Good day, ladies and gentlemen, and welcome to the Burlington Stores First Quarter Fiscal 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. Following management's prepared remarks, we will be hosting question and answer session and instructions will be given at that time.

[Operator Instructions] As a reminder, this conference call may be recorded. It is now my pleasure to hand the conference over to Mr. David Glick, Senior Vice President, Investor Relations, Treasurer. You may begin, sir..

Thank you, operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington's fiscal 2019 first quarter operating results. Our presenters today are Tom Kingsbury, our Chairman and Chief Executive Officer; and Marc Katz, Chief Financial Officer and Principal.

Before I turn the call over to Tom, I would like to inform listeners that this call may not be transcribed, recorded or broadcast without our expressed permission. A replay of the call will be available until June 6, 2019. 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 2018 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 is Tom..

increasing total sales to leverage fixed cost, optimizing markdowns, returning our inventory management discipline and maintaining an active profit improvement culture across all SG&A areas. Now I'd like to turn the call over to Marc to review our first quarter financial performance and updated outlook in more detail.

Marc?.

Thanks, Tom, and good morning, everyone. Thank you for joining us today. While comparable store sales were at the low end of our guidance, we achieved strong contribution from new and non-comp stores as well as an increase in our merchandise margin.

Strong expense management enabled us to slightly exceed the high end of our recently updated adjusted EPS guidance. Our adjusted earnings per share of $1.26 was flat to last year's first quarter. Next, I will turn to a review of the income statement. For the first quarter, total sales increased 7.3% and comparable store sales increased 0.1%.

New and noncomp stores contributed an incremental $121 million in sales for the first quarter. Our Q1 comparable store sales performance was driven by an increase in units per transaction, while traffic and AUR declined and conversion was flat.

The gross margin rate was 41%, a decrease of 20 basis points versus last year driven by a 30-basis-point increase in freight. As we discussed on our year-end earnings call, we expect freight expense to be a more significant incremental headwind during the first half of the year versus the second half.

First quarter freight deleveraged by 30 basis points due to higher contract rates as well as the transitory negative impact from higher year-end inventory at the West Coast port. The increased congestion in the West Coast port caused delays, which led to incremental freight expense.

As I stated on our last earnings call, the overall freight cost pressure in the second quarter will be similar to the first quarter, but we continue to expect the negative impact of freight to moderate in the second half of the year. While we are still finalizing those contracts, we are seeing some positive developments.

We are still forecasting freight to be a 20-basis-point headwind for fiscal 2019. Our merchandise margin did increase 10 basis points in the first quarter driven by a higher IMU, which was partially offset by higher markdowns.

We continue to expect our merchandise margin to be up approximately 40 basis points for fiscal 2019 with the majority of that increase coming in the second half of the fiscal year.

Product sourcing costs, which include cost of processing goods through our supply chain and buying costs, were 10 basis points higher than last year as a percentage of net sales. Adjusted SG&A was 26.3% as a percentage of sales, a 20 basis point increase from the fiscal 2018 first quarter.

Reductions in the marketing and utilities expense rates were more than offset by deleverage in occupancy and store payroll expense. Adjusted EBITDA increased 2% or $3 million to $168 million.

Higher freight expense as well as deleverage on store occupancy and payroll expense were the primary contributors to a 55-basis-point decrease in rate for the quarter.

Depreciation and amortization expense, exclusive of net favorable lease amortization, increased $5 million to approximately $50 million and interest expense decreased $1 million to approximately $13 million. Adjusted EBIT decreased 2% or $2 million below the prior year period to $117 million.

The 65-basis-point decline in adjusted EBIT as a percentage of sales was primarily driven by the same factors impacting EBITDA margins as well as higher depreciation expense. The effective tax rate was 17.2% for the first quarter, slightly lower than last year's 17.4% rate.

The adjusted effective tax rate was 18% for the first quarter, slightly above last year's rate of 17.4%. Combined, this resulted in adjusted net income of $85 million, a 2% decrease versus last year. All of this resulted in earnings per share of $1.15 versus $1.20 last year. Adjusted earnings per share were flat with last year at $1.26.

The $1.26 per share result represents a $0.01 beat versus the top end of our most recent guidance update, while falling within the range of our original first quarter guidance. Turning to our balance sheet.

