Good day, ladies and gentlemen, and welcome to Burlington Stores' Third Quarter 2021 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will be given at that time. To ask a question, you will need to press star, then one on your telephone. As a reminder, this call is being recorded. If anyone should require operator assistance, please press star, then zero. I would now like to turn the call over to David Glick, Senior Vice President, Investor Relations, and Treasurer. 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 2021 third 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 November thirtieth, 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 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. Now, here's Michael. Thank you, David. Good morning, everyone, and thank you for joining us. Our usual approach on these calls is to structure our remarks in a chronological order, starting with a review of the most recent quarter then moving on to the next quarter and the year ahead and finally commenting on the longer-term outlook. Today, we're going to take a slightly different approach. Rather than chronologically, we will cover these topics in order of their importance to our long-term shareholder value. I will begin with our longer-term expectations. The timeframe for these remarks will be the next five years. Then I will move nearer in and talk about 2022. We think that 2022 is going to be very unpredictable. That said, we believe it could provide the ideal setup for our business. Finally, I will comment on our Q3 results and the outlook for the rest of the year. Okay, the longer term. There are two aspects of the longer term that I would like to talk about. Number one, the macroeconomic and competitive environment. Number two, progress we are making on our Burlington 2.0 strategy. On the macroeconomic and competitive environment, let's start with the customer. For many years, there has been a growing consumer focus on value. It is possible that we are entering a period, a prolonged period of consumer price inflation across the whole economy. We believe that in inflationary periods, consumers trade down, not up. In an environment of rising prices, we think shoppers will be even more attracted to the great value that we offer. Our business is a third bigger now than it was in 2019. One reason for this is that our value differentiation versus other retailers has grown. The delta between the price of an item at Burlington and the price of a like item at a full-price store has never been greater. Leaner inventories in the full-price channel have driven higher realized prices. It is not clear if these higher prices will be sustained. If they are sustained then in the coming quarters, we think that we may have the opportunity to capture additional market share to take up our retail prices or to do both. If, on the other hand, retailers return to more promotional habits then these higher realized prices in the full-price channel will come down. If that were to happen then we think it would trigger yet another wave of consolidation of marginally profitable full-price bricks-and-mortar stores. We anticipate that this second scenario, a return to a promotional environment and a decline in realized prices, is the more likely but it's gonna take some time to see how this plays out. In either scenario, we think that the long-term implications for Burlington are very favorable. I would like to talk now about the progress we are making on Burlington 2.0. The core of this strategy is to make our business as flexible as possible so we can chase the sales trends, take advantage of supply opportunities and deliver great value to our customers. So far this year, we have chased from a comp plan of flat to an actual year-to-date comp of 18% versus 2019. In addition to comp growth, we are very excited about our new store performance especially our smaller store prototype. In 2021, we have opened 101 new stores. This translates to 77 net new stores after closures and relocations. Our new stores are performing extremely well, and I am excited to announce that we have decided to accelerate our new store opening program. In 2022, we expect to open about 120 new stores which after closures and relocations, should yield about 90 net new stores. Beyond 2022, we now expect to open 130 to 150 new stores each year. About 30 of these will be relocations of older stores to newer, smaller store prototype locations. Overall, from 2023 onwards, we expect to open 100 to 120 net new stores each year. Today, we have just over 800 stores, so in the next five years, this program will drive a very exciting transformation of our chain. Moving closer in, I would like to talk now about 2022. We think that there are three factors that could make 2022 a very good year for Burlington but all three factors are difficult to predict. Firstly, sales. This year, all retailers have benefited from one-time items like stimulus checks and pent-up demand. As we get into 2022 and lap these items, it seems likely that comp trends across retail will fall off sharply. On the other hand, it is possible that rising wage rates or further government spending will offset this decline. We have to be ready for either scenario. Secondly, pricing. As I said a moment ago, we don't yet know if higher realized prices at full price retailers will be sustained. This will play out in 2022. If these higher prices are sustained even as supply loosens up then we think we will have a tremendous opportunity to drive sales or to take up retails or to do both. If there is a general rise in inflation across the whole economy then this opportunity could be even greater. Thirdly, we do not know if the issues with global supply chains will ease in 2022. If they do then this could have a huge beneficial impact on off-price supply and it could also drive significantly lower freight and supply chain expenses. We don't have great visibility on any of these three items. No one does. In this situation, our playbook is always to plan our business conservatively and be ready to chase. Our initial buying and operating plans for 2022 are anchored on a mid-single-digit comp decline. This is not a prediction of what we think will happen. We do not have enough visibility for a reliable prediction. You should think of the -5% comp as a baseline, a starting point for the chase. In 2021, our baseline was a flat comp. Year to date, we have chased sales 18 points above this baseline. As for our margins, so much depends on freight and supply chain expenses. Again, we concede