TJX Companies
TJX’s Marmaxx division (T.J. Maxx and Marshalls) posted a strong comparable-store sales of +5%, with apparel up high-single-digits but homegoods down. HomeGoods posted comparable store sales declines of -7%. Marmaxx's trailing-twelve-month (TTM) sales per square foot increased $5 quarter-over-quarter to $439. HomeGoods declined $7 to $369, but that is well above 2019’s $348.
The buying environment remains strong for the company as is reflected in the very strong Marmaxx profit margin of 14.0% (vs. 13.7% in 2019). The press release quotes CEO Ernie Herrman as saying “Every day, our global organization is focused on bringing customers around the world excellent values on great fashions and great brands and an exciting, treasure-hunt shopping experience. We are pleased that the second quarter is off to a good start, and we are seeing phenomenal off-price buying opportunities in the marketplace. We are set up extremely well to continue shipping fresh and compelling merchandise to our stores and online throughout the spring and summer. Going forward, I am confident that we have significant opportunities to grow sales, drive customer traffic, capture market share, and improve the profitability of our company.” What struck us in the results, aside from the strong margins, was the strong performance of new Marmaxx stores over the past year and the improved conversion rate year-over-year, which also demonstrates that Marmaxx’s merchandise and values are connecting with shoppers when they visit its stores (which has been the case for the past five quarters, indicating that they are building on last year’s improvement). As it relates to HomeGoods, it is clear that they are working hard to clean up Bed Bath & Beyond’s market share. CFO John Klinger noted that they expect the HomeGoods comp to improve in Q2 2023 and beyond and stated, “We continue to see a terrific opportunity to capture additional share of the U.S. home market. In the first quarter, we opened our 900th HomeGoods store and continue to see excellent opportunities to grow both our HomeGoods and Homesense banners.” As shown below, traffic is better for HomeGoods in early May.
While management wouldn’t comment that they were getting a trade-down customer, they did share that they believe that their breadth of "good/better/best" brands and price points was allowing them to bring in a wide breadth of households and that for the quarter Marmaxx locations in more affluent markets had stronger comps than those in less affluent markets. Management also shared that their average ticket was moderating because that was where the consumer was going, and they expect more moderation in the near term (which must be what they are seeing in May). To our ears, the moderation is happening because of average unit retail (AUR) versus fewer units per transaction (UPT). The consumer is more discerning and careful with their purchases (i.e., seeking better value and wanting to touch and feel) are two of our bigger themes for 2023. More broadly in retail, we are seeing trade down, which can also be seen in results for Home Depot and Target.
Ross Stores
Ross Stores reported a +1% increase in comparable-store sales, with the comparable average ticket coming in flat year-over-year. This put its trailing-twelve-month sales per sq foot at $342 (compared to Marmaxx at $439). The company's Q1 2023 press release quotes Ross Stores CEO Barbara Rentler as saying, “Despite continued inflationary pressures impacting our low-to-moderate income customers, first quarter sales were relatively in line with our expectation." Similar to TJX Companies, the availability of goods from vendors is abundant allowing them to put very attractive, newly fresh, treasure hunt merchandise in front of their shoppers. We see evidence of that in its improved inventory turns and the much improved conversion rate. Last year, Ross' conversion rate took a big hit in Q1. This year, Ross recaptured that and so while traffic was down, comp transactions were +1% (i.e., when consumers visited their store, they liked what they saw and bought which is the mark of strong execution by Ross’ merchants). Moreover, it’s even more impressive considering the pressures facing consumers that Rentler highlighted as well as the very soft general merchandise results for Walmart and Target.
On its Q1 2023 update, Rentler noted that its "focus [as a merchant group is]…delivering the best branded bargains that we possibly can… [The Ross merchants and buyers] know that they need to get--they need to have their values be sharper. So they're competitive shopping, seeing what's going on in stores and then they're in the market and vendors are giving them the lay of the land…”
