Ladies and gentlemen, thank you for standing by, and welcome to Burlington Stores, Inc.'s second quarter 2021 earnings webcast and conference call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your host today, David Glick, Group Senior Vice President, Investor Relations and Treasurer. Please go ahead. Thank you, operator. Good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2021 second quarter operating results. Our presenters today are Michael O'Sullivan, our Chief Executive Officer, and John Crimmins, 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 September 2nd, 2021. We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties. Our remarks in 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 for fiscal 2020 and in other filings with the Securities and Exchange Commission, 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. Here's Michael O'Sullivan. Thank you, David. Good morning, everyone, and thank you for joining us. We are going to structure this morning's discussion as follows. First, I will review our second quarter results. Second, I will discuss the outlook for the second half of fiscal 2021. Third, I will share some comments on our Environmental, Social, and Governance initiatives and our most recent corporate social responsibility report. After that, I will hand the call over to John to walk through the financial details. We will be happy to respond to any questions. As a reminder, the results that we discuss today are being compared to the equivalent period in 2019. Given the impact of the pandemic last year, our 2020 results do not provide a good basis for comparability. Okay, let's talk about our results. Total sales grew 34% in the second quarter, which followed a 35% increase in Q1. Think about that. We grew our sales by over a third versus the first half of 2019. This is compelling evidence that our Burlington 2.0 initiatives are working and that we are taking significant market share as the consumer and the broader economy begin to recover from the COVID-19 pandemic. Now, I will talk about Comparable store sales. Comparable store sales in the second quarter increased 19%. We believe that there were several factors that drove this very strong comp performance. These factors included, number one, the residual impact of the federal stimulus payments that were distributed in March. Number two, pent-up demand as the COVID vaccines became more widely available during the quarter and consumer spending picked up. Number three, the beginning of the monthly Child Tax Credit payments in July. Number four, our own very strong execution of our Burlington 2.0 strategies. Turning to category and regional performance, once again, our strength in the second quarter was very broad-based. All of our major merchandise categories easily outperformed their plans, and Comparable store sales in all regions of the country were well ahead of our expectations. Our gross margin in the second quarter increased by 80, that's eight zero, basis points. This was despite a 120 basis point increase in freight expense. Of course, this means that our merchandise margin grew by a very robust 200 basis points. This increase was once again driven by lower markdowns. The buying environment in the second quarter was very favorable, and we were able to find great merchandise values to flow to stores and to fuel our ahead-of-plan sales trend. At quarter end, our in-store inventory levels were down 7% on a comp store basis. This is a relatively modest decrease compared to recent quarters. It reflects a deliberate strategy. In fact, we chose to accelerate back-to-school receipts to ensure that global supply chain challenges did not impede our ability to take advantage of the sales opportunity that we see for the back-to-school period. To better understand how we managed our inventories during the second quarter, it is more instructive to look at our average weekly comp store inventories. These were down 25% during the quarter. For the balance of fiscal 2021, you should expect to see similar double-digit decreases in comp store inventory. As you know, this is a core element of our Burlington 2.0 strategy to run with leaner inventories and to ensure a fresher assortment in front of the customer. Reserve inventory was 31% of our total inventory at the end of the second quarter versus 33% in the 2019 period. This end-of-quarter metric does not convey the full story. We have continued to significantly expand our use of reserve inventory as a tool to chase the sales trend. Our reserve receipts during Q2 increased 86%, while our reserve releases increased 64%. There is a lot more movement in and out of reserve than there was in 2019. In the second quarter, we were able to make some great opportunistic and strategic buys to put into reserve. At the same time, we moved up the release of other goods from reserve to fuel our strong sales trend. Moving on to new store performance. We are very pleased with the initial rollout of our new smaller store prototype. During the spring season, we opened 16 stores that were 30,000 sq ft or less, and the early results are extremely encouraging. As you know, we expect this smaller format to become our main new store prototype over the next couple of years. As a point of information, one of these recent openings is in Patchogue, N.Y. This is fairly close to those of you who live in the New York City area, so I encourage you to visit, walk the floor, spend some money, and of course, let me know what you think. In a moment, I will talk about the outlook for the rest of the year. But before I do that, now that the results of the second quarter are in, I would like to briefly review our performance for the year to date. In other words, for the spring season as a whole. As a retailer, we break the year into 2/2, building our plans and strategies for the first half of the year, the spring season, and then separately building our plans and strategies for the second half of the year, the fall season. I think it is helpful and instructive to step back and ask, how well did our strategies work