Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to Burlington Stores second quarter fiscal 2022 operating results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's presentation, there will be a question and answer session. If you require operator assistance at any time, please press star zero. I would now like to introduce David Glick, Group 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 2022 second quarter operating results. Our presenters today are Michael O'Sullivan, our Chief Executive Officer, and John Crimmins, Principal Financial Officer. Also on the call today is Kristin Wolfe, EVP and Chief Financial Officer. Before I turn the call over to Michael, I would like to inform listeners that this call may not be transcribed, recorded, or broadcast without our express permission. A replay of the call will be available until September 1st, 2022. We take no responsibility for inaccuracies that may appear in transcripts of this call by third parties. Our remarks and the Q&A that follows are copyrighted today by Burlington Stores. Remarks made on this call concerning future expectations, events, strategies, objectives, trends, or projected financial results are subject to certain risks and uncertainties. Actual results may differ materially from those that are projected in such forward-looking statements. Such risks and uncertainties include those that are described in the company's 10-K for fiscal 2021 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. I would like to cover three topics this morning. Firstly, I will discuss our second quarter results. Then I will review our outlook for the rest of the year. Thirdly, I will talk about the longer-term outlook. After that, I will hand over to John to walk through the financial details, and then we will be happy to respond to any questions. Okay, let's talk about our results. Comparable store sales for the second quarter decreased 17%. This was on top of 19% comparable store sales growth last year. During this call, when describing our comp trend, I am going to use a three-year geometric comp stack. This is just like a simple three-year comp stack, but accounts for the compounding effect from year to year. Given our large comp numbers last year, we think this provides a more meaningful indicator of our trend. This metric is defined in more detail in today's press release. In May, our three-year geometric comp stack was +4%. In June, it was flat, and in July, -7%. For Q2 as a whole, it was -1%. This was below our guidance for a positive low single digit three-year geometric stack. These results are poor, and we are very disappointed. There were external factors that contributed to these results, and in a moment, I will describe these in detail. Before I do, let me say that no matter what external headwinds we face, we have to do better than this. On an absolute and on a relative basis, these comp results are well below our expectations. When you look at comp performance in our business, there is no mystery about what drives these numbers. It's about offering the best value in the categories, brands, styles, and price points that the customer is looking for. This is how we executed our business in Q2. When you look at our results, especially on a relative basis, it's clear that we did not move far or fast enough. Let me turn now to the external environment. We believe that there were two major factors that impacted our trend in Q2. First of all, the low-to-moderate income customer is under significant economic pressure. The low-to-moderate income customer is our core customer. Approximately 40% of the money spent at Burlington comes from shoppers with household incomes of less than $50,000. Low-to-moderate income shoppers helped drive our extraordinary growth last year, and they remain an important part of our future growth plans. Right now, they are under severe economic stress, and versus last year, they have considerably less money for discretionary spending. The second factor that contributed to our weakening trend in Q2 was that promotional activity, especially among retailers that serve low to moderate income shoppers, surged. The root cause of this is that there is a massive imbalance between inventory levels and sales across retail. The glut of inventory that started to emerge in Q1 turned into a tidal wave in Q2. In normal times, promotional activity tends to be limited to seasonal merchandise and styles that have not sold well. What we are seeing right now is that there is such an imbalance between supply and demand that most retailers are having to aggressively clear inventory. Our customer proposition, the key reason to shop our stores, is that we offer better value than other retailers. In Q2, this value differentiation was squeezed. Our customers are, as I described earlier, heavily focused on value. They have a lot of options about where to spend their limited funds, and they cross-shop heavily looking for the best deals. For our customers, the top cross-shopping destination for apparel and footwear is Walmart, followed by Target. The current level of promotional activity will not last forever, but while it does, it will create a very significant headwind for us. Let me draw these strands together for Q2. There were external factors that contributed to our trend in the quarter. The low to moderate income customer is under economic stress, and retailers serving these customers are flooded with promotions. These headwinds are real, but as an off-price retailer, we have advantages. The overall sales trend may be weak, but we can shift into the areas that the customer is buying, and we can use the supplier balance to deliver great value in these categories. Again, this is what we did in Q2, but our results show that we did not move far or fast enough. We can do better. Before I move on to talk about the outlook, let me just comment on earnings. Despite