Off-price retailers often rise above the challenges that tend to hurt most stores. For example, when the economy is weak, people shop off-price to save money; when the economy is strong people shop off-price because they have money to spend.

The years colored by the pandemic have been different, with off-price companies less insulated from macro conditions. For example, they haven't been immune to the supply chain troubles being felt elsewhere or, more recently, inflation. Some are also watching their merchandising undermined by name brands that are pulling back, in favor of selling directly to customers — a situation that is also hitting their full-price department store rivals.

Moreover, this time, many off-price players have had their own unique trouble in that, with little to no e-commerce, they were hit especially hard when stores were temporarily shut for weeks and months in 2020 and into last year.

In the fourth quarter, the major off-price retailers all had a strong start "followed by softer results as Omicron accelerated," according to a research note from MKM Partners Managing Director Roxanne Meyer. That led to a "severely reduced outlook" for the first half of the year, with the "opportunity for recovery" in the second half.

Here's how they fared.

TJX Cos., the leader of the pack

The off-price leader, with the most international footprint and the most robust e-commerce, also fared the best at the holidays, though it still missed analyst estimates in some measures. TJX Cos. net sales in the period rose 27% over 2020 and 14% from two years ago to $13.9 billion, and comps at open stores rose 13% compared to two years ago. Net income recovered to $940.2 million from $325.5 million the previous year, but failed to reach the $984.8 million of 2019.

In addition to e-commerce and sheer size, TJX's advantages include a couple of dedicated home goods banners, a growing home assortment at its Marshalls banner and what appears to be a healthy pipeline of designer brands, according to a research note from Jane Hali & Associates analysts.

Despite the rare miss in Q4 and ongoing challenges, Wells Fargo analysts believe the company could take more share during what is now a period of volatility in retail.

"The last time a similar dynamic occurred was back in 2008, which was followed by a decade of off-price share gains and [TJ Maxx and Marshalls] outperformance," Wells Fargo analysts led by Ike Boruchow said in emailed comments. "If history repeats itself, TJX should be well positioned to take advantage of the new, premium supply of brands entering the market following 2020, given its robust off-price business model, which could drive further market share gains and push merch margins to all-time highs for the company."

Burlington, doing better than it seems

In a statement released with the company's fourth quarter report, Burlington CEO Michael O'Sullivan acknowledged the uncertainty poised to dominate this year and expressed hope that it might present an upside.

"We think the outlook for retail spending in 2022 is extremely unpredictable especially as we lap government stimulus programs, and as general price inflation begins to bite," he said. "This kind of unpredictability has, in the past, tended to favor off-price. In 2022 we will plan our business conservatively but then be ready to chase and take advantage of opportunities."

The retailer ended the year with a fizzle, after a blazing recovery in 2021 as consumers headed back to stores. Comparing its holiday results with pre-pandemic 2019, the company said that total sales rose 18% to $2.6 billion, while comparable store sales rose 6%. Net income during the quarter reached $122 million, down from $206 million in 2019.

Burlington had a rougher time in the quarter compared to its off-price peers, and declined to provide guidance for this year, two things that took a toll on its shares. But MKM's Meyer noted that its holiday disappointment belies some strengths that could help it "re-emerge having among the strongest earnings growth in the sector."

"In our view, [Burlington] well out-executed peers during the first 9 months of 2021— perhaps easy to forget," she said in emailed comments. "They were strategically better prepared for the surge in demand that would come from stimulus, child tax credits, and the strong start to holiday (early pull-forward), and its comps well exceeded peers. Thus while holiday execution was disappointing, the track record is there."

Ross, No. 2 and rising

Ross's ambitous growth plans were somewhat stymied by the pandemic, opening fewer new locations than it had originally planned, for a total of 65. But the company is back in action, announcing on Monday that it will open 100 new stores — 75 Ross and 25 DD's Discounts — during fiscal 2022. 

"Our return to stronger unit growth in 2022 reflects our belief that Ross can ultimately grow to 2,900 locations and dd's DISCOUNTS can become a chain of 700 stores given consumers' ongoing focus on value and convenience," Gregg McGillis, Ross group executive vice president of property development, said in a statement. "Our continued expansion of both chains also demonstrates our commitment to further building our presence in both existing and newer markets." 

The company operates 1,952 stores in 40 states, the District of Columbia, and Guam, and is probably the No. 2 player in the space, behind TJX Cos., with 23% share of an estimated $60 billion market, according to a March 1 research note from Wells Fargo. Those analysts also say that's more than twice the size of No. 3 Burlington.

In the fourth quarter, compared to 2020, Ross sales rose 18.1% year over year and 13.8% from 2019 to $5 billion, with store comps up 9%, according to a company press release. Net earnings rose 54.1% year over year to $366.8 million, down from $456.1 million in 2019.

"[Ross] has one of the best business models in specialty retail, in our view, as it performs well in all economic environments (only one down comp in its history), customer retention is extremely high and its flexible buying operation allows it to acquire on-trend merchandise at attractive prices," said the Wells Fargo team led by Ike Boruchow.

Off-price at department stores

Macy's has enough confidence in its relatively new, off-price Backstage business, established in 2015, that it made plans last year to expand standalone stores as well as dedicated shopping areas in full-line stores. But the department store doesn't yet report results for those operations the way it does for its Bloomingdale's and Bluemercury banners.

Meanwhile, Nordstrom Rack, which in past years has been a bright spot for that department store, has stumbled lately, despite its strong e-commerce and omnichannel operations. In Q4, Rack sales fell again compared to 2019, but improved compared to Q3, the company said earlier this month.

"Given how strongly the rest of off-price has grown on a two-year stack, this is not a very good result and demonstrates the division's underperformance," GlobalData Managing Director Neil Saunders said of Rack's fourth quarter results.