Off-Price Wars: How Burlington, Ross and T.J. Maxx Stacked Up in Q1
In a rough earnings season for retailers, the off-price sector has provided some welcome relief.
TJX Companies kicked off the week on May 21 with particularly strong results, revising its full-year profit guidance upward on impressive same-store sales. The company, which owns T.J. Maxx, Marshall’s and Home Goods, posted earnings per share of $0.57, ahead of the $0.55 forecast by analysts. The group’s revenues were $9.28 billion, an increase of 7% over the prior year, topping analysts’ estimates of $9.21 billion.
Same-store sales rose 5%, which TJX CEO Ernie Herrman said was the result of increased customer traffic at each of its banners.
“We believe our treasure-hunt shopping experience holds tremendous appeal for consumers without the need for gimmicks or promotions,” Herrman said on a call with investors and analysts. “Our great values, day in and day out, keep our shopping experience simple and authentic for our customers. Our merchandise assortments are constantly changing, so there is always something new to surprise, excite and inspire consumers in our stores and online.”
For fiscal 2020, the company is now expecting earnings per share in the range of $2.56 to $2.61, a 47% increase over the prior year’s adjusted $2.45.
Ross Stores Inc. likewise beat Wall Street’s expectations, with earnings per share reaching $1.15 in the first quarter, up from $1.11 a year prior and ahead of the analyst consensus of $1.12.
However, the chain — which had revenues of $3.797 billion for the quarter, slightly missing the consensus estimate of $3.8 billion — fell short of its larger rival in terms of same-store growth. Sales at stores open at least 12 months rose 2% over the prior year, slowed by merchandising mistakes in the women’s apparel category.
“Particularly when comparing to TJX’s recent result, ladies’ apparel, traffic declines and down inventory suggest a potentially growing divergence,” wrote Nomura Instinet analysts led by Simeon Siegel. Their note added, though, that the off-price sector is still a bright spot on the retail landscape. “We continue to believe the model represents a structural share taker (relative to department stores, the positive comp looks heroic) and its e-comm defensibility keeps us Buy rated. However, we do acknowledge questions linger.”
Burlington Stores was hurt last quarter by misfires in women’s apparel, too, and the retailer is still working to turn that part of its business around. Its most recent results, though, show signs of promise. The company came in above analyst expectations with earnings of $1.26 per share on revenue of $1.63 billion, compared with Wall Street’s forecast of $1.25 per share on revenue of $1.62 billion. Same-store sales rose 1% — the most modest gain among the three off-price chains, but still ahead of the 0.6% consensus estimate.
Burlington last month named a new CEO, Michael O’Sullivan, the former COO of Ross Stores. He will take over the position in September.
All three retailers addressed the looming threat of the U.S.-China trade war on their respective earnings calls, though they said it was too early to fully assess the potential impact if President Donald Trump makes good on his promise to impose additional tariffs of 25% on $300 billion worth of Chinese goods, including most consumer goods.
“At this point, it’s unclear how the industry would react with increases to apparel and shoes, but we certainly would not be the price-increase leader in that regard,” said Ross Stores CFO Michael Hartshorn. “The silver lining is: We have a flexible business model and can react to the price increases, and disruptions like this have historically meant supply opportunities for off-price.”
TJX’s Herrman said the company is monitoring the developments “very closely.”
“Based on what we know today, we have included a very small impact from the existing tariffs in our FY 2020 guidance,” he added. “Beyond that, it is difficult for us to forecast the potential tariff impact on costs or retail prices in the short-term and how we would respond.”
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