the weak trend in Q2, our margins came in ahead of expectations. There were two reasons for this. Firstly, we managed our in-store inventories very close to plan, so we didn't have a lot of excess inventories. This meant that our markdowns were modest compared to many other retailers. We could have taken broader and deeper markdowns. This might have driven sales but not necessarily earnings. Instead, we focused markdowns on excess seasonal merchandise and ended the quarter very cleanly. The second factor that drove above plan earnings is that with the weak sales trend, we aggressively controlled our expenses. As a result, although we came in below our guidance for sales, our earnings were above the high end of our guidance range. Later in the call, John will provide more details on this. What do we think happens next? I'm going to move on to the outlook, and I will split my remarks into the near-term outlook, i.e. the rest of the year, and then further out. We believe that the current retail environment, characterized by a weak sales trend and significant promotional activity, is likely to be with us through the rest of the year. We also think that this promotional activity is likely to delay the emergence of any significant trade down shopper. Think about it. There is really no need to trade down when every major retailer is on sale. Based on these factors, we are lowering our guidance for the back half of the year. Our updated guidance is based on a -4% to -1% three-year geometric stack. This translates to a one-year comp range of -13% to -10% for the back half. As a reminder, our comp growth for the back half of 2021 was +10%. Our plan for the fall assumes significant pressure on merchant margin. We had originally planned for an increase in merchant margin in the back half, but we have now pulled back on this. As I said earlier, the most important driver of sales is the value that we put in front of the customer. We need to challenge every hanger in our assortment and make sure we are offering the best value. During this time, we will tightly control buying and liquidity, carefully manage inventories, and aggressively pursue opportunities to drive down expenses. The net effect of all this is that we expect our results for the full year to be well below our normal expectations. Well below what we believe we can accomplish over the next couple of years. Let me segue to talking about the next couple of years. Last year, actually on this call, we described the then current situation of strong consumer spending fueled by government stimulus and a significant merchandise supply constraints. We described that situation as completely unsustainable. Let me say, we believe that the now current situation, weak retail sales trends and massive oversupply of merchandise is equally unsustainable. In the next few months, we will start to work on our plans for 2023. To support this process, we have started to sketch out scenarios for what the retail environment could look like in 2023. I'd like to describe the scenario that, based upon what we know at this point, we think is most likely. Firstly, we believe the inventory overhang across the retail industry is likely to clear over the next several months. We expect that by early 2023, once this overhang has cleared, promotional activity will have declined significantly. Secondly, we anticipate that the supply environment will tighten somewhat. Many vendors have been hurt by the current imbalance, and they are likely to pull back. But with weak consumer demand, we think there will still be plenty of merchandise supply for the off-price channel. We also expect to carry attractive reserve inventory into 2023. Thirdly, we believe that in 2023, the expense environment is likely to have changed significantly, especially for freight rates. There are already some early signs of this. We also think it is likely that by then the labor market will have softened, which could ease pressure on wage rates. Fourthly, we anticipate that the economy will have slowed. As this happens, inflation should moderate, thereby easing some pressure on low to moderate income shoppers. This slowing economy may also drive heightened consumer focus on value, driving trade down shoppers to our stores. Lastly, we think that several financially weak bricks and mortar retailers may have to close stores. These closures would free up potential market share and real estate. Forecasting the future is a very risky undertaking, especially after what we have lived through over the last three years. We believe the scenario I have just described isn't just possible, it's likely at some point in 2023. We are optimistic about next year. We expect to drive recovery in sales and earnings and start to get back on track towards our longer term objectives. I would now like to turn the call over to John to provide more details on our Q2 results and our rest of year guidance. Thanks, Michael, and good morning, everyone. I will start with some additional financial details on Q2. Total sales in the quarter were down 10%, while comp sales were down 17%. Our three-year geometric comp stack was a -1%. In terms of earnings, the headline is that we faced gross margin pressure in Q2, but this was more than offset by productivity and expense savings elsewhere in the P&L. Comp sales came in below our guidance range, but our adjusted EPS came in above. For Q2, our adjusted EPS was $0.35 versus the guidance range of $0.18-$0.31. That was the headline. Now let me provide more detail. The gross margin rate was 38.9%, a decrease of 320 basis points versus 2021 second quarter rate of 42.2%. This was driven by a 110 basis point increase in freight expense, combined with 210 basis points lower merchandise margin. About half the decline in merchandise margin was driven by higher markdowns and about half from a true-up to our shortage reserve. It's worth calling out