in the spring season, and how well did we execute on these strategies? Also, by looking at the season as a whole, this naturally flattens some of the timing issues that can affect or distort one quarter or another. How did we do? For the spring season, Q1 and Q2 combined, our top-line sales growth was 34%. Our Comparable store sales growth was 20%. Our operating margin grew by 240 basis points, and our Adjusted Earnings per Share was ahead by 73%. Look, we know this was not all us. There were one-time factors such as the federal stimulus payments and the release of pent-up consumer demand. There is no doubt that these one-time factors helped drive our results. They helped drive every retailer's results. That said, we feel very good about our own performance on an absolute and on a relative basis. With that said, let me turn to our outlook for the second half of fiscal 2021. Based on our stronger than expected year-to-date results, we have increased our baseline plan for Comparable store sales for the fall season as a whole from our previous plan of flat to a new plan of plus 10% comp growth. We are already three and a half weeks into the quarter, and I am happy to report that our August month-to-date sales trend is currently running well ahead of this. We are chasing the trend, we have growing confidence that we will exceed this 10% hurdle for Q3. As we get further into the quarter, we will update and adjust our baseline plan. For now, there are significant reasons to remain cautious. At this point, the surge in COVID-19 cases driven by the Delta variant shows no signs of letting up, and it is unclear what impact this may have on consumer spending in the weeks ahead. In this environment, it makes sense to plan our business conservatively and then adjust as we learn more. Throughout this year, we have demonstrated our extraordinary ability to chase the sales trend. We will do the same in the fall season if the sales trend is there. Moving on from the sales outlook, I would like to spend some time talking about the extraordinary freight and supply chain expense pressures that we are seeing. For several quarters now, there has been a significant imbalance in global transportation systems between demand and available capacity. This has caused unprecedented volatility and disruption in deliveries of merchandise across all sectors of retail, and it has caused a significant spike in international and domestic freight rates. As we move into Q3 and the peak period for retail deliveries, the situation is getting much worse. Again, this is not at all unique to Burlington. These conditions are affecting all retailers. Based on our experience and success so far this year, we are confident that despite these issues, we will be able to get timely receipt of the merchandise that we need to support our trend. In doing this, we expect to incur significantly higher freight and supply chain expenses. As John will detail in a moment, we are anticipating some offsets to these higher expenses. In particular, continued markdown savings driven by faster inventory turns and leverage on other expenses if we achieve our sales plans. Overall, these higher logistics costs will put significant pressure on our operating margins. Before I leave this topic, it is important to make the point that the issue I have just described, the huge imbalance between demand and available capacity in transportation systems, is being driven by short-term factors. On the one hand, the surge in consumer demand in the U.S., and on the other hand, the limited capacity of domestic and international transportation systems, further hampered by labor shortages and restrictions associated with the pandemic. We do not believe that this imbalance or these factors are permanent. It will not happen right away, but we expect these issues to normalize over time. As they normalize, we would anticipate that freight rates will come back down. We also believe that if the situation normalizes, there could be a significant backlog of merchandise that makes its way into the off-price channel. Okay, before I turn the call over to John, there is one other very important topic that I would like to touch. Earlier this week, we published our third annual corporate social responsibility report. We are very proud of this report and the accomplishments and progress that it describes. As a company, we recognize that driving shareholder value is extremely important, but it should not be the only thing that we focus on, and it cannot be the only objective that we measure ourselves against. We have a much broader set of responsibilities to our associates, to our customers, and to the communities that we serve. These are all critically important stakeholders. We believe that by serving these stakeholders, we will build a stronger, better, and more sustainable company, and that in doing this, we will further enhance and drive shareholder value over the longer term. The Corporate Social Responsibility report that we published earlier this week is intended to back up these words with specific details on the programs that we are pursuing and data on the progress that we are making. It covers important topics like inclusion and diversity, community outreach and support, and environmental sustainability. To be clear, while we are proud of our commitment and our accomplishments, we regard this as a journey, and we know that we have plenty of work still to do. I would encourage you all to take a look at the report, which is available on our investor relations website, and I invite you to follow up with us if you have questions or would like more information. Now, I would like to turn the call over to John to provide more detail on our second quarter financial performance. John Crimmins. Thanks, Michael, and good morning, everyone. Let me start with a review of the income statement. As a reminder, the results we discussed for the second quarter of fiscal 2021 are being compared to the second quarter of fiscal 2019. For the second quarter, total sales grew 34%, while comparable store sales increased by 