that we do not know how these will play out. We think that these expenses should start to come down in 2022, but we don't know if, when, and how much this will happen. In a moment, John will share our margin estimates, assuming that these costs remain at their current levels through mid-2022 and then begin to moderate. I'm going to wrap up my remarks with a few comments on our Q3 performance and our Q4 outlook. As described in today's press release, comp growth in Q3 was 16%. We estimate that warmer weather from late September onwards reduced our comp by about three points. In other words, we believe that our underlying weather-adjusted comp in Q3 was about 19%. For Q4, we are currently projecting our comp performance to be in the low double digits. Our month-to-date comp is running well ahead of this. What really matters is the next four to five weeks. If the sales trend is stronger, then we are ready to chase it. Let me move on now to talk about inventory levels. Comp in-store inventories were down 24% at the end of Q3. This means they were slightly above our plan coming into the quarter. Our plan was for in-store inventories to be down in the high 20s. The other promising news is that at the end of Q3, reserve inventory was 30% of total inventory versus 21% in 2019. It is usually the case that you drain your reserve inventory in the third quarter. You pull goods out of reserve to get prepared for holiday. In fact, we built our reserve inventory in Q3. Reserve receipts in Q3 increased 174% versus the same period in 2019. We were able to make some great opportunistic buys during the quarter. It is too early to extrapolate but we think that over the coming months, we are likely to see a very favorable buying environment as other retailers cancel late deliveries. One final point on inventories. At end of Q4, we are planning in-store inventories to be down in the mid-30% range. We believe that we can end the year more cleanly than we have in the past and thereby transition more effectively to the spring seasons. I would like now to turn the call over to John to walk us through the financial details. Thanks, Michael, and good morning, everyone. I'm going to follow a similar approach to Michael. I'll start by talking about our longer term financial prospects. I will move in, nearer in and make a few comments about 2022. Finally, I will finish up with additional color on our Q3 results and our current expectations for the fourth quarter. On the longer term, as Michael described, we are very excited to announce that we will be accelerating our new store opening program. We are now planning to open 90 net new stores next year, and then from 2023 onwards, we expect to open between 100 and 120 net new stores every year. Combining this faster pace of openings with a conservative comp assumption should generate average annual top line sales growth over the next five years in the low double-digit percentage range. Over this period, and with these sales growth assumptions, we also believe that we can achieve 200 to 300 basis points of operating margin expansion. We've made very good progress on margin expansion this year but this has been masked by higher freight and supply chain expenses. We expect that some of these expenses will moderate over time but we also believe that we have the opportunity to drive further leverage, especially in occupancy costs and operating expenses. This combination of sales growth and margin expansion should drive average annual earnings growth in approximately the mid-teens. This growth estimate does not include any additional benefit from using available cash flow to repurchase shares or to pay down debt thereby reducing interest expense. The numbers I have described are annual averages for the five-year period. We anticipate significant variability in these results year-to-year. In addition, as you know, we may not plan our business each year with this level of growth. Our model is to begin each fiscal year with a more conservative plan, manage inventories and expenses accordingly, and then chase the trend and take advantage of ahead of plan sales. If we execute this model successfully, we would expect to achieve the annual average performance metrics that I've just described. Let me move on and make a few comments about 2022. As Michael described, next year is very unpredictable in terms of top line sales and bottom line earnings. We look forward to the day when we can return to providing traditional guidance but we are clearly not at that point yet. For 2022, we do not have enough visibility to provide meaningful guidance for the year. We are anchoring our initial buying and operating plans on a 5% comp decline. Think of this as the baseline that we are using to set up our merchants and operators, so we can chase the trend and take advantage of merchandise supply opportunities. Given what we know at this point, we would expect a 5% comp decline to drive operating margin deleverage of about 150 basis points. This is based on the assumption that freight and supply chain expenses remain at their current levels through mid-2022 and then begin to moderate. This estimate also assumes no material increase in retail prices and no other significant cost inflation. For reference, using these same assumptions, we would expect a flat comp to drive about 60 basis points of operating margin deleverage and a 3% comp to generate flat operating margins versus 2021. I would now like to talk about our Q3 performance and our Q4 outlook. As a reminder, our Q3 results are being compared to the third quarter of fiscal 2019. Total sales in the quarter grew 30%, while comp sales increased 16%. As Michael mentioned, we estimate that unseasonably warm weather in October in some of our most important regions negatively impacted our comp sales growth by about three points during the quarter. The gross margin rate was 41.4%, a decrease of 100 basis points versus 2019's third quarter rate of 42.4%. This was driven by a 180 basis point increase in freight expense which more than offset an 80 basis point increase in merchandise margin driven by lower markdowns. Product sourcing costs were $173 million versus $90 million in the third quarter of 2019, increasing 250 basis points as a percentage of sales. Higher supply chain costs represented most of the deleverage. The drivers of these higher costs were consistent with what we had discussed in prior quarters. Adjusted SG&A was $581 million versus $486 million in 2019, decreasing 210 basis points as a percentage of sales. Other income and other