Macro headwinds are often actually tailwinds for off-price retailers — consumers flock to them for deals during economic downturns, for example. These days, inflation and lean supply at other retailers, which are leading to fewer markdowns, are sending shoppers to off-pricers' below-retail price tags.

Still, these retailers are not immune to the pressures plaguing the industry, including high freight costs and a choked supply chain.

"While demand appears to be solid, the bigger concern for off-price retailers comes in terms of supply," GlobalData Managing Director Neil Saunders said in emailed comments last week. "Here a lack of apparel inventory at other retailers, reduced manufacturing volumes by brands, and a pull back from off-price by some fashion labels are all combining to potentially create a perfect storm of crimping available product."

Nevertheless, TJX Companies, Ross and Burlington all beat analyst estimates in the third quarter, positioning them well for the holidays in a climate where consumers are willing to spend, buying clothes again and continuing to accumulate goods for their homes.

TJX Cos.

All the major off-price retailers employ nimble buying teams, which has helped them weather the current snafus in the supply chain, but TJX stands out. The company runs 4,684 stores in nine countries: the U.S., Canada, the U.K., Ireland, Germany, Poland, Austria, the Netherlands and Australia. Its banners include T.J. Maxx, Marshalls, HomeGoods, Sierra and Homesense.

"[W]e believe that TJX's superior buying expertise and the very strong industry connections of its buyers will help it mitigate some of these challenges compared to rivals," Saunders said. "We also think that supply chain disruptions – which mean clothing product is often arriving after key selling seasons at some retailers – creates opportunities for opportunistic purchasing which TJX can, and will, take advantage of."

The company has been "surgically" instituting price hikes while being mindful about beating full-price stores, TJX CEO Ernie Herrman told analysts last week, according to a transcript from Seeking Alpha.

Net sales for the third quarter rose 24% year over year and 20% versus 2019 to $12.5 billion, per a company press release. Comps rose 14% versus the 4% increase last year. Net income rose 18% year over year and 23.5% from 2019 to $1 billion.

The retailer's focus on home has positioned it well during the pandemic, as consumers continue to lavish spending on their homes. Its agility means it's well prepared for the fourth quarter, Herrman said.

"Our store shelves are full with great gifting selections today, and we expect them to continue to be that way throughout the holiday shopping season," he said. "We expect to have something for everyone on consumer shopping list and to offer an exciting and inspiring treasure hunt shopping experience."

Ross Stores

Despite the rise of e-commerce, fueled all the more by the pandemic in the past 18 months, Ross has hewed closely to its pre-pandemic plans to expand its brick-and-mortar footprint.

CEO Barbara Rentler last week reiterated that the company has polished off its expansion plans for the year, having opened 18 new Ross and 10 DD's Discounts stores in the third quarter, a total of 65 locations this year, with one closure by the end of the year. "[W]e expect to return to our normal annual opening program of approximately 100 stores in 2022," she said, according to a transcript from The Motley Fool.

Ross has joined retailers like Walmart and Target in chartering its own ocean vessel to ensure it has enough inventory, which took a bite out of its results, Chief Operating Officer Michael Hartshorn told analysts. "You can see that certainly in our margins for the quarter," he said. "Merchant margin was impacted by ocean freight that we weren't able to offset, with merchant margin down about 40 basis points."

In the third quarter, sales rose 19% year over year (and from 2019) to $4.6 billion, with comparable sales up 14%, per a company press release. Net income rose 193% year over year and 3.8% from 2019 to $385 million.

"While traffic was down slightly (in line with the [year-to-date] trend), the comp gain was driven by an increase in units, which speaks to the strength of the assortment," MKM Partners Managing Director Roxanne Meyer said in emailed comments. The retailer may be able to compensate for a margin squeeze in the fourth quarter with strong sales, although timely delivery of home goods is a risk for Ross, Meyer also said.

Burlington

While Ross has gained a reputation for its ambitious brick-and-mortar expansion, Burlington is also on a roll. The company opened 106 net new stores since the end of the third quarter of fiscal 2019, per a company press release.

MKM's Meyer called that growth a "key catalyst" for the off-pricer. For the fiscal year, Burlington will have relocated or closed 24, for a total of 77 net new stores, and CEO Michael O'Sullivan said in a statement that its recent test of smaller locations is going well.

"This year we have been very excited about the performance of our new stores, especially our smaller prototype," he said. "Based on this performance and on the tremendous market share opportunity that we see ahead of us, we have decided to accelerate the pace of our new store opening program."

Net sales in the quarter rose 38% year over year and 30% from 2019 to $2.3 billion, with comps over the two-year period up 16%. Net income rose 70% from last year but fell 85.9% from 2019 to $13.6 million.

Burlington has not matched TJX's success with inventory, according to Jane Hali & Associates analysts. "It is visible the retailer has supply chain issues and has not managed to acquire enough inventory," they said in emailed comments. "Our store checks indicate that inventory is very low across categories."

At MKM, Meyer similarly noticed "select product voids" during store checks, but noted that Burlington was able to achieve a slightly better-than-expected 16% comp gain compared to 2019. "[W]e point to the health of reserve inventory, which is up 30% vs. up 21% at the end of 3Q19, which suggests that [Burlington] is highly prepared for holiday (similar to peers) due to earlier buying in the fall," she said in emailed comments.