic households. Previously, we mentioned that our stores in these areas have been slightly outperforming the chain regarding comparable growth. However, in the third quarter, that trend has changed, and those stores are now trailing the chain. The changes in performance for these stores vary considerably depending on the specific market and location. Essentially, the situation is very localized, and it's challenging to predict how long these slowdowns might continue.
Great. And then my follow-up would be for Kristin. Kristin, can you give us more color about your guidance for the fourth quarter, both in terms of comp sales and for earnings?
Brooke, thanks for the question. Sure. Let me repeat a little bit. I think it's worth reiterating some of what we described earlier. On comp store sales and total store sales, we're maintaining our Q4 previously issued guidance. So comp of flat to 2% and total sales growth of 7% to 9%. We do, as we said, feel really good about our recent trend in Q4, but it's still early in the quarter. The critical weeks are ahead of us. And in those coming weeks, we'll be up against very strong comparisons from last year. So we'll continue to take a cautious approach on sales. On the margin side, we are increasing our margin and EPS guidance for Q4. We now expect our Q4 adjusted EBIT margin to increase by 30 to 50 basis points. We do anticipate some tariff-driven pressure on merch margin in Q4 but we expect to more than fully offset that pressure and drive overall operating margin expansion in Q4 versus last year. And the drivers of the margin leverage should largely be similar to what we saw in Q3. We expect continued cost savings in freight and supply chain and in store-related initiatives. And finally, we should also see additional leverage in SG&A given the higher incentive comp accrual in the fourth quarter of last year.
The question comes from the line of Alex Straton of Morgan Stanley.
Michael, can you talk about the availability of off-price merchandise as you're heading into the fourth quarter? And then I have a quick follow-up.
Yes. Alex, thank you for the question. I would characterize the buying environment for off-price as very, very strong. Earlier in the year, when tariffs were first introduced, there were some concerns, a lot of concerns about whether vendors would be reluctant to bring potentially excess merchandise into the country. But frankly, those concerns have just not materialized. Even some of the categories where supply was tighter in the summer, categories like housewares and home also housewares and toys have come back. I think that's probably pretty consistent with what you've heard from our off-price peers. There's a lot of great merchandise at great values, and we're taking advantage of it, both to flow to stores and to build up reserve.
Perfect. And then just on the cold weather merchandise in the quarter. Is there any just additional detail you can provide on that dynamic, the impact on the overall comp for the chain? I know you've given a lot of details, but anything else worth highlighting there?
After the back-to-school season, cold weather merchandise becomes crucial to our product mix, accounting for over 20% of our total assortment during the quarter. Cold weather merchandise includes items such as coats, jackets, boots, and accessories like gloves and scarves. These are essential items for colder weather, and our customers tend to buy based on their needs. From September to mid-October, our comparable sales in these categories were down in the negative mid-teens. However, in the last two weeks of October, as the weather turned cold, we saw double-digit growth in comparable sales. Mild weather in September and October affects our business in two main ways. First, there is a direct impact on our overall growth due to lower sales in the cold weather categories I mentioned. Second, milder weather also affects our non-cold weather sales because a customer looking to buy a coat may also purchase other items. If the mild weather discourages them from shopping for a coat, it not only affects coat sales but also impacts other departments. The overall drag on our comparable sales from cold weather categories alone contributed around 200 basis points in Q3. When considering the lower traffic's impact on non-cold weather categories, the total impact on comparable sales could reach a few points. This aligns with the observation that once the weather turned cold in late October, we experienced a recovery to mid-single-digit comparable sales growth.
Your last question comes from the line of Mark Altschwager of Baird.
Kristin, could you give us some more detail on regional trends, category trends as well as any of the detailed comp metrics for Q3?
Mark, yes, absolutely. In terms of regional performance, the Southeast was our strongest region in the quarter. The West, Northeast and Midwest were in line with the chain, while the Southwest trailed the chain. On category performance, we saw the strongest performance in beauty, accessories and shoes. Apparel comp slightly above the chain, while home was softer, comping below the chain in Q3. In terms of the comp metrics, our traffic was down in the third quarter. That was largely driven by September and early October when weather was unseasonably warm. And this lower traffic was offset by a higher average basket size. So for the quarter, we were pleased to see that both conversion and basket size or average transaction size were higher than last year. So this tells us that once she's in the store, she liked what she saw.
Excellent. And then, Michael, as we look at the Q4 comp guidance, do you view that as conservative just given typically less weather sensitivity in the fourth quarter?
Mark, when we provide comp guidance, we sometimes indicate if we believe there may be upside. However, I don't see much upside in our Q4 comp guidance. The reason is that we are comparing against a 6% comp growth from Q4 last year. If you consider our guidance of 0% to 2%, that results in a 2-year stack of 6% to 8%. We exceeded that in Q2 of this year, but did not meet it in Q3. Additionally, based on how I interpret the guidance from our off-price peers, they appear to be slightly below us on a 2-year stack basis. While we are pleased with our recent trends and our start to the quarter, and we are excited about our holiday assortments, we are not expecting significant upside to our Q4 comp sales guidance at this time.
I'd now like to hand the call back to Mr. Michael O'Sullivan for final remarks.
Let me close by thanking everyone on this call for your interest in Burlington Stores. We would like to wish you all a very happy Thanksgiving. We look forward to talking to you again in March to discuss our fourth quarter and full year 2025 results. Thank you for your time today.
Thank you for attending today's call. You may now disconnect. Goodbye.