19%. The gross margin rate was 42.2%, an increase of 80 basis points versus 2019's second quarter rate of 41.4%. This improvement was driven by an approximately 200 basis point increase in our merchandise margins, which was attributable primarily to a reduction in markdowns. This merchandise margin improvement more than offset the significant increase in trade expense, which was approximately 120 basis points higher than 2019's second quarter rate. Product sourcing costs, which include the cost of processing goods through our supply chain and buying costs, were $146 million versus $82 million in the second quarter of 2019, increasing 160 basis points as a percentage of sales. Higher supply chain costs accounted for nearly all of the deleverage. The drivers of this expense pressure were consistent with what we had seen in Q4 and Q1, higher wage rates and wage incentives, and the disruption in the flow of receipts across the global retail supply chain. Adjusted SG&A was $550 million versus $441 million in 2019, decreasing 170 basis points as a percentage of sales. SG&A leverage was primarily due to leverage in occupancy and store payroll. Adjusted EBIT margin increased to 8.3%, 110 basis points higher than the second quarter of 2019. All of this resulted in Diluted Earnings per Share of $1.50 versus $1.26 in the second quarter of 2019. Adjusted Diluted Earnings per Share were $1.94 versus $1.36 in the second quarter of 2019, an increase of 43%. During the quarter, we opened eight net new stores, bringing our store count at the end of the second quarter to 792 stores. This included 11 new store openings, one relocation, and two closures. This brings us to total store openings of 37 gross and 31 net for the spring. We still expect to open 100 new stores in fiscal 2021, while closing or relocating 25 stores for a net addition of 75 stores. We ended the period with available liquidity of approximately $1.9 billion, including approximately $1.3 billion in unrestricted cash and $534 million of availability on our Asset-Based Lending. Our total balance sheet debt is now $1.8 billion, which includes $961 million on our term loan and $805 million in convertible notes with no outstanding balance on our ABL. During the second quarter, we executed a make-whole call for the $300 million outstanding of our 6.25% 2025 senior secured notes. Additionally, during the second quarter, we refinanced our term loan, extending the maturity to June 2028 from November 2024, while our interest rate spread increased modestly by 25 basis points to London Interbank Offered Rate plus 200 basis points. We continued to remain hedged on $450 million of the $961 million notional value. We extended our current interest rate swap through a blend and extend transaction, moving the maturity of the swap out to June 2028 and lowering the LIBOR rate on the swap from 2.72%-2.19%. Our previous share repurchase authorization expired earlier this month, and our board recently approved a new $400 million authorization that expires in August 2023. As we've said in the past, our first priority remains investing in our long-term growth in reducing our leverage. We are pleased with the recent reduction in our leverage and the progress we've made over the last nine months, paying down the $400 million previously outstanding on our ABL by the end of fiscal 2020 and retiring our $300 million in senior secured notes in June. Looking ahead, we are focused on deploying excess cash where we see the most accretive use. Now, I will turn to our outlook. Despite the recent strength of our business, the outlook remains very unpredictable, so we are not providing specific sales or earnings guidance for the remainder of fiscal 2021. As we did on our last earnings call, we would like to share some high-level comments on how we are thinking about our financial performance for the second half of 2021. Like other retailers, we are seeing significant incremental pressure from freight and supply chain costs. As we discussed on our first quarter call, these pressures impact us primarily in three areas. First, ocean freight. The capacity versus demand imbalance for all imports has continued to worsen and has driven related costs well past what we had been anticipating. These higher rates affect our margin on all merchandise, the small portion of our business that we directly import, and the merchandise that is imported by the vendors we buy from. Second, domestic freight. A very similar story. Demand far exceeds supply for all modes of transportation. As the situation has continued to worsen, rates have continued to escalate well past what we had been anticipating. Third, supply chain costs. As demand has far exceeded what most retailers have planned for, the competition to increase staffing levels to meet the higher volumes has driven wages higher again. Our expected increase in supply chain costs is driven partly by additional base wage increases, partly by temporary incentives, and partly by inefficiencies caused by the overall disruption in the global supply chain. With that as background, let's move to some specifics. As Michael mentioned earlier, we will continue to plan sales conservatively and adjust our business to the trends that we see, just as we did in the first half of fiscal 2021. Our current baseline comp sales plan for the second half of the year is a 10% increase. As Michael mentioned earlier, given our strong start to the quarter, we have growing confidence that Q3 may exceed this hurdle, but we will keep our fall baseline comp sales plan at 10% until we are further along and have better visibility as to what to expect in the fourth quarter. Based on this revised comp store plan for the fall season, combined with our better than expected Q2 comp sales results, we are now planning for a full year comparable store sales increase of 14% versus our previous plan for a 7% increase. As you think about total sales growth for the full fiscal year versus FY 2019, remember to factor in two years of new stores over this time period. We opened 31 net new stores during the first