that although our markdown rate was higher than last year, it was still significantly below 2019 and historical levels. This was despite the extraordinarily high external promotional activity. Product sourcing costs were $157 million versus $146 million in the second quarter of 2021, increasing 130 basis points as a percentage of sales. This deleverage was due to higher supply chain and buying costs, driven by higher supply chain wages and growth of our buying and planning team, respectively. Adjusted SG&A was $518 million versus $550 million in 2021, increasing 120 basis points as a percentage of sales, which was driven primarily by deleverage on occupancy expense. Adjusted EBIT margin was 2.1%, 610 basis points lower than the second quarter of 2021. Our guidance for Q2 had been for 610-670 basis points. We were able to achieve the high end of our adjusted EBIT margin guidance by offsetting lower than expected comp sales and gross margin with expense savings. Put into the context of our Q2 2019 adjusted EBIT margin, the second quarter of 2022 adjusted EBIT margin declined by 500 basis points versus that time period. Of this, about 450 basis points were driven by freight and supply chain deleverage. All of this resulted in diluted earnings per share of $0.18 versus $1.50 in Q2 of 2021. Adjusted diluted earnings per share were $0.35 versus $1.94 in the second quarter of 2021. At the end of the quarter, our in-store inventories were 5% below 2021 on a comp store basis, and our reserve inventory was 52% of our total inventory versus 31% last year. In dollar terms, our reserve is more than double last year's levels. This increase was driven by our merchants taking advantage of great buying opportunities during the quarter. In Q2, we opened 11 net new stores, bringing our store count at the end of the quarter to 877 stores. This included 13 new store openings and two relocations. Now I will turn to our outlook. As Michael mentioned, we are updating our back half forecast based on a -4% to -1% three-year geometric stack. This implies a one-year comp range of -13% to -10% for the second half of fiscal 2022. Based on this range and on our expectation of a continuing heavy external promotional environment, our adjusted EBIT margin is expected to decline by 160 - 80 basis points, which would generate adjusted EPS for the back half of $2.81 - $3.41. This would drive full year adjusted EPS of $3.70 - $4.30 and an adjusted EBIT margin decline of 410 - 360 basis points. Breaking out the quarters, we are modeling Q3 at a one-year comp decline of -18% to -15%, which translates to -4% to -1% decline on a three-year geometric stack basis. This range should lead to a Q3 Adjusted EBIT margin decrease of between 360 and 260 basis points to third quarter Adjusted EPS of $0.36 - $0.66. We are modeling Q4 at a one-year comp decline of -9% to -6%, which for Q4 translates to the same three-year geometric stack that we are for Q3 of -4% to -1% decrease. Recall that our Q4 2021 comp comparison decelerated from 16% in Q3 to 6% in Q4. This comp sales range should lead to fourth quarter Adjusted EPS of $2.45-$2.75. I will now turn the call back to Michael. Thank you, John. Let me summarize some of the key points that we have covered this morning. We are disappointed with our Q2 sales performance. There were two major external factors that contributed to our Q2 trend. The low to moderate income customer is under a lot of economic pressure, and during the quarter there was a huge surge in promotional activity. We believe that these factors are likely to continue into the fall season. Our updated guidance assumes the sales trend will remain weak and that merchant margins will be pressured by high levels of external promotional activity. Our business is all about offering the best value on the categories, brands, styles, and price points that the customer is buying. We can do a much better job on this. As we look ahead to 2023, we are optimistic. There are several factors that we think could drive a significant recovery in our sales and earnings and would start to get us back on track to our longer term financial objectives. Now, before I turn the call over to the operator for Q&A, there are a couple of additional topics that I would like to call out. Firstly, we recently released our latest corporate social responsibility report. On this call, we do not have time to discuss the content in any detail, but I would like to encourage investors to take a look at the report on our investor relations website. The report describes the huge progress that we have made over the past year on our major environmental, social, and governance priorities. If there are any investors who have questions about any of these topics or would like more information, then please contact our investor relations team. The final thing that I would like to do before moving to questions is to comment on our CFO transition. On this call, we have our new and our retiring CFO. Some might call that an embarrassment of riches. I would like to welcome our newly appointed CFO, Kristin Wolfe, who joined us a few weeks ago. Kristin comes to us with over a decade of off-price experience, serving in a variety of financial, strategic, and operational roles. We are very excited to have Kristin as part of the team. Of course, on the flip side of the CFO transition, we will be saying goodbye to John Crimmins, who retires this month. This is John's last earnings call, so please ask him some tough questions. Seriously, I would like to take this opportunity to thank John on behalf of the company and the board for his hard work and commitment to the company over the years, and to wish him all the best in his well-deserved retirement. With that, I would now like to turn the call over for your questions. If you would like to ask a question, please press star followed by the number one on your telephone keypad. Our