At quarter end, we had $105 million in cash, $150 million in borrowings on our ABL and had unused credit availability of approximately $394 million. We ended the period with total debt of $1.1 billion and a debt-to-adjusted EBITDA leverage ratio of 1.4x.

As a reminder, we have $961 million outstanding on our term loan B; and our previous swap, which hedged $800 million of this loan at effective LIBOR interest rate of 1.65%, does expire at the end of May 2019.

As we discussed on our year-end earnings call, we entered into a new interest rate swap effective May 31, 2019, which fixes $450 million of this loan at an effective LIBOR interest rate of 2.72%.

We continue to pay a 200-basis-point applicable margin above LIBOR meaning at current LIBOR rates, our effective interest rate beginning in June 2019 will be approximately 4.5% on our unhedged portion of our term loan and 4.7% on our hedged portion.

We believe we are appropriately balancing the benefit of fixing approximately half of our outstanding debt on our term loan at what we view is an attractive historical interest rate of 4.7% while potentially benefiting from a reduction in rates over the next few years on the unhedged portion.

Moreover, if rates do go higher, we believe our strong cash flow gives us the flexibility of paying down more of the term loan to manage our interest expense in the event that it is the most accretive deployment of excess cash.

Given our updated hedged position, the current interest rate environment and what we view as attractive growth prospects for the company and at our current valuation, we believe at the present time repurchasing shares is the most accretive use of excess cash as evidenced by the $123 million we repurchased during the first quarter.

We will continue to monitor these variables going forward with our objective focus on evaluating and determining what we believe will be the most accretive use of excess cash flow for our shareholders. Merchandise inventories were $896 million versus $787 million last year.

This increase was driven primarily by inventory related to 37 net new stores opened since the first quarter of 2018; a comparable store inventory increase of 5%; as well as an increase in pack and hold inventory, which was 28% of total inventory at the end of the first quarter of fiscal 2019 compared to 27% at the end of the first quarter of fiscal 2018.

It should also be noted that our total inventory was up 14% at the end of the first quarter of fiscal 2019 versus up 27% at the end of the fourth quarter of fiscal 2018. Cash flow provided by operations decreased $6 million to $54 million driven by changes in working capital and slightly lower net income.

Net capital expenditures were $72 million for the first quarter. During the quarter, we opened 17 gross new stores, including 6 relocations and closed 2 stores ending the period with 684 stores. We continue to expect to open 75 gross new stores and close or relocate 25 stores, resulting in 50 net new stores for fiscal 2019.

Before I discuss our updated fiscal 2019 and second quarter guidance, I would like to make you aware of approximately $4 million in management transition cost that we will now incur in fiscal 2019 as a result of our recent CEO succession announcement.

This incremental expense, approximately $0.05 per share, will be included in our reported adjusted net income and will negatively impact our earnings in the second half of fiscal 2019. While we will include this expense in our adjusted net income, we will identify what this expense is each quarter when we report earnings.

Given these incremental costs were not contemplated in our original guidance for the year, we have excluded management's transition costs from our updated guidance. Now onto our outlook. For the 2019 fiscal year, we now expect total sales growth in the range of 8.5% to 9.2% as compared to fiscal 2018.

Comparable store sales to increase in the range of 1% to 2% for the second quarter, 2% to 3% in the third and fourth quarters resulting in full year fiscal 2019 comparable store sales increase of 1.3% to 2.1% on top of last year's 3.2% increase. Adjusted EBIT margin to be approximately flat to last year.

Depreciation and amortization, exclusive of favorable lease amortization, to be approximately $210 million. Interest expense to approximate $53 million and effective tax rate of approximately 21%.

Capital expenditures net of landlord allowances are expected to be approximately $310 million and based on our first quarter results, we now expect adjusted earnings per share in the range of $6.93 to $7.01 versus $6.44 last year. This assumes a fully diluted share count of approximately 68 million shares.

For the second quarter of 2019, we expect total sales growth in the range of 8% to 9%, comparable store sales to increase between 1% and 2% and adjusted earnings per share expected to be in the range of $1.11 to $1.15 compared to $1.15 per share last year. With that, I will turn it over to Tom for closing remarks..

Thanks, Marc. In summary, we continue to have confidence in the strength of our business model and growth strategies. While we are disappointed in our sales results this quarter, our trends are improving, and we believe the strategies we have in place should enhance our performance as the year unfolds.

