TJX Companies and Ross Stores Finish the Year Strong

Off-price retailers emerged as consistent performers in the retail space. The stock of Ross Stores (ROST) and TJX Companies (TJX) surged 38.8% and 34.9%

Shreerag Menon - Author

Dec. 16 2019, Published 9:15 a.m. ET

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Off-price retailers have emerged as consistent performers in the challenging retail space. The stock of Ross Stores (ROST) and TJX Companies (TJX) have surged 38.8% and 34.9% YTD, respectively, as of December 13. They are ahead of the benchmark S&P 500, which has risen 26.4% so far this year.

These off-price retailers are thriving despite online players like Amazon, which threatens the existence of brick-and-mortar retailers. They attract customers by offering a 20%—60% discount compared to the prices that department stores and specialty retailers sell comparable merchandise.

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TJX Companies and Ross Stores’ sales growth

Ross Stores outperformed TJX Companies in terms of sales growth rate during the first nine months of the current fiscal. Ross Stores sales grew 6.9% YoY (year-over-year) to $11.6 billion. Also, TJX Companies’ sales rose 6.0% YoY to $29.5 billion during the first nine months. (Note that for Ross Stores, the first nine months of fiscal 2019 ended on November 2, and for TJX Companies first nine months of fiscal 2020 ended on November 2)

Both firms delivered better-than-expected sales for the third quarter. Ross Stores’ sales grew 8.4% YoY to $3.85 billion against the analysts’ expectation of 6.4% growth. Meanwhile, TJX Companies’ sales grew 6.4% YoY to $10.45 billion and exceeded analyst estimate of 5%. Both Ross Stores and TJX Companies reported strong sales in the backdrop of robust growth in their comparable sales. Ross Stores’ third-quarter comparable sales growth was 5% while TJX Companies’ generated comparable sales growth of 4%.

TJX companies cited strong apparel and home business at Marmaxx as a key sales growth driver. Marmaxx is TJX Companies’ largest division and contributed about 61% of the third-quarter sales. Also, both companies gained from higher consumer traffic.

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TJX Companies and Ross Stores’ margins

Ross Stores’ gross margin was better than TJX Companies in the third quarter. However, its third-quarter operating margin was lower than TJX Companies.

Ross Stores’ third-quarter gross margin declined ten basis points YoY to 28.1%. Despite higher merchandise margin and lower occupancy and buying costs as a percentage of sales, gross margin fell due to higher distribution expenses. Distribution expenses surged due to costs relating to unfavorable packaway timing and higher labor costs. Ross Stores’ operating margin was flat at 12.4% as the impact of lower gross margin was offset by leverage in SG&A (selling, general and administrative) expenses on strong sales.

TJX Companies’ third-quarter gross margin also contracted ten basis points to 28.8%. Gross margin declined as expense leverage on strong sales was more than offset by higher supply chain costs and lower merchandise margin. Higher freight costs and tariffs impacted the company’s merchandise margin.

Meanwhile, TJX Companies’ operating margin improved eight basis points YoY to 10.7%. The operating margin benefitted from a favorable comparison with the third quarter of the previous year. This included a pension settlement charge of $36.1 million. However, operating margin declined 30 basis points on an adjusted basis due to lower gross margin and rise in SG&A expense rate.

Both companies exceeded street estimates for third-quarter earnings. However, Ross Stores reported a better EPS growth in the third quarter. Ross Stores’ EPS increased by 13.2% YoY to $1.03. Meanwhile, TJX companies’ adjusted EPS grew by 7.9% to $0.68. Ross Stores’ earnings growth was higher in the first nine months of the fiscal year as well. Ross Stores’ EPS of $3.32 grew 8.5% YoY in the first nine months. Meanwhile, TJX Companies’ adjusted EPS grew 10% to $1.87 in the first nine months.

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Expansion story

Ross stores opened 42 new stores during the third quarter of fiscal 2019 and ended the quarter with 1,810 stores. The new stores included 30 stores of the Ross Dress for Less brand and 12 with the dd’s DISCOUNT banner.

With these additions, the company completed its store expansion program for the current fiscal. The company intends to end the fiscal year with 1,805 stores (net of closures). The retailer intends to expand its dd’s DISCOUNT brand to around 600 locations and Ross Dress for Less to around 2,400 locations in the long term.

Meanwhile, TJX added 107 stores in the third quarter and ended the quarter with 4,519 stores. Over the long-term, it plans to expand to around 6,100 stores globally. Unlike Ross Stores, TJX has an extensive international presence with stores operating across Europe, Canada, and Australia.

TJX companies recently announced its investment in Familia, which marks its entry in Russia. Familia is a Russian apparel and home fashion retailer. TJX Companies’ online retail platform comprising,,, and

The road ahead through the holiday season

Analysts will be eager to assess the performance of these companies in the holiday season as it contributes a significant portion of their annual sales. For the fourth quarter, Ross Stores expects EPS between $1.20 and $1.25. The retailer expects comparable sales growth in the range of 1% to 2%. Also, TJX Companies expects comparable sales growth in the range of 2%—3% for the holiday quarter. It predicts EPS in the range of $0.74—$0.76.

Analysts expect Ross Stores’ fourth-quarter net sales to grow by 6.2% to $4.36 billion and EPS to grow 10.6% to $1.25. They forecast TJX Companies’ net sales to grow 6.3% to $11.83 billion and EPS to rise 13.2% to $0.77.

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Both the companies raised their full-year EPS outlook following the third-quarter performance. Ross Stores projects its fiscal 2019 EPS between $4.52 and $4.57 compared to $4.26 in fiscal 2018. Meanwhile, TJX has projected the fiscal 2020 EPS in the range of $2.61 to $2.63, compared to $2.43 in fiscal 2019. It predicts a 7% growth in its EPS on an adjusted basis.

Meanwhile, analysts expect the full-year adjusted EPS of Ross Stores and TJX Companies to rise 9.1% and 8.2%, respectively.

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Analysts’ views and price targets

Analysts have maintained a more bullish view for TJX Companies stock with 74%, or 20 out of 27 analysts, rating it a “buy” and the rest rating it a “hold.” Meanwhile, Ross Stores’ stock has a “buy” recommendation from 60% or 15 out of 25 analysts. Nine analysts have recommended “hold” while one has a “sell” rating.

Currently, analysts see more upside in TJX Companies over the next 12-months. Ross Stores’ stock has an average target price of $118.70, with a potential upside of about 3% over the next twelve months. TJX Companies’ stock has a target price of $65.44, with a potential upside of 8.4% over the next 12 months.

The off-price business model of Ross Stores and TJX Companies has helped them in sailing through tough market conditions. However, increasing competition in the off-price space from the likes of Macy’s and an uncertain political and macro environment could put pressure on the performance of these companies.


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