revenue were down by $8 million or 60 basis points as we compare to the third quarter of fiscal year 2019, which benefited from $8 million of insurance recoveries. Adjusted EBIT margin was 6.1%, 180 basis points lower than the third quarter of 2019. Excluding the non-operating other income and revenue deleverage, our Adjusted EBIT margin declined 120 basis points. Said another way, during Q3, we drove 310 basis points of operating margin expansion from merchant margin and operating expense leverage on our 16% comp, but this was more than fully offset by 490 basis points of deleverage from freight, product sourcing costs, and our comparison to non-recurring other income in Q3 of FY 2019. All of this resulted in diluted earnings per share of $0.20 versus $1.44 in the third quarter of 2019, driven primarily by an $86 million debt extinguishment charge related to the partial redemption of our convertible notes. Adjusted diluted earnings per share were $1.36 versus $1.53 in the third quarter of 2019. During the quarter, we opened 40 net new stores, bringing our store count at the end of the third quarter to 832 stores. This included 56 new store openings, 15 relocations, and 1 closure. In the fourth quarter, we have opened an additional 8 new stores, and we expect to close 2 stores. As a result, we should end the year with 838 stores. Now I will turn to our outlook for Q4. We are projecting comp sales growth in Q4 to be in the low double-digit% range. We are expecting the extraordinary freight and supply chain expense headwinds to continue through Q4. This means that our low double-digit comp projection should translate to 250 basis points of deleverage and operating margin during the quarter. With this outlook for Q4, we now expect our full year operating margin to be flat versus 2019. It is important to reinforce the point that this means that for the full year, we will have absorbed about 360 basis points of deleverage on freight and supply chain expenses with 360 basis points of offsetting favorability in other areas of the P&L, specifically much higher merchant margin and significant leverage on SG&A expenses. With that, I would like to turn the call back to Michael for closing remarks. Thank you, John. Before we open it up to questions, I would like to recap and reinforce some key points that we have made this morning. Firstly, we think that our longer-term prospects are extremely bright, so we have decided to put our foot on the gas and we are accelerating our new store program. Secondly, we believe an inflationary price environment could drive greater traffic to our stores. We need to see how this plays out but we think that it could offer us the opportunity to take share, take up retails or to do both. Thirdly, we anticipate that 2022 will be very unpredictable. Our playbook is to plan and manage our business, so we can aggressively chase the very significant sales, margin, and supply opportunities that we believe might emerge. Finally, our Q3 trend remained very strong. We chased $280 million in sales above our original plan but we still ended the quarter with in-store inventories and reserve inventories in great shape. We are very well positioned for the fourth quarter. I would like now to turn the call over to the operator for your questions. Thank you. To ask a question, you will need to press star then one on your telephone. To withdraw your question, please press the pound key. We ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Matthew Boss with JP Morgan. Your line is now open. Great, thanks, and really appreciate all the color. Maybe first for Michael, on your long-term unit growth prospects, Michael, could you just speak to drivers behind the decision to accelerate this ramp of new store openings? What gives you confidence to expand the program now? Well, good morning, Matt. Thanks for your question. As you know, at the beginning of this year, we raised our long-term potential store count to 2,000 stores. It's really since that time we've been looking at the pace of our new store openings, how many stores we should open each year. There are three factors that led into our decision to accelerate this pace. The first is financial. I'm sure many of the analysts on this call have already done the math, you know, looking at our press release this morning to estimate new store productivity. What you see with those numbers is our new store productivity this year has been extremely strong. Now we know that this is partly due to the same tailwinds that have driven our comp growth all of this year. Even if you adjust for those tailwinds, our new stores are still running well ahead of our internal hurdles. You know, as a reference point, of the 100 or so stores that we opened this year, just over half are under 30,000 sq ft. So this performance really gives us a lot of confidence in our new smaller store prototype. So that's the first reason, financial. Secondly, the second factor is strategic. You know, I talked about this in my earlier remarks, so I won't beat a dead horse. Year to date, you know, our business is almost a third bigger than it was in 2019. You know, that suggests to us that the customer is really responding very well to the great value that we're offering and that we're taking significant market share. Again, it gives us confidence that as we open more stores over the next few years, we'll be swimming with the tide, we'll be taking share. The other major off-price retailers have two to three times the number of stores that we have. This feels like an opportunity that's really unique to Burlington. The third factor in making this decision was operational. Earlier this year, we put together an internal cross-functional team to look at what would it take to significantly accelerate our store expansion. That cross-functional team included real estate, stores, supply chain, merchandising, planning, IT, and other areas. Based on the plans and actions that team developed, we feel very comfortable that we can support the faster pace of openings that we described in the remarks. Now, obviously, you know, with new stores, you have a pipeline of new locations that goes out over the next two to three years. We can look at that pipeline and I have to say we're very happy with the number and the quality of store locations that we see ahead of us. You can tell we're very excited by this opportunity. Great. Maybe just a follow-up for John. On the multi-year top and bottom line growth targets that you laid out on the call, could you just share with us more of the building blocks