Finally, given the strength of our current team, coupled with our recent leadership transition announcement, we are excited about the long-term opportunities for Burlington. With that, I'd like to turn the call over to the operator to begin the question-and-answer portion of the call.

Operator?.

[Operator Instructions] And our first question will come from the line of Matthew Boss of JPMorgan..

Great to hear of some of the improved execution. I guess first, Tom, can you update us on progress you're making in Ladies Apparel and the strategy to improve what laterally clearly appears to be a challenged business across retail? Maybe ideally, your 2019 plan versus category penetration opportunity longer term..

Okay. Thanks, Matt. Unfortunately, our fourth quarter trend in heritage Ladies Apparel essentially continued into the first quarter, but candidly, it had a bigger impact on our total comp given the higher penetration of this business in the first quarter. I went into some detail in my prepared remarks about our strategy.

While Ladies Apparel does appear to be soft across the country, we believe our issue and opportunity lies in the balance of our career product versus our casual product. As I talked about on our last quarter call, historically, our strength in special occasion categories like dresses and suits was a differentiator for us.

But candidly, the customer is moving away from dressier classifications into more casual looks. We have to move our assortments to keep up with our customer. While we hope to make some incremental progress in the second quarter, we aren't counting on a big improvement in our guidance we gave for the second quarter.

It could still take us a few quarters to right size our heritage ladies business. But in the meantime, we are moving aggressively to distort the growth in missy sportswear, areas like better casual and active so that we have an improved position for the second quarter and that we are positioned strongly for the fall season.

In addition to reducing our buys in career and distorting growth in casual classifications, we're also increasing our in-season liquidity as well as shifting our merchant headcount into the casual classifications. As I mentioned in my prepared remarks, we don't expect to increase our Ladies Apparel penetration in 2019.

We're in the process of rebuilding this business to take advantage of the opportunity in missy sportswear and still believe Ladies Apparel, overall, is a long-term penetration opportunity for us.

But I just want to remind everyone that we have significant sales opportunities this year in a number of underpenetrated categories like home and beauty as well as baby apparel, Baby Depot, Toys and potentially, Footwear..

Great. And then Marc, maybe could you just walk us through the puts and takes with your updated margin and EPS guide? Maybe just any additional color to help bridge the bottom line delta ex management transition costs would be helpful..

Sure, Matt. I'll talk at the high-end of the guidance. Our initial full year guide, as you know, was $7.06. In Q1, we missed the high end of that initial guide by $0.05. We had said $1.31 initially, came in at $1.26. So the $0.05 is what we reduced the $7.06 by and that's the $7.01 at the high-end.

From a sales point of view, with Q2 now, at a 1% to 2% comp. We still have fall in our guided a 2% to 3% comp. You roll that through the year and you end up with a full year comp of 2.1%. So the major components of EBIT really remain unchanged from what we stated on our last call. So -- and I'm speaking now for the full year.

So we still expect merch margins to be at 40 basis points, freight to be a 20-basis-point headwind, product sourcing cost a 10-basis-point headwind, that will all roll up to a loaded margin of 10 basis points positive.

And then now that, that full year comps right there to 2.1%, we're saying other SG&A, we're going to have 10 basis points of deleverage there. So that's why we're seeing EBIT margins flat. In terms of the management change cost, what we're really trying to capture there, Matt, are those duplicative costs that are going to be reflected in our results.

So what do I mean by that? Our guidance certainly reflected Tom and for the full year, full salary, full bonus, full LTIP. But we didn't have a second executive at that level with all of those same components as well as a make-whole grant. Those were not in the initial guide.

That's really what makes up the $4 million and the approximate $0.05 per share. So again, those costs are going to hit in Q3 and Q4, and we will call those out each quarter..

And our next question will come from the line of Ike Boruchow with Wells Fargo. Your line is now open..

Good performance in a tough time. I guess, Tom, question for you first. The Q1 comp inventory, a bit higher than I guess you thought.

Are you still comfortable with the mid-single-digit decline for the end of the second quarter? And is this possible you're going to create any markdown issues for you guys as you move through the second quarter?.

I'll take the first part and then, Marc, you can take the markdown piece of it. Yes, Ike, our comp store inventory was up 5%. That was a bit higher than our expectations. This really came down to being at the low end of our sales plan.