half, and we expect to open 44 net new stores in the second half of this year, primarily in Q3. The growth in new store and non-comp sales, combined with our updated full-year comp baseline assumption of 14%, would potentially deliver approximately 28% total sales growth for the full fiscal year. Given the dynamic and volatile cost environment we are facing, it's difficult to provide specific margin metrics for the balance of this year. However, we thought it might be helpful to share some of our internal modeling assumptions for Q3. If we were to hit our baseline comp sales plan of 10% in Q3, then our modeling suggests that our EBIT margin would decline by approximately 250 basis points, driven by 450 basis points combined freight and product sourcing cost deleverage. Offsetting that cost pressure, we would expect 200 basis points of combined merchandise margin expansion and SG&A expense leverage. On our last earnings call, we shared that with the Q1 results and our planning assumptions of 10% comp in Q2 and flat comp in Q3 and Q4, we would have expected a full-year EBIT margin decline of 20-30 basis points compared to fiscal 2019. Now, after factoring in our Q2 results, our new 10% comp sales planning assumption for the fall season, and the significant incremental freight and supply chain cost pressures, our modeling assumptions result in relatively flat EBIT margins for fiscal 2021. We do expect most of the deleveraging impact of freight and supply chain costs to be temporary. When the global supply chain capacity and demand are more in balance, we would expect to see an operating margin tailwind, but it's not yet clear when to expect that to happen. Two final points before I turn the call back to Michael. First, please keep in mind that these comments we are making on our planning assumptions are intended to help you understand how we are modeling our business. As we said earlier, we expect the business environment in the second half of the year to continue to be very difficult to predict for sales demand and for freight and supply chain costs. Our planning assumptions are based on estimates that may not be accurate. Second, we wanted to reinforce a point we made on last quarter's call. As you update your model for 2022, it will be very important to back out the impact of one-time sales benefits from external factors, such as the federal stimulus checks in Q1, the pent-up demand we saw in Q2, and the additional benefit from the Child Tax Credit for the balance of 2021. Of course, we will provide more information on our 2022 sales outlook later this year or early next year. With that, I will turn it over to Michael for closing remarks. Thank you, John. Let me wrap up my remarks by congratulating the entire Burlington family for our exceptional performance in the second quarter and the first half of fiscal 2021. As I have said before, this is a really exciting time to be at the company. We have very strong momentum. We are building and strengthening our team, and we are achieving results that are at the top of our retail peer group. Our 34% total sales growth year to date reinforces our confidence in our ability to take significant market share over time. Meanwhile, despite the temporary expense headwinds that we are facing, we remain very excited about our ability to significantly expand operating margins over the next few years. With that, I will turn it over to the operator for your questions. Operator? Thank you. As a reminder, to ask a question, you will need to press star then one on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Matthew Boss. Your line is now open. Great. Thanks, congrats on another nice quarter. Michael, maybe first on the top line, could you just help quantify or provide any additional color around some of the factors that drove your second quarter comp growth? Sure. Well, good morning, Matt. Thank you for the question. As you'll probably recall, for the first quarter, we estimated the impact of the federal stimulus checks as being worth 10-15 points of comp growth. That analysis was fairly straightforward. The checks were sent out over a very short time period in March of this year, and we could see the sales lift in the days and the weeks that followed. The analysis wasn't hard. We're fairly confident about that estimate. For Q2, as I said in the script, there were several factors that we think drove our comp growth, including probably a residual impact from those stimulus checks, plus pent-up demand as life started to get back to normal in Q2, and then the Child Tax Credit payments that were made later in the quarter. We certainly tried to quantify the impact of each of those, but it was much more difficult. For example, how do you quantify pent-up demand? We don't really have an estimate that we can share for Q2. Nevertheless, I would say, we're fairly sure that the impact of those items was pretty significant. The reason that that's important is that all of those items are non-recurring. This year, these factors have been like a rising tide. They've lifted all retailers. In 2022, we would expect that that tide is going to recede. As John said earlier, as you think about your sales models for 2022, it'll be very important to back out the significant impact of those one-time items, not just for us, but for every retailer. Great. Maybe just a follow-up on freight and supply chain expenses for John. Could you just help provide some color on the higher freight and supply chain expenses that you're seeing today? Maybe more so, what makes you think that these costs are temporary? Well, thanks, Matt. Good morning. It's a really good question. I think it's worth taking a couple of minutes to explain in some detail what we're seeing. Coming into this year, we and really all of the retailers were tentative and somewhat conservative in our sales plans. Nobody was really sure what to expect. Driven by the government stimulus payments, pent-up consumer demand, and other one-time factors, sales levels across the retail industry have gone well beyond what anyone would have expected six