Strong Earnings From Walmart, TJX and Ross Show Consumers Are Seeking Value
Amid a generally rough earnings season, off-price and discount retailers are winning over cost-conscious consumers.
Ross Stores, Walmart and TJX Companies, which owns T.J. Maxx and Marshalls, all raised their full-year outlooks last week after reporting stronger than expected sales in the second quarter. These retailers, which live in the off-price and discount sector, benefited from a value-focused trend pushing consumers to save where they can during an uncertain economic environment.
“Customers are stretching their dollars further and seeking better value across more categories more often,” said Walmart CFO John Rainey in a call with investors last week. He also noted that sales of grocery staples and in-home meals saw an uptick, in addition to kitchen tools that can assist in at-home meal prep.
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“They’re also buying more necessities and focusing on lower-priced items and brands,” he said.
Ross Stores’ CEO Barbara Rentler noted in a call with investors that consumers responded well to its “improved value offerings” throughout its stores. TJX Companies‘ apparel business, including accessories, saw a high single-digit comp increase, despite the discretionary nature of that category.
“Across the board in retail, we see a flight to value as shoppers look to make their budgets stretch further,” said managing director of GlobalData Neil Saunders in a statement. “Through its various banners, TJX is on the right side of these trends and is benefitting as a result. That said, we also recognize the skill that goes into creating a compelling assortment which makes consumers want to part with their money.”
BTIG analyst Janine Stichter also surmised that the strong results across these three retailers suggest that value is resonating with consumers.
“The relative strength in the value segment suggests a trade-down, notably in apparel where off-price is clearly outperforming full-price,” wrote BTIG analyst Janine Stichter in a Sunday note to investors. “The stronger relative performance of consumables and private label suggests consumers remaining judicious.”
The outlier case among these companies was Target, which downgraded its full-year outlook after noting softer spending in discretionary categories. At the same time, several footwear brands this quarter experienced significant declines this quarter amid inventory excesses, a conservative wholesale environment and consumers who are spending less on discretionary categories. In the last few weeks, Adidas, Steve Madden, Skechers, Deckers, Puma and Columbia Sportswear have all specifically lamented the challenges in the U.S. market.
Jane Hali & Associates analyst Jessica Ramirez noted that recent store checks for TJX, Burlington Coat Factory and Ross all appeared to have strong traffic and that strong back-to-school assortments in each chain will likely continue to be a further tailwind for the channel through the summer
“We continue to believe the off-price sector is best positioned during this difficult discretionary market,” Ramirez wrote in a note to clients. “The channel offers great value on branded product.”
