Off price retailers The TJX Companies, Inc. (NYSE:TJX) and Ross Stores, Inc. (NASDAQ:ROST) have started to consistently appear on Jim Cramer’s radar. Over the past couple of weeks, the CNBC TV host has praised Ross Stores, Inc. (NASDAQ:ROST) on multiple occasions and praised the firm’s CEO, Jim Conroy. In his morning appearance on the 28th of August, he discussed the firm and the off-price retailer The TJX Companies, Inc. (NYSE:TJX) as a whole:
“I’ve been working on TJX now since it happened and my charitable trust has owned it forever. And a lot of it is, because of Ross Stores. They had a 10% comp and that was Jim Conroy from Boot Barn came in and really kicking butt.”
Ross Stores, Inc.’s shares are up by more than 25% year to date, while TJX is down by more than 4%. For the former, most of the narrative surrounds its explosive growth. In its fiscal second quarter, Ross Stores, Inc. posted 13% revenue growth and 10% comparable same-store sales growth to beat analyst estimates on both counts. To make matters even better, the same store sales growth was driven by higher traffic to the company’s stores as the firm benefited from a high inflationary environment. Consequently, Ross Stores, Inc. also guided $8.61-$8.77 in full year earnings per share, which implied 32% to 35% growth and was well above the pre-pandemic 15%-20% growth.
However, this growth was accompanied by higher inventories, a dependence on the off-price business model and potentially higher fuel and freight costs. In the second quarter, Ross Stores, Inc.’s inventories grew by 18% annually, while its reliance on buying opportunistically could spell trouble should inflationary headwinds dissipate and competitors step up the heat. Additionally, Ross Stores, Inc.’s management also warned about the impact of higher fuel and freight costs in H2 FY27 to potentially impact margins.
Shifting to The TJX Companies, Inc., while ROST can experience inventory and cost tailwinds, the firm isn’t doing well. Its Q2 comparable same store sales were weaker at 4%, while the firm guided Q3 margin to sit in a tight range of 11.8% to 11.9%. The shares closed 4% lower the day The TJX Companies, Inc. reported its earnings. Worryingly, the firm’s bread and butter Marmaxx off-price business grew same store sales by 1%, which was lower than the 6% drop in earlier quarters. As the business contributes to more than 60% of The TJX Companies, Inc.’s sales and profit, a slowdown carries broad implications. The slowdown also raises the question of whether the firm’s Home Goods, International and Canada businesses can offset the drop in growth.
Yet, while ROST might have performed well in Q2, hedge fund interest paints a different picture. According to Insider Monkey’s data, while 83 out of 1,022 funds had held a stake in the firm in Q1, this figure dropped to 71 out of 1,006 funds in Q2. For The TJX Companies, Inc., the figure dropped to 80 from 83. ROST’s forward P/E ratio of 27 is roughly similar to TJX’s 25 despite the growth. Short interest as a percentage of float is higher for ROST at 3.39% compared to The TJX Companies, Inc.’s 1.79%.
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