to get to those levels of sales growth, margin expansion, and EPS growth? Good morning, Matt. Sure. Happy to take you through a little bit more detail on that. The top line is pretty straightforward, really. If you combine the new store program that we were talking about with a conservative low single-digit percent annual comp increase, this gets you to a low double-digit percent annual sales growth that I mentioned with this basis of our model. We're confident that we can achieve this average annual growth. Moving on to margins. Well, let's just revisit what happened with margins this year. For the full year, we're expecting freight and product sourcing costs to delever by about 360 basis points. As I just said in my remarks, we're projecting operating margin to be approximately flat versus 2019. In other words, we've really driven 360 basis points of favorability in other areas and that comes from higher merch margin driven by lower markdowns and higher leverage on operating expenses. Looking forward, there may be some additional merch margin opportunity but because we've seen such a significant increase this year, we haven't assumed any further improvement there in our model. For store occupancy, you know, we expect to capture additional leverage as we migrate toward our smaller store prototype. We do see opportunities to drive further efficiency on store and supply chain expenses. We think that over time, freight expenses will decline from this year's historically high levels, though not necessarily all the way back to pre-pandemic levels. We're assuming that supply chain expenses will probably be a bit stickier but they too will moderate to some degree as receipt flows become more predictable and reliable. When you combine all of these different factors together, we think that we can capture the 200 to 300 basis points of operating margin in the next five years that we called out. Of course, there could be additional headwinds that move against us or there could be tailwinds that move in our favor. That could impact individual years during the period. On average, we think these things should even out over time. If we were to achieve significantly higher than the low single digit average comps we've modelled for this period, we would expect to drive more operating margin expansion. Now, if you combine the low double-digit projection for annual top line growth with a margin expansion of 200 to 300 basis points over the next five years, then you get to the mid-teens earnings flow that I described in my prepared remarks. Thank you. Our next question comes from the line of Ike Boruchow with Wells Fargo. Your line is now open. A couple questions. My first question is on supply chain. Can you guys talk a little bit, excuse me, more about the issues and how they're specifically affecting your company? Then, I guess, for example, what impact has this had on store level inventory levels? I have a follow up. Yeah, I'll take that. Good morning, Ike. I think that's a great question. I know there's been a lot of reporting and some concerns about inventories. So I think it might be helpful to draw a distinction. Merchandise availability and supply on the one hand and the timely delivery of receipts on the other hand. Firstly, the availability of merchandise has been, continues to be very good. You know, of course, you know, there are certain categories and brands where there might be constraints but that's always true. You know, as an off-price retailer, we're not dependent on a single category or brand. We're very good at moving money from businesses where there's either a weak trend or poor supply to businesses where there's strong sales and good supply opportunity. That's off-price. That's kind of what we do. You know, I think the data for Q3 provides a pretty good illustration of this. In Q3, we chased 16% comp growth on an original plan of flat. That represents about $280 million of ahead of plan sales b ut our in-store inventory levels still ended Q3 ahead of plan. And at the same time, we were able to build up our reserve inventory. You know, so we were very happy with supply in Q3, and we continue to be happy. We think there's a good chance that supply is about to get even better. So that's supply. L et me move on and talk a little bit about receipts, specifically the timely delivery of receipts. You know, as I just described, when you look across the whole store, we really have not had an issue with merchandise availability this year. We found great merch, spent our open to buy. Where there have been challenges and we've had these challenges along with everyone else, is in the timely delivery of receipts. In other words, with goods showing up late. This isn't the vendor's fault. The problems are global and, you know, very widespread. It has created inefficiencies in our transportation and supply chain network. You know, ironically, those headwinds become stronger the more you try to chase the business and respond to the trend. There's definitely been a challenge and it's cost us money, but we've been able to get the goods that we need and we've been very happy with the inventory levels in our stores. To recap, your merchandise availability and supply have been very good, and we think they're gonna get better. Navigating the receipt flow has been an issue and frankly, it's been expensive but we've done it. That's how I would describe that. Got it. Super helpful. Just quick follow-up on retail prices, Michael, you were alluding to. Just what do you see happening with prices across the industry? Do you think higher prices are sustainable? Do you believe that you guys can raise prices? Is this something the company has done in the past? Just kind of curious how you frame all that up. Yeah. It's a great question, Ike. You know, I think this situation has really evolved over the last few months and actually continues to evolve. I see two things going on right now. Firstly, full price retailers this year have been getting much higher realized prices and it's clear why that is. It's because of much leaner inventories. Now, initially, I have to say I was skeptical on this. My view was that as soon as supply loosened up, promotions would come back and then these higher prices would just come back down. Now I'm not sure. These retailers are clearly enjoying the stronger margins. Maybe, and I want to underline the word maybe, the environment will be less promotional going forward. You know, maybe these retailers will control their inventories more tightly, so they can preserve the higher