months ago. Faced with this surge in demand, all retailers have been competing with each other for capacity along really every link of the global supply chain. The competition for that capacity has driven rates to unprecedented levels. Just an example, the spot rate for shipping a container from China to a West Coast port shortly before the pandemic had been running around $1,500. To do that now costs $15,000, and the rates are still increasing. There aren't enough containers. There aren't enough ships. There aren't enough trucks or trains. There's more volume now than any part of the supply chain pipe can adequately handle. Every piece of the pipe is slower, and there are backlogs to work through every step of the way. To work around these issues, most retailers have increased their orders and tried to accelerate them ahead of the fall and holiday season. This has even further increased the pressure on the supply chain, helping to drive even higher rates. The companies that can afford to, the additional costs are worth incurring temporarily, because even after covering these costs, the added operating profit is accretive, even if it temporarily hurts operating margins. Temporarily may be the key word in this situation. We believe, and most economists seem to agree that this situation will moderate over time as demand subsides and as capacity is added. Like many others, we think the global supply chain issues will likely carry into next year, but at some point, the imbalance between demand on the one hand and capacity in the other will start to correct itself. When this happens, we would expect freight and the rest of the temporary costs related to the disruption and the DC labor shortage to become a tailwind for most companies, including us. Remember, while it continues, we do expect the disruption to help us to be able to continue to find plenty of terrific merchandise values for our customers. Thanks for all the color, and congrats again on the continued momentum, guys. Thanks, Matt. Thank you. Our next question comes from the line of Lorraine Hutchinson. Your line is now open. Thank you. Good morning. John, you achieved similar comp growth in the first and second quarters, but your operating margin expansion was much stronger in 1Q. Can you take us through the factors that drove this difference between the quarters? Sure. Good morning, Lorraine. Thanks for the question. Let me just frame the question a little bit, and then I'll answer it. EBIT margin expanded 360 basis points in the first quarter and only 110 basis points in the second quarter. That's about a 250 basis point difference, obviously, on a very similar comp level. Why is that? Gross margin was really the key driver of the difference, expanding only 80 basis points in the second quarter versus 230 basis points in the first. That's 150 basis points of the difference. Markdowns were the big driver of the gross margin difference, and this wasn't unexpected for us. You may remember that during the first quarter call, we said that the markdown improvement in Q1 would not be sustainable. Q1 was kind of unique. We were comparing to a first quarter of 2019 that had quite a bit of clearance activity. Historically, first quarter had been a weak gross margin quarter for us. We often carried over holiday clearance merchandise from the fall, which dragged our first quarter margin down, and this did happen to us in the first quarter of 2019. In the first quarter of 2021, we started with incredibly fresh and lean inventory. With the well above plan 20% comp of the first quarter, our inventory turns increased nearly 60%, which we also said would not be sustainable. It turns out we were right. Our inventory turns did slow down in Q2, but they still improved by a very respectable 49%. Aside from gross margin, the remaining 100 basis points difference was largely driven by less SG&A leverage. Most of that was driven by less advertising leverage in Q2 compared to Q1 and more deleverage from its incentive comp in the second quarter. Thanks. My second question is for Michael, related to pricing. Several retailers have talked recently about taking up prices to offset some of these cost pressures. What are you seeing in terms of pricing in the market, and could this be an opportunity for Burlington as well? Well, good morning, Lorraine. Great to hear from you. I would say that we are very skeptical about the ability of retailers to sustainably raise prices across the categories that we compete in. There are really two reasons for that skepticism. Firstly, it's important to draw a distinction between higher realized prices in the short term versus permanently higher prices longer term. It's clear the inventory levels across the retail industry have been very lean this year, and as a consequence, there's been very little promotional activity. That means that realized prices have been higher for many retailers. We just don't think that's sustainable. The realized prices are higher because inventories are lean, but the only reason that inventories are lean is that there's been a huge surge in consumer demand at the same time as supply chains have been constrained. We think that when the situation normalizes, it's likely that realized prices will come back down to more like historical levels. That's the first reason we're skeptical. The second factor that may be feeding into this is the spike in freight and supply chain costs. If you believe that those costs are permanent, then I think you could make a good case that retailers may try to pass those costs on in the form of higher prices. As we said in the remarks and as John just described, we think those costs are mostly about a moment in time, a short-term imbalance between demand and capacity. Just picking up on one of the data points that John shared earlier, ocean freight rates are about 10x higher now than they were in 2019. That is not because operating a ship or paying a dockyard worker is 10 times higher. It's because demand exceeds capacity. That imbalance won't last. It will normalize. We think a price increase