TJX Increases Capital Spending Plans, Eyes 'Real Estate Opportunities'
The two largest discount retailers of mostly apparel items in the United States are opening new stores at the same time that most of their competitors are closing locations and relying more on e-commerce.
Ross Stores Inc., which operates Ross Dress for Less and DD Discounts, plans to open 39 new locations in the third and fourth quarters for a total of almost 1,900 U.S. stores. And TJX Cos., which owns TJ Maxx, HomeGoods and Marshalls, opened a dozen stores last quarter, increasing its square footage by 3% for a total of 4,557 locations across the globe.
Ross Stores and TJX had both been increasing profits and revenue over the year prior to the pandemic and plan to grow their market share by capitalizing on the planned store closings of the dozens of rival retailers that have filed for bankruptcy protection, officials said on separate earnings calls.
Before the pandemic forced temporary store closings, the growth of online shopping and declining foot traffic at malls and stores had already reduced sales per square foot for several retailers. The pandemic contributed to more than 40 retailers, including Stein Mart, Tuesday Morning and J.C. Penney, filing for bankruptcy protection as an aftereffect of weeks of restrictions on their operations.
"As other retailers continue to close stores, we are confident we'll be able to capitalize on real estate opportunities for our global store growth and capture a larger piece of the consumers' wallet," said Ernie Herrman, CEO and president of TJX, on the company's earnings call.
TJX is the largest U.S. discount apparel retailer based on revenue, ranking No. 80 on the Fortune 500 list of the largest publicly traded companies in the United States with revenue of $41.7 billion, more than the revenue of department store retailers J.C. Penney and Macy's combined. TJX, which operates a small e-commerce operation, reported profits of $3.3 billion last year.
Ross Stores ranked No. 202 on the Fortune list with revenue of about $16 billion. The company has no e-commerce presence and reported profits of $1.6 billion last year.
TJX and Ross Stores both reported lower sales in the second quarter, after initially spiking once lockdowns were lifted in many states as pent-up demand and steep discounts drew customers into stores.
Comparable sales for Ross Stores were down 12% in the second quarter for reopened stores, with total sales hitting $2.7 billion, down from $4 billion during the quarter last year but higher than analysts expected. All Ross Stores and distribution centers were closed from March 20 to May 14.
Sales "were negatively impacted from depleted store inventory levels while we were ramping up our buying and distribution capabilities,” said Barbara Rentler, CEO of Ross Stores, during an earnings call with investors. Higher coronavirus cases in some of Ross Stores' biggest markets, such as Texas, Florida and California, significantly softened sales as some shoppers stayed home, company officials said.
Ross Stores picked the Houston area to build its seventh distribution center, which will be its largest. The 2.165 million-square-foot distribution hub is estimated to cost $180 million and is expected to be completed in 2021. Unlike other retailers that are building distribution centers to ramp up their e-commerce platforms, Ross Stores uses its distribution centers for inventory to send to brick-and-mortar stores to sell in person.
Ross Stores, based in Dublin, California, expects to look for space in an undisclosed state for its eighth distribution center once the Houston-area facility is in operation, officials said on the earnings call.
Rentler said she expects discount retailers will continue to have to offer big discounts to keep enticing shoppers as the chains compete with major sales from bankrupt retailers and store liquidations.
"We remain well positioned as an off-price retailer to continue to gain market share, given the large number of retail store closures," Rentler told investors. "We've proven in the past that we have successfully competed in this type of retail environment and believe we will do so again."
Ross Stores did not immediately return an email for comment. TJX declined to comment on their real estate plans.
TJX, based in Framingham, Massachusetts, said comparable store sales at reopened stores fell 3% in the second quarter across all its brands. The discount giant’s sales sank 31% year over year for the quarter to nearly $6.67 billion, which was still better than the company's expectations, TJX said in its earnings release Aug. 19.
While sales for apparel at TJX stores stumbled, shoppers flocked to TJX's HomeGoods stores that were generally considered an essential business and allowed to remain open during lockdowns. U.S. sales at HomeGoods stores increased 20% in the quarter at reopened locations compared to last year.
TJX said it expects the HomeGoods stores will perform well for the rest of the year as consumers open their wallets to support their remote work and school environments, officials said.
Likewise, the biggest U.S. hardware chains, Lowe's and Home Depot, reported booming sales in the second quarter and are both expanding their distribution networks.
TJX plans to "chase the hot categories" such as home products "as we respond to consumer preferences and market trends" going forward, said Herrman on the earnings call.
An unusual back-to-school shopping season is expected to further soften sales in the third quarter at both Ross Stores and TJX locations. Fewer shoppers are expected to hit brick-and-mortar stores as parents of K-12 students favor online shopping, according to a survey from industry group National Retail Federation. Families said they expect to spend slightly less on clothing and more on supplies for distance learning such as computers, the survey found.
TJX has increased its expected capital spending plans for fiscal 2021 to between $600 million and $800 million, up from $400 million and $600 million, for distribution center and systems investments, Scott Goldenberg, TJX's finance chief, told investors.
TJX ended the second quarter with $6.6 billion in cash, which Goldenberg called a "strong liquidity position," adding the company plans to "continue to be prudent with our expenses."