margins. Again, I'm repeating, I'm underlining the word maybe. We really need to see what happens as supply constraints ease. Do we go back to promotions or not? If the environment really is less promotional going forward, I think that could be great for us. You know, when we talk about value and offering value to customers, our reference point for value is the pricing at full price stores. If that reference point moves up, if those higher realized prices really become permanent then that could be a huge opportunity either to drive sales or to drive margin or to do both. Frankly, that decision might depend upon the specific category that we're talking about. I think we'll have plenty of opportunities there if that reference price is permanently higher. Anyway, that's one thing that's going on. The other thing that's going on and this has really changed over the last few months. It feels like the prospects for generalized price inflation across the economy have really grown. You know, as I said in my remarks, this isn't just in the sectors that we compete in. It's also, I don't know, it's also food, it's gas prices, it's the cost of living. Again, we have to see what happens over the next couple of quarters. We believe that in an environment of rising prices, we should do very well. Our value proposition is already very strong but it would become even stronger in that environment. Again, we think this could present us with an opportunity to drive higher sales and higher margins. Now, you know, when you look back at the transcript to this call, you'll see that there were a lot of ifs in what I just said, a lot of maybes and a lot of ifs. We don't really know how this will play out. We think that these trends could be very favorable to us or for us. At this point, it makes sense to be cautious and a little patient. You know, that said, we are making some adjustments. You know, we've looked at our fast turning businesses, and we started to push prices up in those businesses. We've looked at businesses where we think our pricing may be sharper than it needs to be and we've been testing some higher retails. So far, the things we've tested, the prices we've pushed up, it's worked well but it's fairly modest at this point. The other thing is that, as you'd expect, we're also watching competitors very closely. You know, our merchants visit competitor stores all the time, that there are no trade secrets with pricing. Their price is displayed on the ticket. Actually by looking at the clearance rack, you can also see if those higher prices are working or if they're just driving markdowns. Look, I guess I would finish up by saying we're mindful in all this that we are the third largest off-price retailer. Clearly it wouldn't make sense for us to take the lead on raising retail prices. We're not proud. If we see something and we believe something is working, there's really nothing to stop us from following. Thank you. Thank you. Our next question comes from the line of Lorraine Hutchinson with Bank of America. Your line is now open. Thanks. Good morning. I wanted to follow up on the freight and supply chain pressures. John, are you seeing any sign of easing here? When do you think it's reasonable to see that? Is it possible that this is a more permanent situation? Well, good morning, Lorraine, and thanks for your question. Good question. Yeah, as you've heard me say in the last couple of calls, we think that these record-breaking freight expenses that we've seen so far this year are mostly temporary. W e still believe that it's driven by an imbalance in supply and demand. We think that over time, it should correct itself. W e think that's the case but like everyone else, we don't really know when that's gonna happen. We certainly haven't seen anything yet that would indicate that things are starting to improve. As we said previously, we think that some of the higher supply chain expenses that we've seen this year particularly the wage rate piece, are gonna be more permanent. We expect that the wage incentives and the operating efficiencies we've seen this year are gonna get better and as the supply chain situation improves. Again, we just don't have good visibility into when any of this stuff is gonna actually happen. You know, let's just consider the other side of it. Suppose it doesn't work out that way? Suppose that these higher expenses are mostly here to stay, that they become a permanent part of the expense base? Well, we think the only way that happens is in you know, an inflationary scenario. I'd refer to what Michael was just talking about. If costs are permanently higher then we would expect that prices would rise permanently across all of retail. It's the only way that most retailers would be able to absorb the costs. That would certainly apply to us as well. In an inflationary situation, we'd certainly be able to raise prices while continuing to maintain our value proposition. In this scenario, you know, our value proposition would likely be even more important to our customers. Thanks. You've been pretty proactive about paying down debt but you added back the share repurchase this quarter. What should we expect in terms of capital allocation going forward? You know, John, I'll take that question. Thanks, Lorraine. It's a good question. Yes, you know, we have paid down a considerable amount of debt over the last year and I think it may be helpful to kind of provide kind of a recap of our debt pay down as well as our debt outstanding and leverage ratios. If you go back to the height of the pandemic, we borrowed $400 million on our ABL and we raised about $1.1 billion in public market debt. Given our strong recovery over the last year, we have been able to pay down about $860 million out of the $1.5 billion we borrowed during 2020. You know, we paid down our ABL to zero. As you may recall, we executed a make-whole call on our high yield notes and we recently repurchased in, you know, last quarter, $160 million in convertible notes. Where does that leave us? We have about $1.6 billion in total gross debt, a little over $950 million on our term loan and a little under $650 million in our converts. On a net debt basis, given the $1.2 billion in unrestricted cash we had at the end of the quarter, that's about $400 million. What do all those numbers mean? I think it just leaves us in a much more comfortable place from a leverage perspective. You know, if you look on a trailing 12-month basis, you know, excluding you know, capitalized operating leases, our gross leverage is down to 1.6x gross debt