that's based on those short-term costs, again, is just not likely to be sustainable. That's our assessment. Now, let me wrap up my answer by saying we could be wrong. Maybe prices across retail really will move up in the next year or two, and to be clear, we wouldn't mind at all. For an off-price retailer like us, that would be terrific. It would help to further expand our value differentiation. Through the lens of Burlington 2.0, we would see this as a great opportunity to drive sales, not to drive margin, but to drive sales. Thank you. Thanks, Lorraine. Thank you. Our next question comes from the line of Ike Boruchow. Your line is now open Hey, good morning, Michael, John, David. Michael, question for you to start. Just a couple of long-term questions, actually. Just, I guess, based on the comments today, I'm curious if you could help us on how you're thinking about 2022. Given what you're up against in 2021, is there a way you could help us understand how you are planning the business next year in any way? Good morning, Ike. Yeah, thank you. It's a very good question. Having just done a 20% comp for the spring of 2021, it is pretty challenging to think about, well, how should we plan spring of 2022? We're getting to a point where we're starting to work on that because, typically, as we move into October, November, we start working on our plans for the following spring. I don't have a lot of details to share, but let me do this. Let me offer up a possible scenario for 2022 in terms of what the year could look like. Ike, we think that it's possible that 2022 will be a very difficult and turbulent year across the retail industry. I'm not saying that with any sense of doom or pessimism. On the contrary, difficult and turbulent years in retail are often very good for off-price. As I sort of lay out why we think the year could be difficult, you should interpret this as me feeling upbeat and not the opposite. Really two reasons why I'm saying I think 2022 could be a difficult year in retail. The first reason we kind of touched on earlier. In 2021, every retailer has benefited from significant one-time items that have driven much higher sales levels than they otherwise would have achieved. When retailers anniversary those items in 2022, comps could well turn negative. In fact, mathematically, that seems very likely. Secondly, in 2021, that surge in sales was accompanied by global supply chain constraints, and very lean inventory levels, which means that many retailers have seen just a remarkable recovery in margins Again, if you scroll forward to 2022, if consumer demand does fall off, it's likely that those supply chain constraints are going to ease. You could see an increase in the flow of merchandise into the country at the very time that comp sales trends have turned negative. The scenario I've just described, a negative sales trend across retail, and a looser supply of merchandise, could create huge disruption. The consequences for off-price and for Burlington 2.0, in particular, we think could be very favorable. It could offer the potential to further accelerate our ability to take share. I don't want to oversell the scenario I've just described. The past 18 months have demonstrated there are serious hazards to anyone making predictions. That actually, that's kind of the point. For 2022, given the uncertainty, we think that we're going to need to be very flexible and very nimble so we can respond to any scenario we face, including the scenario I've just described. If there's an opportunity, so that we're in a position to take advantage of it. Got it. A follow-up, actually, just you teed it up pretty well. To take advantage, it seems like you're having a lot of success with the Burlington 2.0 strategy. Are there aspects of the strategy that you could accelerate or leverage you guys could pull or accelerate going forward, if this is in fact how the environment actually shakes out? Yes, it's a really good question. In fact, for the last several months, I've been working with the executive team on exactly this question. Can we move faster? I don't have a detailed answer. Let me offer up a few comments. Number one, we're mindful that we're building a company for the long term here, where everything we do needs to be done in a very high-quality way. We're not going to accelerate anything, if we have to compromise how well we do it. That's point number one. Point number two, I would say, is that there are areas where if the opportunity presents itself, then we will absolutely move faster. The best example of this is the investment we're making in our merchandising organization. If we see strong talent in the market or a stronger flow of talent in the market, we'll move on it very quickly. We won't be held back by existing hiring plans or budgets. I guess the third point is that there may be some other initiatives that we can accelerate, but we need to do more homework first before we make a decision to formally adjust our plans.The key thing, I guess, bringing it back to this year, the key thing is that for the balance of 2021, we need to focus heavily on doing what we've been doing, offering great value, planning the business conservatively, and being ready to chase. We'll certainly, in parallel, sort of work on some of those longer-term opportunities and possibly accelerating some of those longer-term opportunities. Our main focus for the next six months needs to be to keep doing what we're doing. It's been a winning game for us so far this year. Yeah. Thanks so much. Thank you. Thank you. Our next question comes from the line of John Kernan. Your line is now open. Good morning, Michael, John, David. Congrats on strong execution and huge market share gains here. Hi, John. I have a couple questions for John. First, can you give us more color on the operating margin outlook based on the freight and supply chain costs? It sounds like for the full year 2021, you expect operating margins to be flat on a 14% comp. How do we think about the margin structure going forward? Do you still see the same opportunity you saw