The news: Burlington cut its supply chain costs as a share of sales last quarter while opening its largest and most automated distribution center near Savannah, Georgia.
Product sourcing costs, the line that covers running its distribution centers and its buying operation, were $226 million against $209 million a year ago. Those costs grew 8% while sales grew 11%, so they fell 20 basis points as a share of sales.
“We achieved leverage in supply chain despite the startup of our new state-of-the-art Savannah distribution center,” CFO Kristin Wolfe said on the earnings call.
New buildings of this size normally push costs up for a year or more before they help. Burlington has put automation at the center of its warehouse buildout in a way its off-price rivals have not described in their own expansions. So, two straight quarters of falling costs during a startup are the first numbers on whether the bet pays.
What changed: In March, Wolfe told investors to expect supply chain costs to stay roughly flat for 2026. She said the Savannah startup would add 10 to 20 basis points of cost in the first quarter alone.
Costs fell instead: 30 basis points as a share of sales in the first quarter, which Wolfe called better than expected progress, and 20 more in the second.
The Savannah-area building, a roughly 2 million square foot facility in Ellabell with more than 25 miles of conveyor, began receiving inbound product in April and is now shipping to stores. Wolfe said the startup “has gone really largely as planned.”
How it works: Savings from Burlington’s earlier automated DC are covering Savannah’s startup costs. That facility, in Logan Township, New Jersey, runs more than 1 million square feet with over 22 miles of automated storage and conveyance. It is “starting its third year, or its junior year, as we’ve been calling it,” Wolfe said, adding that “it's really becoming a meaningful contributor to strong productivity gains.”
Each automated building takes about two years to reach full speed, so the one that has finished ramping pays for the next one’s opening.
Burlington also credits software. Wolfe pointed to better predictive tools and routing, and to “better integrating more seamlessly with allocation,” which she said “reduces handling costs, reduces touches, and ultimately drives efficiency.”
The same systems now shape Burlington’s buying decisions. CEO Michael O’Sullivan said the company deliberately planned down outerwear for fall because of warm-weather risk: “Historically, we would not have been comfortable planning down such an important category. But with our Merchandising 2.0 systems and tools, we are confident that we can start with a more conservative plan for these businesses and then react more rapidly.”
The competition: Burlington has already committed to the next building, before Savannah has produced a full year of evidence. The company’s second-quarter filing shows it bought 178 acres in Buckeye, Arizona in December, financed with a $50.6 million zero-interest seller note. The land is for a roughly 2 million square foot automated DC planned for 2028.
Analysts didn’t ask about it on the call.
The spending is far larger than the savings so far. About $290 million of this year’s roughly $875 million in capital budget goes to supply chain. But 20 basis points of cost improvement against $2.998 billion of quarterly sales works out to about $6 million.
Ross is building warehouses too, without describing them the same way. Its ninth distribution center, a $450 million, 1.7 million square foot facility in Randleman, North Carolina, was announced through the North Carolina governor’s office. The announcement named warehousing, fulfillment and packing operations, but no automation.
Ross expects about $1.1 billion of capital spending this fiscal year, up from $819 million.
Its CEO puts the company’s edge in the buying. “The availability of closeouts in the marketplace is still outstanding,” Jim Conroy told investors in May. He added that “the market is now recognizing that our growth rate is a bit outsized, and we are getting a lot of first calls now.”
That is the traditional off-price argument. Closeout assortments change too fast to predict, so buying skill decides results more than handling capacity does.
The counter: Savannah has not been through a peak season, and Wolfe herself set the standard in March: a DC typically takes two years or so to fully ramp.
Burlington has not yet put numbers on the payoffs it promised for the building, significantly faster processing time and modest freight savings. And the cost improvement so far comes from productivity programs across the whole network, so a rough holiday season at Savannah could push costs back up.
Freight costs are rising again. After falling through last year, freight expense rose 10 basis points as a share of sales in the second quarter on higher fuel. And Burlington expects fuel to stay a headwind through the fall.
What’s next: Savannah runs its first peak season this fall, with holiday reserve inventory already positioned in gifting and toys. Burlington reports third-quarter results in November, the first numbers that will show how the building handled the surge of holiday receipts.