Had we been closer to the midpoint or high end of our sales guidance, we would've been more in line with the low single-digit increase at the end of the fourth quarter.

We believe our higher ending Q1 inventories will not negatively impact our second quarter sales because the makeup and balance of this incremental inventory is positioned in our key growth businesses as well as our warm weather categories.

Our receipt flow has improved versus last year as we've received a lot of goods last year late in the second quarter as we discussed on our second quarter '18 earnings call.

Given where we ended the first quarter as well as the goods we received in May this year, we feel inventories are positioned to achieve the mid-single-digit comp store inventory decrease at the end of the second quarter.

Marc, do you want to comment on this markdown?.

Sure. So, just in terms of the complexion of our inventory at the end of the quarter, our goods aged 91 days and older was flat to LY. So we continue to be pleased with the low levels of aged inventory. But really, the freshness of our inventory, the goods that are aged 0 to 30 were at very high levels, so I felt good about that.

So our comp inventories, obviously, ended a bit higher than we had planned. We took all the markdowns we needed to in Q1. We believe our guidance reflects appropriate level of markdowns that we'll need to take in Q2. So I guess the best guidance here I could give you is our expectation for merch margins is similar to what we've said in Q1.

We expect merch margins to be up in Q2. They're not going to be up to the extent of the 40 basis points we're saying for the year, but we're still saying they'll be up over last year..

Got it, Marc. That's helpful. And a quick follow-up for you just sticking on margins. I was wondering if you performed your -- you typically have an annual review of operating margin versus your peer set.

Any updates on the remaining gap Burlington has versus your larger peers?.

Sure. We absolutely performed that review. We'd be happy to talk to you about it. I always like to start out by noting in the last 6 years that we've increased our EBIT margins 420 basis points, and that included 50 last year despite freight and wage and all the other headwinds. So feel real good about what we've accomplished.

This year's update, we still believe there's 300 to 400 basis points of EBIT margin gap versus our peers. At this point, we think the gap is slightly more weighted toward SG&A, but our game plans to address this opportunity isn't going to change.

It's literally going to be the same initiatives that have delivered the last 420 basis points over the last 6 years. So let's talk this through. Obviously, we need to continue to drive total sales productivity. Tom talked a lot in his prepared remarks about our under-penetrated categories and our new store growth.

So obviously, continuing to grow our sales productivity is just going to lead to better leverage across all fixed costs. In terms of merchandise margin, the off-price model continues to be rooted in value. We will continue to balance delivery, incremental gross margin while delivering value to our customers and driving sales.

But at the end of the day, we continue to believe we carry more inventory in our stores than is required, and we're going to continue to plan our comp store inventories down mid- to high-single digits over time, which is going to drive faster turns and should drive a lower markdown rate.

So the big mover in merch margin as we see it going forward is going to be that lower markdown rate from turning faster. And then finally in terms of SG&A, I think you know, we've got a very active profit improvement culture here at the company. It's our number one goal and objective for all of our sales support teams and that's not going to change.

So long story short, 300 to 400 basis points of opportunity. We're excited about it and think we have a proven game plan to continue to narrow that gap..

And our next question will come with the line of Lorraine Hutchinson with Bank of America..

I just wanted to circle back on the traditional Ladies Apparel shifts. I think one thing we've seen in the industry over the past 5 years or so is there has been a shift to more casual, but it tends to be deflationary in nature because some of the more casual products are cheaper than the suits and dresses.

So what are the efforts in place to try to make sure that you capture all those dollars that she has in her wallet even if she can pay a little bit less for her outfit?.

Well, we think that the fact that we've been growing our inventories or receipts in better and best product, that should help offset any potential AUR drop, but we need to move on from dresses and suits. We need to make sure that we're presenting to the customer the product that they want.

So we're not going to hang into -- hang onto a business based on the fact that an AUR might drop. We'll just have to, obviously, strategize that amongst other businesses, et cetera. They have the mix turn out correctly, so we're not going to get hurt. But we're committed. We're committed to go after the casual business as I've stated multiple times.

We think it's an opportunity, and we need to move away from those more dressier products or career products such as dresses and suits..

And our next question will come from the line of John Kernan with Cowen..

This is Krista Zuber on for John.

