Value-focused shoppers flock to off-price retailers Nordstrom Rack, Burlington, and TJX

The trend: Off-price retailers are thriving as macroeconomic headwinds drive them to seek cheaper places to purchase apparel, accessories, and home goods.

• Burlington’s sales rose 13.4% year over year (YoY) in Q2 to $2.46 billion, comparable sales rose 5.0%, and its adjusted earnings per share (EPS) soared 96.8% YoY to $1.24.
• Nordstrom Rack’s net sales increased 8.8% YoY to $1.27 billion and its comparable sales grew 4.1%.
• Ross Stores sales rose 7.1% to $5.29 billion, comparable sales rose 4.0%, and EPS grew 20.5% to $1.59.
• TJX’s consolidated net sales rose 5.6% YoY to $13.47 billion, same-store rose 4.0%, and EPS jumped 12.9% to 96 cents.

A shift in spending patterns: Household spending at value-oriented apparel merchants, like TJ Maxx and Nordstrom Rack, is up 13% relative to July 2019, while overall apparel spending is up less than 5%, per a Bank of America Institute consumer study based on the company’s payment card data.

• Value apparel’s market share has grown by nearly four percentage points among Gen Z and millennials over the past year, as those consumers adjust their budgets to account for higher costs for necessities and prioritize spending on experiences.
• At TJX, for example, each of the company’s divisions have attracted an “outsized number of younger customers to its stores,” said CEO Ernie Herrman during the company’s earnings call, adding, “which we believe bodes well for the future.”
• Meanwhile, a much wider swath of consumers embraced off-price retailers’ treasure-hunt formats as they look to score high-end goods at affordable prices.

A bullish outlook: Retailers ranging from Target to Abercrombie & Fitch expressed concerns about the uncertain outlook ahead given that the labor market is loosening at the same time that the household savings rate trends downward and household debt trends upward. However, several off-price retailers remain bullish on their prospects ahead.

• Burlington boosted the lower end of its total sales guidance from 8% to 9% (the upper end of 10% was unchanged).
• TJX now expects its consolidated comparable store sales to rise about 3% in FY25, instead of the prior range of 2% to 3%. It also boosted its bottom-line outlook to a range of $4.09 to $4.13, up from its previous range of $4.03 to $4.09.
• Several retailers, including Nordstrom Rack and Burlington, continue to open new stores to meet demand.

Our take: Off-price retailers are poised to continue their up-and-to-the-right trajectory as consumers’ growing price sensitivity is unlikely to pass anytime soon.