It’s hard to hurt an off-price business, but one aspect of the Trump administration’s agenda might do it.
There are signs that the crackdown on immigration is suppressing spending by Hispanic populations, even those away from the U.S.-Mexico border, according to several analysts. This hits off-price retailers especially hard, and executives in the sector fielded questions on the topic during their most recent earnings calls.
Otherwise, many of the factors causing uncertainty for other retailers are a boon to these companies. The Trump trade war, growing recession fears and sinking consumer sentiment are generally bad news for anyone selling discretionary goods. But the off-price retailers like those run by TJX, Ross Stores and Burlington tend to benefit, at least to some extent.
“We think strong value messages and broad-based geographic footprints are resulting in less volatility than for other discretionary sectors,” Evercore ISI analysts led by Michael Binetti said in emailed comments. “But we wouldn’t be surprised if the Offpricers take a more cautious posture on 1Q amid a combo of weather issues, volatile trends from lower income demos, and discrete pressures like weak sales to Latin consumers.”
These companies are shielded from tariffs for the most part because by the time they receive their merchandise the brands and other retailers that supply them have already paid those tolls. Plus, the supply chain chaos that is happening as retailers attempt to anticipate or react to tariffs means more merchandise for the off-price pipeline.
“Importantly, all three have strong, fine-tuned product strategies to both capture trade down from higher income consumers, and to deliver strong value while lower incomes deal with sticky inflation,” Binetti said.
Here’s how TJX, Ross Stores and Burlington did in Q4.
TJX
Speaking to analysts in late February, TJX CEO Ernie Herrman multiple times emphasized the company’s wide customer demographic.
“TJX talked down any concerns about pockets of weakness with low-income/Latin consumers or in border towns that have been concerns lately (and those areas have certainly been called out as pressures in our channel checks recently),” Evercore’s Binetti said. “Our hunch is that TJX has mixed its business further away from those demos than its offprice peers.”
The retailer reported that Q4 net sales of $16.4 billion were about flat compared to last year, when there was an extra week. Comps at the company’s U.S. Marmaxx unit, (which includes TJ Maxx, Marshalls and Sierra), and at its U.S. HomeGoods unit (which includes HomeGoods and Homesense), rose 4% and 5%, respectively. Gross margin for the period reached 30.5%, up slightly from last year’s 14-week Q4. Net income was also flat at about $1.4 billion.
Regarding tariffs, Herrman said the company directly sources very little from China and its “primary focus remains our value gap versus traditional retailers.”
“A few years ago with extreme inflation ... we navigated right through that, just as we will on this,” he said.
The company opened its 5,000th store last year and this year plans to add about 130 net new stores, for store growth of about 3%. In the U.S., the company plans about 40 net new stores at Marmaxx; 30 at HomeGoods, including nine HomeSense stores; and about 20 at Sierra, executives said. TJX has an opportunity to move into more rural areas when department stores leave, and big box closures similarly provide an “opportunity to either go into a new area or to relocate a store to a better shopping area,” Herrman said.
Merchandise is also likely to become available as stores close, according to Bank of America analysts Lorraine Hutchinson and Melanie Nuñez.
“Stores in both higher and lower income regions were strong, a sign that the assortment is resonating with a wide variety of consumers,” they said in a research note.
Ross
Ross is especially vulnerable to losing sales because of the pressures on Hispanic consumers, according to Evercore and Wells Fargo analysts.
Chief Operating Officer Michael Hartshorn acknowledged that the retailer has a lot of Hispanic customers. “We'll have to wait and see [about] the macroeconomic environment,” he said. “The immigration policy impacts this important customer for us longer-term.”
In general, CEO Jim Conroy, who took over from longtime chief executive Barbara Rentler last month, said the company doesn’t see a major change to the brand strategy at Ross and customer strategy at DD’s that he inherited. Changes are likely to include enhancements to the store environment and shopping experience.
He’s been at the job for just three months, he told analysts. “So my focus early on really is to learn the off-price model, get immersed in the business. And as I think about ongoing changes, they will be more sort of evolutionary in nature and nothing sort of abrupt or a hard left turn or a hard right turn.”
Also with one less week in 2024, Ross reported Q4 sales fell 1.8% year over year to $5.9 billion, with comparable store sales up 3% thanks to higher traffic and average basket size. Net income fell 3.8% to $586.8 million. The company opened a net 77 new stores last year, running 2,186 at year’s end, and this year plans to open 90, including 80 Ross locations and 10 DD’s Discounts stores.
Hartshorn declined to disclose how much of an impact tariffs have on the business except to say it is “a small portion.”
“Clearly, our focus will be maintaining the price umbrella versus traditional retailer and offer the best values to the customer,” he said. “We certainly wouldn't be on the forefront of raising prices. For us, disruptions like this, as Jim mentioned, could be beneficial to off-price and as there'll be more closeout opportunities down the road.”
Burlington
Burlington CEO Michael O'Sullivan avoided the opportunity to single out tighter immigration policy when asked about it during the company’s most recent call with analysts, except to say it’s one policy change of many that “could have a negative impact on our customers.”
The company beat expectations for the holiday quarter, and, while a pullback on spend from lower income and Hispanic shoppers could drag down results, it may fare better than feared in coming months, Evercore’s Binetti said.
With one fewer week in Q4 2024, Burlington’s net sales rose 4.8% year over year to almost $3.3 billion. Adjusting for the missing week, net sales rose 10% and store comps rose 6%. On a 13-week basis, gross margin expanded by 30 basis points to nearly 43%. Net income soared 14.6% to $260.8 million.
The retailer’s momentum, which Wells Fargo analysts led by Ike Boruchow see as the strongest of the three off-price giants, could be stymied by rising uncertainty in the economy, but some macroeconomic forces could work in its favor, according to both analysts and executives.
This year, the company expects total sales to grow 6% to 8% and store comps to stay flat or rise as much as 2%, and plans to open about 100 net new stores.
“[Burlington] deserves its reward today,” Boruchow said. “While the entire space has gone through a de-rating on the heels of much weaker trends post-holiday, [the] 4Q result + their better-than-feared guide sets them apart, in our view.”