to EBITDA, and our net debt ratio is down to 0.4x. We would expect to continue to reduce those leverage ratios. You know, given that progress in reducing our leverage, we were comfortable resuming our share repurchases during the past quarter. We repurchased around $150 million of stock and that leaves us $250 million remaining on our authorization. What do we do from here? You know, we're going to evaluate it through the lens we always use. First and foremost, we're gonna invest in our growth. Secondly, you know, we'll utilize excess cash in the most accretive way for our shareholders and that's what we'll continue to do. Thank you. Our next question comes from the line of John Kernan with Cowen. Your line is now open. Good morning. Thanks for taking my question. Michael, John, David, thanks for all the guidance through next year. It's quite a bit more than we're getting from many of your peers across the sector. I guess, John, new store growth is now a bigger part of the narrative. It'd be helpful if you could provide just some high level modelling assumptions around new store productivity, particularly given the new store prototype? I have one quick follow-up. Thanks, John. Be happy to do that. So let's start with how you should think about sales volume for our new stores. On average, we expect new stores to have initial sales volumes that are around 70% to 80% of our chain average as they open up. Obviously, there'll be some variability for each individual store but if you use this average, it should be a reasonable assumption for modelling. Actually, this year, we're seeing a slightly stronger performance than that as our new stores are outperforming their plans. They're being driven by the same tailwinds that have helped us deliver our strong comp store performance. From there, you should anticipate comp store sales growth for the new stores that's faster than the chain for several years after opening, which would be consistent with what we've now seen for the last several years. Across the next five years, you should expect more than 75% of our new stores will be less than 30,000 sq ft. Really moving to the smaller store format in a big way. In terms of profitability and capital returns, you can rely on what we've continued to say we've been saying in the past that EBIT margins for each store are expected to be accretive to the company in their second year and each store is expected to deliver Return on Invested Capital that's also accretive to the company's Return on Invested Capital. In 2019, our average sales per store was about $10 million. With the growth that we've seen this year, our 2021 average sales per store is gonna be north of $11 million per store. If sales of a new store is 75% of our average, that means that the store should do over $8 million and then comp above the chain average for several years. From a productivity perspective, in our 25,000 to 30,000 sq ft stores, you know, we're expecting over $300 a sq ft on a gross sq ft basis and $400 a sq ft on a selling sq ft basis. Big step forward on productivity at the store level. Even as we're paying a little more rent per foot in many of these better high traffic locations, this level of productivity, combined with a smaller footprint and a lower operating expense structure, should really help us to drive operating margin expansion while growing the top line faster and delivering the terrific returns that we expect from these stores. You know, we're really excited about our new stores but we're also excited about the relocation opportunity that we have. The net new store numbers that we laid out today for the next five years include an average of 30 relocations per year. In most cases, these are gonna be moves from oversized boxes with low sales productivity, many of them older and in need of at least refreshing, moving into fresh, new, highly productive, smaller boxes with lower occupancy costs. Relocations for us usually result in a pretty healthy sales lift and improved four-wall profit. Got it. Sounds like productivity is planned to move significantly higher. Just my follow-up is just on Q4. A lot's happened since the last call in August. Could you just walk us through what changed in the Q4 outlook versus the outlook you gave us on the last call? Thank you. Okay. All right, John. Great. Thanks. For Q4, you know, we said we're comfortable with our sales forecast. We're actually running ahead of our low double-digit sales forecast. There's still, you know, some risk and some really big weeks in front of us as we move into December. On the margin front, it just really comes down to wanting to be a bit more conservative on our EBIT forecast. Our implied outlook for Q4, you know, if you look at what we gave last quarter, was down around 200 basis points. Now on a low double-digit comp, we're forecasting down about 250 basis points, though I would remind you that we're still maintaining our flat EBIT margin forecast for the full year. The reason for this, the reality that we're dealing with is that the cost pressures in supply chain and freight and wages to some degree along with the volatility of timing receipts, they're just really difficult to forecast with any precision. We really wanted to recognize the difficulty forecasting these expenses and add a bit more conservatism just to protect against the volatility that we see. Got it. Thank you. Our next question comes from the line of Kimberly Greenberger with Morgan Stanley. Your line is now open. Great. Thanks so much. I wanted to follow up on Michael on your inventory comments. You mentioned when you were talking through inventory that you think there's a good chance that supply is about to get better. I just wondered if you could expand on that for us. Sure. Well, good morning, Kimberly. Good to hear from you. Yeah. I feel like the congestion and the delays in global supply chains and transportation systems have been fairly well reported. You know, I've lost count of the number of ships that are waiting off the coast of Southern California at this point. It seems like it just keeps hitting new records every day. The containers, some of the containers on those ships have merchandise that vendors and retailers had ordered with the expectation that they would be delivered for the holiday period, the holiday selling period or for the full season. It’s clear that, you know, some of that merchandise is not going to get here on time. You know, frankly, if it hasn't landed by now, it's already too late. Now there's no point for a retailer in taking receipt of