first question comes from Matthew Boss from JPMorgan. Please go ahead. Your line is open. Great, thanks. Michael, maybe taking a step back, what are your thoughts on the relative performance that we have seen from the major off-price retailers? Said differently, comps for these retailers have historically trended together versus the wider gap that we have seen year to date today. What do you think is driving this divergence in your view? Well, good morning, Matt. Thanks for the question. We watch our peers very closely. We know we can learn a lot from them. Of course, we've interrogated the year-to-date performance. Let me share our assessment. First of all, in terms of the divergence that you are calling out, the data is very clear. If you look at year-to-date on a three-year geometric stack basis, one of our off-price peers is up in the mid-teens, the other is mid-single-digit, and we're minus 1%. As you would expect, we're not happy with this. We think that there are really two factors that explain the difference. Firstly, the customer mix is quite different between these retailers, and depending upon who you are comparing us with, that could be more or less significant. The low-income shopper really drove our relative outperformance versus both peers last year. Stimulus checks, et cetera, had a bigger impact on low-income customers, and I think that was really a much stronger tailwind for us than it was for our peers. This year, those shoppers are struggling, and I think that is contributing to our weaker trend. You know, this demographic disadvantage won't last forever. At some point, inflation will moderate and the low-income customer will start to recover. I think it is important to understand that longer term, that low-income customer is a large and growing demographic, and frankly, it is a demographic that really likes bricks and mortar retail. It is hard to know how much that customer piece is worth, but there is a second factor that we think is important. This is the one that matters most to me because I think we can control and influence it. Once you adjust for any differences in customer mix, all you have left is relative execution. To be clear, I don't mean operational execution. For sure, you know, there are things that we can improve, there are things we are improving in our operations, but there is nothing there that is driving relative comp performance. What I mean is relative merchandising execution. Put another way, if a customer walks into one of our stores versus one of our peers, you know, what do they see? Which store has the most compelling assortment and value? Therefore, where are they going to buy? Where are they going to spend money? Now, most retailers that are faced with a weak sales trend or a tough promotional environment are stuck because they can't do much. They just need to grind through it. As an off-price retailer, we can shift our assortment mix to the areas that the customer is buying, and we can take advantage of supply opportunities to deliver great value in those areas. You know, as I said in the remarks in Q2, that is how we executed our business. When you look at our results, especially on a relative basis, it is clear that we really didn't move far enough. Our peers did a better job. You know, for me, there are really two action implications. One is short term, one is long term. Short term, for the back half of the year, we are really looking at every aspect of value in our assortment. We need to make every hanger count in our assortment. You know, more importantly, longer term, you know, we know we can get better at executing the model. Last year. Yeah, we showed we were really good at chasing sales when the customer had money. This year, the challenge is different. The challenge is the low income customer doesn't have as much money, and the only way to drive the trend is by offering really great value. I think that's a muscle we need to develop more. You know, the last couple of years we've been investing, especially in merchandising, to improve our execution. I'm pretty confident that once those investments have bedded in, they're gonna help us improve and, you know, over time, close the gap with our peers. But yeah, I come back to, and I agree with you, our Q2 comp results are evidence that we're not there yet. Thanks. That's great color. My second question is more focused on the multi-year. With 2022 clearly turning out to be a tough year across retail, I guess, have the challenges from this year affected your thinking about longer term opportunities? Yeah. Good question. I think it's important to separate short-term headwinds from longer-term structural factors. When I joined Burlington three years ago, my thesis was that the off-price model, you know, with its focus on value, responsiveness to trends, ability to take advantage of supply disruption, immunity to e-commerce, that model just felt advantaged to me versus other retail models. Separately, within off-price for Burlington, I saw an opportunity to improve how we execute the model. That's really the objective of Burlington 2.0. Now, you know, fast-forwarding to today, sitting here in 2022, that strategic and investment thesis really hasn't changed. All the structural advantages of the off-price model over other retail channels still apply. I think the improvements we're making, the stronger buying organization, the more flexible operating model, will over time strengthen our own execution of the off-price model. Now obviously, I can't ignore over the last three years, we've seen some significant curveballs. The impact of inflation on our core customer and the tidal wave of promotions, they're just the latest of these curveballs. It's important, I think, to realize that these things are not going to last. The last couple of years have not been normal. Sooner or later, the long term trends will reemerge and reassert