Just as we kind of look at your comp guidance for the full year along with what you're looking for 1% to 2% for Q2, it certainly applies an acceleration in comps in the second half, and I think you've said in the past that about a 3% comp or sort of beyond or above a 3% comp there is potential to pick up some SG&A leverage.

Are you planning for a return to SG&A leverage at some point in the second half of fiscal '19?.

Yes. In our SG&A algorithm, as we stated this year in '19 due to the headwinds that we had, we've said we'd be flat at that 3% comp. But then moving from 3% to 4%, we should pick up 15 basis points of leverage with each 1-point pickup in comp so to speak.

Hopefully, in time, we could get back to starting to get some leverage on the 3% comp, and that's what we'll be working toward over the next period of time. But that still is the algorithm. And yes, we're hoping to get some leverage there in the back half.

But remember, in the back half in addition to being 2% to 3% comp, we're also expecting far less pressure from freight..

And our next question will come from the line of Dana Telsey with Telsey Advisory Group..

Nice to see the progress.

As you think about the existing stores and the new stores and the remodels that you're talking about, how is that performing and what are you seeing? Any differences in performance in the new stores that are of a smaller size and as you remodel and downsize some of the existing? Is there any difference on performance? And how you're getting consumers aware of that?.

Well, we've done well with our new stores as we've commented many times before. The C-Point strategy that we developed with a third party to identify where our stores should be located, I think that was like 3 or 4 years ago, it's really helped us in terms of our performance overall.

It just really indicates where our customers reside, where are the best retail hubs and where we should have a store. So new stores are performing well. And obviously, it gives us a lot of confidence that we can have 1,000 stores in the U.S. over time.

Our relocation stores moving from a not-so-great shopping center to a much better shopping center, those have proven to be very, very good for us. And we feel that, that's the way we're going to -- we're really going to go quicker in the future to really move our stores into better locations. And remodels, remodels are good.

We look at them as -- in more of a defensive, making sure that our stores look good for our customers, and we continue to improve the customer experience in those stores overall. But it's more like -- it's more about that than is about a great return on that..

Just to piggyback on what Tom said, Dana, we do get a lift with our remodels, they generate a return. It's more in line with cost of capital versus our new stores that are multiples of cost of capital..

And our next question will come from the line of John Morris with D.A. Davidson..

Congratulations on the great results. And Tom, congratulations on all your great work and your great horizons going forward. So thank you for all that hard work. And great to hear a little bit more color about how you will see tariffs either positively or negatively impacting the business.

Maybe can you just give us a little bit more about the benefits potentially? You talked about potential disruption, how that creates buying opportunity. Just wondering how that might look from the standpoint of the company being able to capitalize on some of the disruption.

Are you seeing any of that currently or is that a little bit too early? Just want to sort of get a read there..

It's too early really to say if there is going to be disruption. But historically, I mean when there's disruption in the marketplace, it could be when there was issues in the ports a couple of years ago or if it's cold weather in the spring season. It's just -- wherever there is any kind of disruption, there is more product available to us.

But with that said, I mean we have plenty of product available to -- for us now. I mean that's not really an issue. But just historically, it's been proven that when there is some disruption that we sometimes benefit from that..

And then my follow-up would be on the marketing, the marketing initiatives you guys have had. You said that you have had good responses from customers on the campaign. Just wondering if there are any other metrics that back that up other than kind of that qualitative observation.

And yes, just -- that and any more color on the loyalty program that will be rolled out and the timing of that?.

As far as marketing goes, we're shifting marketing dollars, our media dollars, out of the traditional types of media and into more digital, more social. We're also trying to connect with more influencers, more mobile. We're trying to move our dollars where the customer eyeballs are today.

So even though we're pleased with what's been going on with our TV campaigns in terms of the fact that they resonate with our customers, but in general, we're going about it like everybody else. We're trying to shift our marketing dollars into areas where we know customers are really interacting more.

So as far as the private-label credit card goes, we're just -- we're testing it now, we're now -- it's in 140 stores. It's performing as planned, and we plan to roll it out sometime in the balance of the year..

Yes. I just didn't know if there was a particular month or a quarter that you might be looking at for that..

Well, we're in pilot mode and we're making sure that everything is working the way it should. It seems like it is. And we're not in a rush. We just want to make sure that when we do roll it out, we do it in a thoughtful manner..

And our next question will come from the line of Paul Trussell with Deutsche Bank..

