Burlington, Ross Stores, Nordstrom Rack report surging sales as consumers seek value

The trend: Off-price operators reported healthy growth for the holiday quarter, as shoppers visited more often in search of deals.

• Burlington Stores’ Q4 sales rose 13.9% year over year (YoY) to $3.12 billion, beating FactSet’s $3.07 billion forecast. On a 13-week basis, comparable sales rose 2% YoY.
• Ross Stores’ comparable sales surged 7% YoY for the 13 weeks ended January 27, significantly outpacing the Zacks Consensus Estimate for 1.5% gain. Total sales jumped 15.5% YoY in fiscal Q4 to $6.02 billion.
• Nordstrom Rack’s sales rose 14.6% YoY, helped by an increase in ecommerce sales; the company plans to open 22 stores this year in response to growing demand.
• TJX reported comparable sales growth across all of its divisions in Q4, including its HomeGoods business, powered entirely by an increase in overall transactions.

How we got here: With consumers grappling with cost-of-living pressures, off-price retailers are leaning into their value messaging to drive foot traffic and sales.

• Ross noted a significant acceleration in sales in Q2 following the implementation of its “sharp pricing” strategy of offering a wide selection of good, better, and best brands at highly competitive prices.
• Nearly 60% of Big Lots’ sales in Q4 came from bargain items—including products acquired from distressed retailers and other opportunistic buys; the company plans to expand its selection of “extreme” deals as part of its push to have 75% of sales come from bargains.
• Consumers’ trade-down tendencies are (finally) benefiting Nordstrom Rack, which is using its relationship with the full-price Nordstrom banner to attract shoppers looking to score a deal on popular brands like Birkenstock, Hoka, and Madewell.

The outlook: The challenging retail environment is a boon for off-price retailers, not only in terms of customer traffic but also in terms of merchandising and market share opportunities.

• TJX sees an opportunity to grab market share—and inventory—as Macy’s slashes its store count.
• Likewise, Burlington CEO Michael O’Sullivan noted on the company’s earnings call that it expects to pick up traffic any time a brick-and-mortar competitor like Macy’s or Bed Bath & Beyond closes—and it also expects “a lot of store closures over the next two years” given the headwinds facing physical retail.

The big takeaway: The big question for off-price retailers is whether they can maintain these gains once price pressures ease and consumers’ buying power returns.

• That may be easier for players like TJX, which is winning over new generations of shoppers drawn to its selection of premium inventory and treasure-hunt experience.
• But retailers like Burlington may find it challenging to retain higher-income shoppers as confidence in their financial situations improves—although department stores’ shrinking footprint could be the tailwind those companies need to continue their momentum.