themselves, especially the relative advantages of off-price and the dividend that we're gonna get from the improvements that we're making to the business. I still have huge confidence that we're going to achieve our longer term goals and objectives. Thanks. Best of luck. Thanks, Matt. Our next question comes from Ike Boruchow from Wells Fargo. Please go ahead. Your line is open. Hey, good morning, everyone. Michael, one for you. I'd be interested to know what you think is happening with pricing across the current retail industry when you kind of look out at some of your competitors and other soft line players out there. What might be the implication for price increases at Burlington when you kind of factor those things in? Good morning, Ike. You know, it's funny. Of all the topics discussed over the past year, I think this is the one that's seen the greatest evolution. A year ago, the combination of stimulus spending, pent-up demand, tight merchandise supply meant that most major retailers were achieving higher realized prices than they had in years. There were very few promotions, and margins were very strong across the industry. I have to say, I think those days are over. Now most retailers have too much inventory, and they're having to take very significant markdowns and realized prices have really plummeted. Now my view is this is a huge overcorrection. Once the inventory bubble passes, which may take some time, I think pricing across the industry will get more rational again. Let me talk about what that means for us. We talked a little bit about this, I think, on the call in May. The thing that we really care about at Burlington isn't price, it's markup. If merchandise availability means that we can buy goods at lower cost, then that should allow us to drive markup without necessarily raising prices. Now, our original plan had been to take advantage of the opening up of supply to increase our markup in the back half of the year. As you can tell from our guidance and you know, based on the factors we've discussed, we're much more cautious about this now. You know, as long as the external environment remains heavily promotional, we think we're going to have to pass along some of this market markup to the customer. You know, but that said, once the bubble passes, we'll revisit that, and we expect that we would recover some of that markup. Got it. Thank you, Michael. Second one for John. John, you know, first off, congratulations. Best of luck with retirement. I'm not gonna give you a hard one, but on the EPS performance in the second quarter, it was better than the guide despite the comp miss. Could you just kind of talk us through the puts and takes of the performance during the second quarter? Yeah, sure, Ike, thanks for the best wishes. It's a good question. There certainly were a lot of moving parts in the second quarter. I think the best way to answer it is just kind of run through the P&L and give you a little color. As I said earlier, you know, gross margin delevered by about 320 basis points. We had 210 basis points of that was a decrease in merch margin. About half of that was driven by markdowns. The markdown rate was still significantly, you know, better than in 2019. The rest of the merch margin decrease was driven by a true up to our shortage accrual based on, you know, physical inventory results. We took a physical inventory in June. You measure the results and so you make an adjustment based on what you learned from that. We also saw a 110 basis point increase in freight expense compared to last year. Remember last year, most of the increase in freight rates took place during Q3 and Q4. We're still, you know, it's kind of still a tough compare. It gets better in the second half of the year. Our product sourcing costs delevered by about 130 basis points. About half of that was from supply chain and half was from, you know, continuing to invest in our merchandising team. You know, even though we did manage expenses pretty aggressively in the quarter, you know, we're still investing in all of our Burlington 2.0 initiatives. You know, part of that, some of the productivity gains that we're seeing, you know, are somewhat related to these initiatives that are underway. Yeah, on the SG&A side, more broadly on supply chain, you know, we also had a similar to freight, a difficult compare for the second quarter. But we actually came in a little better than we expected, again, thanks to some of those productivity gains. SG&A delevered by about 120 basis points. You know, that's better than we would have expected with a -17 comp. Again, benefit from some of the productivity improvements and disciplined expense management on that line. We also had a combined deleverage of about 30 basis points. That's the net result of depreciation expense and other income. Within other income, there were some gains from the sale of real estate of about $4 million. A little bit of a non-recurring item that helped us in the quarter there. Altogether, that should account for the 610 basis point operating margin decrease that we saw. We also had some unanticipated good news in net interest expense, where we had $3 million of interest income related to a tax refund that actually nets against our interest expense in the P&L. Got it. Thank you. Our next question comes from Lorraine Hutchinson from Bank of America. Please go ahead. Your line is open. Thanks. Good morning. The updated guidance represents a pretty significant revision. It would be really helpful if you could share more of your thinking on how you arrived at the sales guidance and also any major call outs in terms of margin or expense assumptions, and if you view this guidance as conservative. Hi, Lorraine. It's Kristin here. I've actually been working closely with Michael and John on developing the guidance. Let me jump in, and I'll try to respond to your question. On sales, a couple of points