holiday merchandise in January, for example. You know, our expectation is that that merchandise should find its way into the off-price channel. And we think that's likely to be a big opportunity, especially for our reserve inventory. Now, you know, I mentioned that we've started to see some early signs of that. I think it's too early to project where that's gonna lead but you know, our hunch is that the next couple of months could be a very good buying opportunity for off-price. Fantastic, Michael. It sounds like you feel really good about the inventory position here for holiday. I just wanna make sure that I understand you correctly on that. I just wanted to follow up quickly, if I could, on the 30,000 sq ft stores. It sounds like you're seeing well above plan results in particular this year. I wondered if you care to share how those stores, in particular, those smaller stores as a subset of your new locations, how they're delivering on annual volumes this year? Thanks so much. Okay. I'll take the first part of that, Kimberly, on holiday inventory levels, and then I'll let John respond on what we're seeing. Sure. With the prototypes. On you know holiday inventory levels, you know, at this point, obviously we're sitting in the third week of November, so I'm in a good position to judge. I'm very confident that we will have the inventory in our stores and that we have enough receipts on the way to stores to support our sales projection, that low double digit number. Now, if sales were to run well ahead of low double digit then we might start to see some gaps in some very high trending businesses. That just means that the sales in those businesses were very, very strong. It's a high cost problem. It's, you know, I think the risk to us right now in some ways is that sales outpace our expectations not that we have an issue with inventory or receipts. Then John, do you wanna talk about the smaller prototypes? Yeah, sure. First of all, as far as the performance of all of our new stores this year, you know, not surprisingly, they're running well above the way that we had planned them as we underwritten them. You know, I think everybody in retail has a strong tailwind this year. You know, that's certainly a big part of it. It also does give us some confidence to see the new stores which include a large percentage of smaller stores not as big as what we're moving toward. You know, they're all performing the way we would expect them to perform, understanding that we have these tailwinds behind us. Within the group of smaller new stores, we're very pleased with their performance. You know, it's become less about the size and more about the strength of the trade area if you're looking at individual stores. You know, we've got some of the smaller format stores that are performing well. Overall, you know, as far as proof of concept, you know, we're very pleased with what we've seen from the smaller stores that we've opened so far. Great to hear, and thanks for all of the color on the long-term strategic outlook. It's really helpful. Thank you. Thanks. You're welcome. Our next question comes from the line of Michael Binetti with Credit Suisse. Your line is now open. Hey, guys. Thanks for all the detail today. I'll repeat the comments earlier. It's very helpful to hear you think through the 2022 and longer term. Maybe this one's for John, but I think it's, you know, important. It seems like you're drawing a pretty fine line, a pretty hard line between first half and second half next year. Is that really lapping stimulus and the costs rolling in such that. Obviously, we understand from your language today, the first half is really tough. Is second half closer to that algorithm that you spoke to for the longer term? And then, Michael, what really is. As you think about the AUR and retails comment, what really is the governor to raising that to you? Today, you know, the. I think one of your dollar store competitors said they're raising to $1.25. Your off-price competitors are raising AURs. You point to the value in your stores being historically wide versus the full price channel. Do you need to be that wide? And how do you think about whether your share gains have come from continuing to widen that relative value spread versus the better operations we've seen from you in the stores, moving, you know, to higher traffic locations, you know, operating the in-store inventories better? How do you gauge when you may have let that value spread widen too far based on your comment that it's pretty wide right now? All right. Michael, I'll start with the question on the kind of timing and cost pressures next year. You know, as I said before, you know, we really don't have a crystal ball here. You know, what we can see today is you know we haven't seen anything that indicates that improvement, particularly on the freight side, yet has started. You know, it's a modelling assumption that we're using. It's not something that we you know that we have this inside information. I think it's a fair way to think about next year, that if you didn't see any improvement for the first half and you started to see some improvement in the second half, that's really as deep as our thinking goes there. And it's based on, you know, if that improvement does start to happen, you know, that's the impact that we see on our margins. If it doesn't start to happen, it goes back to the comments that we had that, you know, this may be more of an inflationary environment and there may be more room to take price than we've modelled. That's the way we think about how we, you know, modelled the scenarios for next year. Okay. Then, Michael, your question on what are the governors on AUR and taking up retails, I think it's a really good question. I think it's important to understand that in off-price, what really matters is sort of the reference points for price. What I mean by that is when the customer walks in the store, when the customer walks in the off-price store, they're walking into that store because they're expecting a deal. They're expecting the values to be great. Actually we encourage that. So when you look at a price ticket at Burlington, it shows our price, but it shows a compare at or a comparable price. That compare at price is based upon the out the door price at another retailer. We're saying, "Look, you can buy this price at Burlington. Here's what it would've cost you had you gone to this other place." That's kind of what the off-price customer proposition really is. Bringing that back to your question then, how should we think