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Why HomeGoods Owner Will Retain Off-Price Crown

TJX has long been regarded as an off-price leader, but can it hold up under pressure?

The TJ Maxx, Marshalls and HomeGoods owner is set to report fourth-quarter results Wednesday.

Supply chain issues and mounting logistics pressures have plagued the value sector since the Covid pandemic began nearly two years ago. Jessica Ramirez, retail analyst at Jane Hali & Assocs., said TJX is “well-positioned” to mitigate supply chain issues, and all of its banners are in a good spot in the home goods category. By contrast, Burlington Stores and Ross Stores have been hit by supply-chain headwinds, and though Nordstrom Rack benefits from its e-commerce business, its “apparel assortment is not as compelling as it once was,” Ramirez said. “We continue to note less contemporary designer names in-store and online.”

Wells Fargo analyst Ike Boruchow believes TJX, as well as Burlington and Ross, could report lackluster fourth quarter results due to macro headwinds compounded by a lack of e-commerce and a “less than favorable inventory environment” that likely led to a softer-than-planned holiday period. In fact, Boruchow maintained his price target of $80 a share for TJX. Shares of TJX ended Tuesday’s trading session down 1.8 percent to $64.99. Even though he raised fourth quarter comparable store sales estimates to 14 percent from 12 percent versus 2019 levels and earnings per share (EPS) of 90 cents from 85 cents, both are still below Wall Street’s consensus of 16 percent comps and EPS of 91 cents.

Cowen & Co.’s John Kernan has an “Outperform” rating on TJX, and maintained a price target of $88 a share. He raised his EPS estimate to 90 cents from 84 cents, and expects comps at 14 percent, down from 18 percent. He estimated comps at up 23 percent for HomeGoods. Kernan said freight is “still expected to delever on margins” for the year, currently Fiscal 2023, more so in the first half than in the second half. That’s because the second half could be muted due on increases in average selling prices. He’s also cautious on EPS at $3.26, below the consensus estimate of $3.36. And Kernan added that the ongoing supply chain disruptions could “provide a packaway opportunity for TJX.”

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Despite some mixed opinions about TJX, it’s still deemed to be in a better position than either Burlington or Ross.

Boruchow lowered estimates for Burlington—fourth quarter estimates for comps is now 9 percent from up 13 percent, and EPS is now $2.98 from prior guidance of $3.25—and the current share price is now $300 from $325. He also lowered estimates for Ross. Fourth quarter estimates are now up 6 percent from the prior projection of 7 percent, while EPS is now 92 cents from 93 cents. And the price target for shares of Ross was lowered to $110 from $120.

Kernan also lowered his price target for Burlington shares to $292, even as he raised fourth quarter EPS to $3.51 from prior estimates of $3.28. For Ross, the Cowen analyst lowered the price target for shares to $103. While he lowered fourth quarter EPS estimates by one cent to 97 cents, that was still ahead of consensus estimates of between 83 cents to 93 cents. He said estimates were lowered for both Burlington and Ross due to cost inflation and concerns about comparisons to the effects of Fed stimulus in the year-ago period. Moreover, the effect of higher cost goods and freight on gross margin, as well as labor inflation versus availability, are concerns for Fiscal Year 2023.

Shares of Burlington ended Tuesday’s trading session at down 0.6 percent to $229.67, while Ross closed down 1.6 percent to $91.99.