several months ago to increase margins over time? Okay. Well, first of all, good morning, John. Thanks for your question. I'll start with the first part, this year's EBIT margin. Back in May, when we spoke, we shared that freight and supply chain costs were rising faster than what we had originally planned for. While we had planned for these costs to continue to increase, we underestimated the magnitude of the increase. It looks considerably worse now than it did then. Today, we shared our Q3 adjusted EBIT margin outlook at down 250 basis points on a 10 comp. Our updated full-year adjusted EBIT margin plan implies a similar decline for Q4 based on our updated fall comp plan of 10%. Our strong first half margin rate performance is being roughly offset in the back half as we do expect operating margins to be down by over 200 basis points if we perform in line with our 10% comp planning assumption for the fall. Yes, assuming a 10% comp performance for the fall, we would expect our operating margin rate to be flat. This full-year performance is driven by 450 points of deleverage, mostly from freight and supply chain costs, and to a lesser degree, by incentive comps costs. We expect to be able to fully offset these costs with about 450 basis points of combined gross margin expansion driven by lower markdowns and leverage on SG&A costs. While the impact of these incremental costs on this year's operating margin is disappointing, there are a few other things to keep in mind. Our updated planning assumptions that we shared today, if realized, would deliver 28% total sales growth. With a flat operating margin, that would mean 28% EBIT dollar growth also. As we've mentioned a few times today, we think that with the exception of some permanent changes in Distribution Center wage rates, the rest of the drivers, the 450 basis points of deleverage are temporary. We estimate the DC wage deleverage impact in these estimates to be less than 100 basis points of that 450 basis points. For the second part of your question, how do we think about operating margins going forward? Well, we still see fundamentally the same long-term operating margin opportunity that we've been describing. We expect freight and supply chain costs to improve. We expect to continue to drive faster inventory turns, which should result in lower markdowns. We expect to see occupancy leverage increase accelerated by our new smaller stores. We see opportunities to drive better operational efficiency, creating other expense leverage. Yeah, we still see the same path to the continued operating margin expansion that we've been talking about. Got it. That was a lot of detail. Thank you. I have another one for you, John. It sounds like you're excited about what you're seeing with the new, smaller prototype. Is there any more you can tell us about the new store format? Any detail on how the unit economics of these stores compare to the older, larger format? Thanks, John. We're really excited about the performance of all of our new stores, but particularly the 16 stores we opened this spring that are 30,000 sq ft or smaller. Most of them are about 25,000 sq ft. Some of them are actually a bit smaller. On average, this group of new stores that we opened this spring are running well ahead of our underwriting targets. It's also true for the group of smaller stores. One of the most exciting things about this smaller store format is the potential it has to help us improve leverage on occupancy costs. As I just mentioned, it's a big part of our long-term margin opportunity. The hypothesis has always been that if we can drive similar sales volumes in smaller, less expensive boxes, that's going to help us drive operating margin expansion. Still early days, what we've seen so far with the new batch of smaller stores is really encouraging, and it only strengthens our confidence in the potential of the new format. Now that we have several of these stores open, we should have enough of a sample to begin to work through the learning curve of how to best operate in the smaller size. The economics in the new stores should be a great operating margin tailwind, and the availability of boxes in this size range should provide plenty of very attractive sites for future new stores. Yes, we're really pleased with what we've seen so far this year. Awesome. Thank you. Thank you. Our next question comes from the line of Kimberly Greenberger. Your line is now open. Okay, great. Thanks so much. Very nice quarter here. I wanted to just come back to one of the comments that you've made on the call today, that August here is running well ahead of the 10% comp plan here for the third quarter. I'm wondering if you can just give us a little more color on trends here for Q3. What are you seeing in your business? As you look out to the balance of Q3, I know you'll monitor the business, but what are the risks and opportunities as you see them for the quarter? Sure. Good morning, Kimberly, it's Michael. I'll take that question. It's a good question, and I would concede that ordinarily, after such a strong start to the quarter, we would have taken up the plan for the quarter by now. In this particular situation, we're being a little cautious, I think, for two reasons. The first, I kind of mentioned in the remarks, the surge in COVID cases related to the Delta variant. Now so far, there's absolutely no evidence that that's had any impact on our business. If the situation deteriorates, then obviously that could change. That's one reason to be a little bit cautious. The second reason we're being a little bit cautious is the third quarter, much more so than any other quarter of the year, weather really matters. I know we talked about this before, given our legacy as Burlington Coat Factory, I would say that for good or bad, weather affects us in the third quarter more than it does most other retailers. When the weather turns cooler, shoppers naturally think of outerwear. If the weather turns cooler earlier in the quarter, then that really helps us versus other retailers. If on the other hand, it remains warmer