Off-price model strength boosts TJX and Ross Stores
Despite a highly promotional holiday retail environment and the US port congestion, Stifel analysts believe TJX's fourth-quarter EPS will increase 11% to $0.90, in line with consensus and at the high end of management's guidance.
“We are convinced that TJX's substantial size - US$25-plus billion in sales - provides unique advantages in acquiring compelling merchandise at advantageous prices, continuing its international expansion and launching its e-commerce business,” Jaffe noted.
For Ross Stores, Stifel expects fourth-quarter EPS to increase 8% to $1.10. This would be $0.01 below consensus and $0.01 above the high end of management's guidance.
He added: “Solid results, as the off-price sector remains in favour with customers who are responding to the company's competitively priced, compelling merchandise.”
Jaffe, however, expects gross margin to be flat on last year. Buying and distribution costs are forecast to increase as a percent of sales due to the acquisition of the company's New York buying office and the ramp up of its new distribution centre in South Carolina.
The success off-price retailers are having, Jaffe suggests, is down to them offering a different business model to that of a typical retailer.
He added: “Offprice retailers operate their business quite differently from a typical retailer, and have succeeded in creating a competitive moat around the business. Merchandise is bought close to need versus 6-9 months in advance at a typical retailer…stores are set up so departments can be flexed depending on product demand…and distribution centres are set up as a processing centre and are able to handle a wide variety of goods.”
We believe there has been a secular shift to off-price retailers as consumers’ desire for value will likely continue even when the economy improves.
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