Analysts at a major Wall Street research firm see multi-year growth and share gains ahead for off-price retailers. As owners of TJX Companies (TJX), the company behind T.J. Maxx, Marshalls and HomeGoods, it’s a view we share — but with one major difference. In a note to clients this week, Bernstein arrived at its thesis from the current state of low-income consumers. While stimulus payments made to Americans during the pandemic have ended, Bernstein said the second half of 2023 and 2024 could be better for the less wealthy as macroeconomic pressures start to ease. Under this scenario, lower-income consumers will choose to spend their money at off-price retailers. The analysts like Ross Stores (ROST) best, and called Burlington Stores (BURL) high-risk, high-reward, with a multi-year turnaround story. Club holding TJX, on the other hand, “is the most defensive, least low-income exposed, and with the strongest track record, but much of that quality is embedded in the price, and we don’t see much re-rating opportunity this year.” While Bernstein’s prediction of a pickup in spending for lower-income shoppers would be welcome news, we have a different take. We agree that TJX is less-exposed to the least wealthy, but think the middle-and-higher income consumers that TJX targets is a better place to be. In an uncertain economy where the Federal Reserve is still battling sticky inflation with higher interest rates, it’s this group that will shop more at off-price retailers for the value of name brands at lower prices. That’s why we think TJX is best-in-show with a stock that has room to run. In TJX’s fiscal 2023 fourth-quarter results , which were out in February, the retailer delivered strong top-line growth, with total revenue advancing nearly 5% year over year to $14.52 billion and earnings-per-share (EPS) up 14% year over year to 89 cents. (TJX has an unusual fiscal calendar: It reports fiscal 2024 first quarter results on May 17). The Marmaxx division, which includes T.J. Maxx and Marshalls, delivered an impressive 7% same-store-sales growth in the U.S., its strongest quarter of fiscal 2023. Management expects that growth to continue. On the post-earnings call, management said the company plans to open more than 1,400 stores in the longer term. During its fourth quarter, TJX saw its store count go up 146 for a total of 4,835 stores. At the time, TJX provided fiscal first-quarter guidance of EPS between 68 cents and 71 cents, lower than the 74 cents expected. Sales guidance of between $11.7 billion and $11.8 billion was, at the midpoint, higher than the $11.72 billion expected. The consensus estimate for first-quarter EPS has since drifted down to 71 cents while the sales estimate has moved higher to $11.81 billion. TJX 1Y mountain TJX Companies 12-month performance It’s important to remember that TJX is able to protect and even build its business during tough times because it benefits from troubles at major department stores and specialty retailers. These companies are looking to get rid of inventory from the pandemic on the cheap. Over the past year, TJX has been buying up excess apparel and home items at even better discounts. In the past 12 months the stock has gained more than 24%. Home goods retailer Bed Bath & Beyond recently filed for bankruptcy protection and has been liquidating merchandise and closing stores. That merchandise gets picked up by off-price channels like TJX’s popular HomeGoods and Marshalls stores. Bernstein cited “competitor bankruptcies” as a tailwind that can “drive a clear competitive advantage for off-price,” and another factor that will add to “continued upside into 2024,” in the retail sub-category. Competitor bankruptcies and store closings not only help on the merchandise front but they also free up retail locations for companies like TJX to expand or shift their footprints. Bank of America, in a note this week, emphasized that the off-price retailers, including TJX, will be eager to take over the additional closed Bed Bath & Beyond locations. The analysts said the off-pricers took advantage of the first round of Bed Bath closures before the bankruptcy filing. Bottom line We’re encouraged to hear from Bernstein that lower-income consumers might be ready to spend more at off-price retailers, leading the analysts to say they would view “Q1 off-price weakness as an entry point” into the stocks. However, we know that middle-class Americans who might be impacted during tough economic times are also looking for value, and that’s why we view TJX as the best in show. It’s the influx of these shoppers that could really move the needle. TJX should continue to be able to take advantage of the inventory glut plaguing the retail industry, not to mention the troubles at other chains. Bed Bath & Beyond’s woes, for one, mean more household inventory out there and more open storefronts that could benefit TJX’s expansion plans. (Jim Cramer’s Charitable Trust is long TJX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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Shoppers walk with TJ Maxx and Macy’s bags in Herald Square, New York.
Ramin Talaie | Bloomberg | Getty Images
Analysts at a major Wall Street research firm see multi-year growth and share gains ahead for off-price retailers. As owners of TJX Companies (TJX), the company behind T.J. Maxx, Marshalls and HomeGoods, it’s a view we share — but with one major difference.
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