till later in the quarter, then that can hurt us. Right now, most of the long-range forecasts, weather forecasts, are saying that October and even November could be unusually warm. We never really know how much space to place in those forecasts, so that they could be wrong. It makes sense for us, given that outlook, to be cautious in Q3. If the forecasts are wrong, we know that we can chase, and actually, in our reserve inventory, we have a pretty good outerwear position. If the weather did turn cooler sooner, we would chase the trend. Fantastic. That's great color, Michael. Thank you for that. John, just a follow-up on that. If in the third quarter, for example, you were able to deliver a 15 comp instead of your 10 plan, and maybe just take it to the second half of the year, how would that change your outlook for the operating margin decline? Sure, Kimberly. Good question. I'm going to answer the question in two pieces. If we were to perform at a 15 comp, obviously, that would give us an opportunity to get some additional leverage on our fixed cost base, that component of SG&A, on which we're already showing really good leverage. It would also help our gross margin performance. We would expect to drive even lower markdowns on a higher sales demand. That part of the way that we would typically think about our flow-through on incremental sales is very much in place. It's even there if you look at the 10 comp, even though it's a flat margin, you were getting 450 basis points of leverage on a full-year performance on our SG&A and on our gross margin. It's just all been eaten up by the product sourcing cost, supply chain cost, and some incentive comp. We're very comfortable with that part of our algorithm. The freight and supply chain costs are very difficult to predict. I don't want to give you an exact how it would flow through, because we just don't know. We think we have some pretty conservative assumptions in here, realistic. It's just not clear how that situation is going to play out, and that's why we've stayed away from giving specific guidance. Understood. Thank you so much. Thank you. Thank you. Thank you. Our last question will come from the line of Michael Binetti. Your line is now open. Hey, guys. Add my congrats on a nice quarter. Thanks for all the detail here today. The merch margins were 200 basis points up in 2Q, but they were up less than 1Q. I'm curious, Michael, if you'd just maybe give us some comment on what drove that moderation. I think you said 3Q would be 200 basis points from both merchandise margin and SG&A leverage. It seems like you're baking in further moderation of the merch margin in the third quarter and the second half. Given how tight supply chains are and inventories that you'd spoken to getting backed up into the market, I'm trying to think what would be some of the incremental headwinds to merch margin as you look ahead to the plan in the second half. Good morning, Michael. Everything you said is correct in terms of the comparisons of the quarters. We saw a nice merch margin improvement in Q2, but it wasn't as big as the improvement in Q1. That's really driven by the point that John was making earlier, that Q1 was the anomaly. Q1, we were much cleaner coming into Q1 than we've been historically. As a result, we took far fewer markdowns in Q1. That was really what drove that difference between Q1 and Q2. Looking forward to the back half, obviously our back half baseline comp assumption is a 10% comp. If we do a 20% comp in the back half of the year, I would be expecting much stronger inventory turns, much stronger markdowns, and that would drive a stronger merch margin performance than we've indicated. Linking this, though, to the point you were making about availability of merchandise, I would say that so far this year, availability has been pretty good. Across our business, we've had no problem overall chasing our receipts. We started the year with a flat comp as a plan, we've obviously run a 20, we've been able to find the goods. As I think about the backlog in supply chains, I think the availability is going to get better, much better, even than the pretty good availability we've seen. I think that improvement in availability may not happen for a few months. We're going to get to a point here, probably in October, something like that, when goods that have been ordered that haven't arrived in the United States aren't going to make it for holiday. I think at that point it could be a good buying opportunity for off-price. We'll see. A lot of that merchandise we would end up putting in reserve anyway. We do think that there's going to be some opportunities in the months ahead. Thanks for that, Michael. Is it safe to say that on the packaway inventory and the channels, you spoke about it, I think earlier in the remarks, you mentioned your intake of reserve inventory was up, I think, 86%. Would that suggest that in August you're seeing the ability to continue bringing in reserve flows at a bit of a slower pace, but you have confidence that it picks up through the quarter? Or what kind of a pace relative to that 86% did you assume as you thought about the 10 comp? Yeah, it's a good question. We're kind of assuming that reserve inventory over the next month or two is going to come in at a similar rate to what we've been experiencing. We do think that there's a buying opportunity down the road, probably, though, for merchandise that we wouldn't necessarily flow to stores, so it wouldn't necessarily hit the 10 comp. Some of it might, most of it might be packed away for next year because it would be seasonal merchandise. Okay. Thanks a lot again, guys. Thanks, Michael. Thank you. This concludes today's question and answer session. I will now turn the call over to Michael O'Sullivan for closing remarks. Thank you, everyone, for joining us on the call today. We appreciate your questions and your interest in Burlington Stores. We look forward to talking to you again in November to discuss our third quarter results. Thanks again. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.