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No Surprises Here: A Successful Second Quarter for Off-Price Retailers

It’s news to no one that off-price retail is a roaring success. Even department store chains getting into the game is nothing new: Back in the ’80s, Dayton-Hudson (now Target) opened Plums, the Elegant Discounter, and Kmart was introducing Designer Depot outlets. The fact that neither of those spin-offs exist today, however, says it all.

Long-standing discounters like T.J. Maxx, Marshalls, Ross and Burlington Coat Factory, are doing swimmingly in a now-saturated segment—and they’re posting the earnings to prove it. The TJX Cos. Inc and Ross Stores both delivered second-quarter earnings and revenue that topped expectations last week and analysts are expecting a similar story from Burlington when it reports its quarterly results on Thursday.

Framingham, Massachusetts-based TJX reported a 6 percent increase in net sales to $7.4 billion for the quarter ended August 1. The company’s comp-store sales rose 6 percent over last year’s growth of 3 percent, while comps at Marmaxx (Marshalls and T.J. Maxx) increased 4 percent. Net income was $549 million and diluted earnings per share were $0.80, a 7 percent climb over the prior year’s adjusted $0.75, which excluded a $0.02 per share debt extinguishment charge from reported earnings per share of $0.73.

“It was great to see that comp sales were entirely driven by customer traffic—our fifth consecutive quarter of sequential traffic improvement—and that we had strong sales across all of our divisions,” Carol Meyrowitz, chairman and CEO of TJX, said in a statement, adding, “We enter the back half of the year in an excellent position to keep our momentum going and have many exciting initiatives planned.”

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In response to the better-than-expected results, TJX raised its full-year profit forecast to $3.24-$3.28 per share from $3.21-$3.27. Analysts, meanwhile, were expecting a full-year profit of $3.30 per share. Meyrowitz added, “Looking ahead, we are confident that we will achieve and hope to surpass our plans as we continue to bring value around the world and grow TJX to a $40 billion-plus company.”

Ross Stores beat estimates, too, reporting a profit of $259 million and raising its fiscal 2015 outlook, but CEO Barbara Rentler warned that the second half of the year could be challenging.

“The quarter benefited from higher merchandise margin and tight expense control that partially offset a planned increase in distribution costs related to recent infrastructure investments,” she said, noting, “While we hope to do better, we are maintaining a cautious outlook for the second half when we face more challenging sales and earnings comparisons. In addition, the macro-economic and retail landscapes remain uncertain.”

Earnings per share for the second quarter increased 11 percent to $0.63, up from $0.57 in the year-ago period, and sales rose 9 percent to nearly $3 billion, with comps growing by 4 percent. The company now expects its adjusted earnings to be between $2.40 and $2.45 per share, compared with previous guidance of $2.36 to $2.44 per share.

With that being said, hopes are running high that Burlington Stores Inc. will post a profit on Thursday. The off-price retailer last released its earnings in June, when it reported a 4.9% rise year-over-year in revenue to $1.18 million but a less than 1 percent increase in comps. Meanwhile, Burlington has set its second-quarter guidance at $0.10 to $0.13 per share, with analysts expecting earnings of $0.12 per share.