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The case for owning off-price retail stocks like TJX Companies Inc (NYSE:TJX) two years ago no longer applies today for one key reason, at least according to Wells Fargo.
The Analyst
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Wells Fargo's Ike Boruchow downgraded TJX Companies' stock from Outperform to Market Perform with a price target lowered from $76 to $72.
The Thesis
The case two years ago for owning off-price retail stocks like TJX Companies was threefold, Boruchow said in a note. (See the analyst's track record here.)
The catalysts for off-price retail were, according to Boruchow:
- An increase in wallet share from closing department stores.
- Retailers and department stores eager to sell their excess inventory to off-price retailers.
- A shifting customer demographic toward off-price options.
Among the three factors, the most supportive factor for owning off-price retailers was the high levels of inventories at department stores and retailers, the analyst said. Today, the inventory situation in the U.S. wholesale channel is "clean," especially on the apparel side, Boruchow said.
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Brands are now less likely to rely on the off-price channel compared to recent years, and the company now has less closeout buys to take advantage of— something that served as a high-margin opportunity for TJX Companies, the analyst said.
The company is by far and large the largest off-price retailer, so any pullback from a notable brand is "almost assuredly" going to impact TJX's brands, while it "may or may not" impact its smaller rivals, Boruchow said.
"It's essentially the law of large numbers."
Price Action
Shares of TJX Companies were trading lower by nearly 2 percent Wednesday morning at $75.30.
Retail Watcher: Department Stores Aren't Dead Yet, But Face 'Assault' From Many Angles
TJX, Ross And Burlington Will Open The Same Number Of Stores Macy's, Sears And JC Penney Are Closing
Photo by Anthony92931/Wikimedia.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.