We spent time discussing the Ladies Apparel business. Just maybe wanted to get some additional color on the progress in those other categories, specifically home, beauty, fragrance, baby, toys.

Just discuss how you're -- feel you're doing in terms of procuring better product and brands in those areas and making sure the customers know that you have that..

Okay. Our Home business has been very, very strong. Last year, we picked up 100 basis points in penetration, and we're performing well across many categories within the Home business. It was really important to our overall gifting strategy to grow our Home business, which also has been very, very strong.

And another gifting area that we've done well is in -- is beauty and fragrance. We continuously see nice growth there overall. And we're -- between home and beauty, we are attracting a lot of different brands, brands that we had really wanted to put into our portfolio. So as we grow the business, more becomes available to us.

The baby business, Baby Depot and baby apparel, we've always been known for our baby business, and we've been able to really capitalize on what's currently happening in the marketplace. So we feel very good about that business.

Our toy business really outperformed in the fourth quarter, it outperformed in the first quarter, so we're really working hard to take advantage of that. We're maintaining strong gift card toy presentations throughout the year now.

Before we would somewhat put it in the background when we got into the first quarter, but now it's front and center as you'll see in our stores with a lot of graphics. So all those businesses are trending well, and we expect them to continue to trend in this quarter and in the second half of the year..

And quick follow-up on merchandise margin should we -- reiterated guidance for the full year. Just maybe speak to what will drive that 40 basis points of gains. Obviously, that's a bit of an acceleration over the balance of the year..

Yes. Paul, I would say minimal on the IMU front and most of it will come from the faster turns and a lower markdown rate..

And your next question will come from the line of Adrienne Yih with Wolfe Research..

Tom, congrats on the great run transforming the business. So my thanks as well..

Thank you..

My question is actually a follow-on on the tariff. So it sounded like the -- that was the current List 3 exposure.

I'm wondering if you could help us out with if List 4 were to be implemented, how would those same metrics look direct and third-party exposure to Chinese sourcing? And then my follow-up is given the weather and traffic hurting retail sort of in Q1, how much of 2Q inventory were opportunistic in these short-stay buys?.

Well, as far as the tariffs go, obviously, if there is more tariffs we'll have to evaluate the situation because obviously, it's another big amount of tariffs. But our direct imports, as I said, is still a small part of our business at this point in time.

So we really feel that, obviously, it will become more of an issue as more tariffs get put in place. But right now as I mentioned between what happened in first round and now the second round, it really hasn't been material overall. As far as opportunistic buys, our business is rooted in opportunistic buys.

And so we have liquidity that we took advantage of some warm weather product that would be delivered or is being delivered in the second quarter overall. But again, as I mentioned multiple times already, I mean there's a lot of products out there to choose from. And obviously, we really -- our business model is steeped in opportunistic buys..

Our last question will come from the line of Mark Altschwager with Baird..

Maybe just a big picture question for Tom.

Just with respect to the CEO transition later this year, do you see any potential that this could result in a shift to -- in the broader strategy and the earnings growth algorithm you've demonstrated over the last couple of years?.

I don't think so. I wouldn't expect that. I think the new CEO has seen all the progress we've made over the years. And he is very respectful of what we've done historically. And he'll come in and he'll evaluate exactly what's happening in the company, and I'm sure he will have his own point of view on certain things.

But at this point in time, he's not starting until mid-September as we have announced. So we'll see over time..

That's great. And just a quick follow-up on the merchandise margin commentary. I think you commented that there was some higher promotional activity.

Could just elaborate on that a bit? Wondering how that compared to your expectations and if there's any broader shifts in the competitive backdrop that you're able to offset just given the unchanged overall merchandise margin guidance..

I don't believe we talked to increased promotional activity. I don't think we talked about that, and I would just go back to -- our expectation is still to see 40 basis points of merch margin expansion over the year. Specifically in Q2, we expect it to be up but not up to that degree..

Thank you. And that concludes our question-answer session for today. It is now my pleasure to hand the conference back over to Mr. Tom Kingsbury, Chief Executive Officer, for any closing comments or remarks..

Thanks, everyone, for joining us today. We look forward to speaking with you when we report our second quarter results in late August. Thank you..

Ladies and gentlemen, thank you for your participation on today's conference. This will conclude our program, and we may all disconnect. Everybody, have a wonderful day..