about the differentiation in our prices versus the competitors? If the competitors move up prices, that gives us an umbrella to move up prices too. There's no doubt about that. Because where else is the customer gonna go? The uncertainty that we have and the reason we're being a little patient here is because those higher realized prices at full price stores, you've got to be sure that they're gonna stay where they are. They're gonna stay high before you start moving up your own prices. I mean, I've been in retail a pretty long time and, I would say, over the years, the department stores have been very, very promotional. You'd have to believe now that that's gonna stop, that they're gonna stop being promotional. If that were to happen, if it really were the case that department stores were gonna stop promoting and they were gonna hold on to those higher realized prices, then yes, we could move up our prices. If actually this is just a short term thing and their higher realized prices are being driven by the fact that we happen to have supply chain constraints this year and leaner inventories, and that actually as supply loosens up next year, those realized prices will come down then it would have been a mistake had we raised our prices. That's the reason we're hesitating. Now, this will all play out in the next couple of quarters, I think. We won't have to wait long but that's really the key driver for us. Now, there is this other issue that I mentioned in the script about, well, what happens if inflation across the whole economy takes off? Well, if that happens, then obviously we're all raising prices but that's a different driver, I think. That, that's how we're thinking about it. Thanks a lot for the help. Thank you. Our final question will come from the line of Adrienne Yih with Barclays. Your line is now open. Good morning and thank you again for all the detail. Couple of quick questions here. Michael, can you talk about the perceived health of your core target customer? If you can remind us what the target household income is, knowing that, you know, about 50% of U.S. households are under $75K. Then what percent of your customers are non-credit or cash buyers? Then my follow-up is for John. It's on the structural wage inflation embedded in the long range plan. Obviously, we're hearing of $15 minimums going to $17, and just some color there. Thank you very much. Yeah, Adrienne, I'll start with the first question. We think our customer is very healthy right now. We think, you know, certainly when you look at our comps, you know, throughout this year, we feel very good about the trend that we've been able to sustain. You know, the underlying, you know, the customer is clearly responding very well to the values that we offer. Now, in terms of how our customer differs from other retailer customers, one thing we know about our customers is they shop at every retailer, because our customers, the off-price customer cares more than anything about value. The way they find value is they cross-shop a lot. We know that we have a huge overlap with other retailers' customers, which is why I say, you know, if other retailers raise retails, we're probably gonna have a chance to take market share or raise our own retails b ecause we know that there is cross-shopping between us and other retailers. Now, you know, to answer your question more specifically, our customers tend to skew younger, larger family size, more moderate income. I think those customers right now, as I say, are pretty healthy, and the sales trend has been very strong. If I project forward to next year and just add a thought about if inflation really does take off in this economy, we actually think we may have a lot of new customers showing up. You know, customers who are perhaps on slightly higher incomes but they're getting squeezed by higher price inflation. That's the reason why we feel somewhat optimistic that if there is inflation across the economy, consumers at different income levels are gonna be more interested than ever in the value that we offer. Yeah. Okay, I'll take the wage part of your piece of your question, Adrienne. First of all, just a reminder, you know, we've used this kind of market-by-market analysis, where we make wage adjustments as we see that they're necessary. We've been using it for several years and we're pleased with the way that's been working. This year, you know, turned out much different than the way we had planned at the start of the year. We've made some very significant changes on the DC side to remain competitive and ensure that we, you know, can attract the workers that we need to operate our distribution centers, most of which are in New Jersey and California, very, you know, competitive markets. We've brought wages up quite a bit there, and that's the part of our supply chain costs that we refer to as being, you know, a little bit stickier. That's now a permanent part of our wage base. Of course, it's included in our outlook this year and in our modelling. On the store side, it's been a little bit of a different story. It hasn't been nearly as competitive as the DC situation. Although in the second half of the year, we have seen it get a little bit tighter and we've had to make some adjustments a little bit higher than what we had expected at the start of the year to remain competitive. It's very different market- by- market. We're still very comfortable with our market-by-market approach. I would say, you know, we've taken a bigger step forward than we would normally have in a single year as far as these by market wage adjustments. Modelling going forward, you know, we've modelled in what you know, an assumption for what we expect we'll need to do to continue to remain competitive. That's, you know, it's informed by what we've learned about this year. Thank you. Great color and best of luck for holiday. Thank you. Thank you. Thank you. This concludes today's question and answer session. I will now turn the call back to Michael O'Sullivan, CEO, for closing remarks. Before we hang up, I would like to take this opportunity to thank everyone at Burlington for their hard work in the third quarter and throughout the year. I know that the entire Burlington team shares my sense of energy and excitement around the sales, margin, and supply opportunities that we see ahead of us. Finally, I would like to wish everyone on today's call a very happy and peaceful Thanksgiving. We look forward to sharing our fourth quarter results with you in March. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.