to call out. First, we've missed our sales guidance for the last three quarters. We need to start hitting or better still beating the guidance we give. We think this guidance may be conservative, but this feels appropriate. I'd also mention the sales trend is very difficult to project right now. The reason our guidance is more conservative than our year-to-date trend is we believe the promotional activity we saw pick up in mid-June will continue into the fall. Another point I'd add is our August month to date geometric comp stack is running in line with this guidance. Of course, there are a couple of factors. We haven't built these in. These could help us if inflation slows and if gas prices continue to decline, those things could help. Then if promotional activity elsewhere slows down, we may start to see that trade down shopper in our stores. In terms of the margin and expense side of the guidance, as John mentioned, we're forecasting EBIT margin decline of 160-80 basis points in the fall. Gross margin will improve slightly. This is really due to freight, driven by some moderation in import costs and less pressure to accelerate delayed receipts compared to what we saw last year. Merchant margin is now planned lower than last year, and as Michael mentioned in his remarks, much lower versus our previous expectations due to the promotional environment. I'll also call out that the fall plan doesn't include productivity gains that will help us continue to leverage expenses, particularly in supply chain and stores, while we continue to invest in the growth of our business. Both supply chain and stores in the fall of last year saw one-time hiring expenses that will not be necessary this year. Lastly, comparing Q3 and Q4, the margin decline in the third quarter is expected to be more significant. This is really due to weaker comp sales in Q3, but also in Q4, we are lapping peak freight and supply chain cost pressures from last year. Let me finish up by saying, yes, we do think this is a conservative plan, but this feels appropriate given the environment and the way we're managing the business. Thanks. My second question is about inventory levels. Given the weak sales outlook, how are you feeling about your inventory levels? If the sales trend turns out to be a little stronger, are you confident that you'll be able to respond? Good morning, Lorraine. It's Michael. Let me try and answer that. Yeah, I'll start with inventories, and then I'll talk about our ability to chase if the trend is stronger. You know, on inventory, I think it's important to draw a distinction between in-store inventory and reserve inventory. In-store inventory is basically what we have for sale. If you think about, you know, sales, turns, markdowns, and margins, this is the inventory that matters. If we have too much of this inventory, then it will turn slowly, and we'll take markdowns. Now in Q2, our plan was to manage our in-store inventories in line with last year, and that's what we did. I was pretty happy with the execution of our inventories. We ended the quarter very cleanly. We ended with in-store inventories on a comp basis just slightly below 2021 levels, but we're pretty happy with that. Turning to reserve inventory. Reserve inventory is much higher than last year, and that's deliberate. Reserve is largely driven by opportunistic buys. In other words, merchandise where we've gotten a great deal and that we're storing for release in a future month or even next season. The sell-through and the gross margin characteristics of reserve inventory tend to be much better than other types of buy. We manage what goes into reserve carefully to make sure that's the case, and we're pretty happy with our reserve position. Let me finish up, though, on the last part of your question. How confident are we that we can chase sales? You know, I'm more confident about that now if the sales trend is strong than I have been for two years. You know, this is one reason why we're comfortable with a conservative plan. If the customer ends up wanting to spend more, I'm comfortable we can chase it. We can either accelerate releases from reserve, and we know we have a good reserve balance, or we can go into the market and buy fresh receipts, and we know there's plenty of supply in the market. Neither of those things was true last year. Supply was much more difficult this time last year. Now it's freed up. It really puts us in a good position to chase if the sales trend is stronger. Thank you. Our next question comes from John Kernan from Cowen. Please go ahead. Your line is open. Good morning. John, congrats on your retirement. Kristin, welcome. Thanks, John. The full year operating margin embedded in the updated guidance, it obviously implies significant deleverage versus 2019. How confident are you that you can get back to that 2019 margin structure? Any detail on gross margin and SG&A rate is appreciated. Thank you. Well, good morning, John. It's Michael. At this point, I don't think it would be fair to have Kristin have to answer that, so let me offer an answer. In the next several months, I will be developing our budget for 2023. We'll also, when we do that, go through an exercise of updating our long-range plan. Coming out of that, we should be able to provide a more specific path and timeline for growing our margin. For now, you know, I think I know enough to answer the question at a high level. If you take the upper end of our updated guidance, it implies an EBIT margin for the full year 2022 that is about 420 basis points below 2019. The drivers of that EBIT margin contraction are very clear. Of the 420 basis points of contraction, 370 basis points is from higher freight and supply chain expenses. All the other line items combined, so merchant margin and store costs, et cetera, all of those combined represent about 50 basis points of contraction. Now, within that bucket, there are positives and negatives, but obviously the biggest piece within that bucket is expense deleverage on a -1 comp over a three-year period, which as you can imagine is significant. When we come to update our long-range plan later this year, you know, it's pretty clear to me that there are four main buckets that we're gonna be going after. I feel pretty confident that we're gonna find value in each of these. The first, of course, is freight and supply chain. You know, as I just said, 370 basis points of the 420 basis points of deleverage since 2019 has been in these line items. Now, as we said before, we're not expecting to get all of that back. You know, some of those costs, you know, higher rate in the DC, for example, are gonna be permanent. But other drivers of those costs, the freight rates, the fuel costs, special wage incentives that we had to give people to get staffed, you know, special shifts that we had to run that were more expensive, some of those costs should come down over time. I think it's early, but there are signs that that's starting to happen. That's freight and supply chain costs, and I think we can pull out quite a bit there. The second bucket, though, second lever we would go after, if you like, is sales. You know, today we've talked about why sales have declined this year, especially the impact of inflation on low-income customers, the extraordinary levels of promotional activity. You know, as I said in the remarks, we think those factors are temporary. We expect our sales to pick up once inflation moderates and once this inventory bubble passes. You know, add to that, we believe that the longer-term improvements we've been making to the business, especially in merchandising, will further underpin our long-term sales growth. We think, you know, we think we can drive sales, and that obviously will drive leverage on fixed expenses. The third bucket that we will interrogate is markup. You know, as I think just Kristin talked about, we originally planned to raise our merchant margin in the back half of this year through higher markup. That markup was based upon, you know, an improved supply environment that we can get merchandise at lower cost now because supply has eased up since last year. Now, you know, as we've explained, we're being more cautious about that now in this environment. Once the external promotional activity begins to moderate, this is absolutely something we'll revisit. Let me finish up on the fourth bucket that we'll interrogate is markdowns. In 2022, our markdown rate will still be well below 2019 levels, but it will be above 2021 levels. In other words, we've given back some of the progress that we made last year. It's not hard to see why. We've had a sales trend that's below plan. We've had high external promotions that we've had to respond to. Again, once we get through this, we've proven to ourselves that we can turn inventory faster, and we'll get back to that. That's the fourth bucket we would expect to get value from. Now, I guess I should just maybe just finish up by saying we've always believed that we can drive margins above our 2019 levels, and we continue to believe that. In addition to the four items I just mentioned, there are additional levers that I'm not gonna review now, we don't have time, but there are additional levers that we believe will help us to get to double digit margins over time. Those include, you know, lower occupancy costs based upon a smaller, more productive store prototype and significant efficiency and productivity improvements that we expect to make in our operations. All right. Appreciate the detail. Your comments make an easy setup for a follow-up question just on freight and supply chain expenses. These all these expenses spiked in the back half of last year. I think the model suggests it was a 200 basis point headwind or so to gross margin in the second half last year. You mentioned earlier that there's signs that some of these expenses are starting to soften. We can obviously see the spot rates on ocean and trucking rates coming down. Is there any benefit of this softening in Q3 or Q4, or is this a 2023 story? Yeah, John. Thanks. I'll take that question. So yeah, as I said earlier, during the second quarter, supply chain and freight together cost about 170 basis points of deleverage. Freight was 110, supply chain, another 60. As you know, costs in both of these areas increased much more significantly in the second half of last year. The impact on this quarter's comp is more difficult than we would expect it to be for the second half of the year. We think it will be a little bit better for us in the second half of the year. What we're seeing overall, I think, is similar to what we've heard and what you've probably heard from other retailers. As you mentioned, for ocean freight, clearly spot rates have been improving. You know, we are taking advantage of that, where we can and when we can now. You know, spot rates are improving in a meaningful way, and we anticipate that this trend is gonna continue over the next two quarters and into next year. It's gonna help us a little bit in Q3 and Q4, but we expect it to be much more help, you know, going into next year and beyond. For domestic freight, there's been some improvement, but so far it's been, you know, less impactful and offset by high fuel prices. You know, longer term, we think there's gonna be much more meaningful movement there. Just haven't really seen that much of it yet. For supply chain costs, yeah, we do expect some improvement in the second half of the year. You know, you'll remember last year we had significant non-recurring incentives and hiring costs as we struggled to get our DCs fully staffed and operating at full capacity. You know, I guess within supply chain, we should also kind of mention the wage side of it. You know, we have seen that wage inflation has slowed. The availability of labor has improved significantly since last year, but you know, it's still a bit of a challenge. You know, we think wages will likely remain at current levels, but we do anticipate you know, some overall softening in the availability of labor, which you know, should help overall staffing costs. You know, some of that, you know, maybe a little bit of that in the second half of this year and then looking forward. Thank you. Our next question comes from Kimberly Greenberger from Morgan Stanley. Please go ahead. Your line is open. Okay, great. Thanks so much. Welcome to Kristin and John. Well deserved. Congrats on your retirement. I don't have a really hardball question for you, but I did wanna follow up, Michael, on your comments earlier about the sort of agility and the adjustments in the quarter, and maybe year to date when consumer buying patterns shifted and changed. It sounded like you would have expected maybe faster and more substantial adjustments in season. I'm wondering if you can just reflect on what you've seen year to date in that agility, and where in particular do you think there's an opportunity going forward to improve responsiveness? Is that through you know, better systems, better reporting to the merchants? Is that... You know, what are the sort of steps to get you to get the sort of the merchant and the planning team where you'd like it to be so that the responsive capabilities in the business are better in the future? Good. Well, good morning. Good morning, Kimberly. First of all, this really isn't fair. You're supposed to ask John the hard questions, not me. I think I can try and I'll try and respond. I guess the right place for me to start is, you know, what have we done over the last couple of years? In the last couple of years, we've invested in our merchandising team. We've added, I think since 2019, we've added about 35% headcount to our merchandising team. We've also been challenging and redesigning our planning and buying processes, our reports, our tools, all aspects of buying. The reason we've been doing that is because, it's kinda the secret sauce of off-price. It's what drives off price. Within that, there is absolutely a very difficult balance that merchants have to make between deciding where to spend our open to buy, which categories, which styles, which price points. I think that judgment improves with experience over time. I think that we did all those things in Q1. I wanna be careful to acknowledge we did all those things in Q1. It's really when I do a comparison with our off-price peers, I have to acknowledge, wow, they did those things too and outperformed us. I kinda feel like, you know, again, as I said in the script, you have to kinda strip out customer differences. If I strip out the customer differences, I'm left with that relative merchandising execution as the thing where I think we still have opportunity. We still have a ways to go. I, you know, like I say, like I said in the script, I feel like, you know, given the talent we've brought on, given the changes we're making, we're absolutely gonna be able to do that over time. You know, last year, I think, was interesting because I feel like we really demonstrated a lot of capability chasing the trend, chasing into businesses, people, you know, customers wanted to buy when they had money. This year, I just think that challenge is a little different. Yeah, like I say, we can do much better. Sounds good. Thanks so much. Thank you. Our last question will come from Chuck Grom from Gordon Haskett. Please go ahead. Your line is open. Hi, this is Greg Sommer on for Chuck. I wanted to ask, how are you balancing the current, better buying environment and the possible even better buys down the road in the second half? When should we expect to see those buys get reflected in merchandise margins? Is that a second half phenomenon or more in 2023? Could you just repeat that question? You broke up a little bit as you were asking the question. I just wanted to weigh the balance between the current buying environment where you guys are seeing deals and the possibility of better deals emerging in the second half, and then the flow through to better merchandise margins, whether that can come through in the second half or it's more in 2023. Thanks. No, it's a good question. You know, we're being very careful right now. I would say, you know, actually throughout Q2, we're very careful to hold back on buying. Right now, this is a buyer's market. In a buyer's market, you know, patience is really what gets rewarded. We're being very, very careful about how we're spending our open to buy, making sure that we're really waiting until the deal is as good as it could possibly be. That applies to reserve just as much as inventory that we're flowing to stores. You know, I would say that in Q2, the buying environment was excellent, and I think it's quite likely in the back half it could be even more excellent. I think, you know, again, it relates to all the things we've talked about, the massive oversupply of inventory, et cetera. It means that the buying opportunity is very good. Let me make one final point. When you have external promotions like we're seeing right now, it's so important that we get the very best deal when we're out there buying because we have to compete against those promotions. You know, it can be done, and that's the value of the off-price model. That's another reason why we're just very careful when we're buying right now. Okay. Thank you. Thanks. We're out of time for questions today. I would now like to turn the call back over to Michael O'Sullivan for closing remarks. Let me close by thanking everyone on this call for your interest in Burlington Stores. We look forward to talking to you again in late November to discuss our third quarter results. Thank you for your time today. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.