A Few Key Takeaways From Cowen's Off-Price Retail Store Visits

Cowen recently took consultants and investors on a tour of off-price retail stores to conduct some channel checks.

The Analyst

John Kernan maintains an Outperform rating on Burlington Stores Inc BURL with a $165 target.

He maintains an Outperform rating on Ross Stores, Inc. ROST and raised his price target to $115.

He also maintains an Outperform rating on TJX Companies Inc TJX and raised his price target to $62.

The Thesis

Kernan said that while store checks can be somewhat anecdotal, it was obvious within the shopping centers visiting that TJ Maxx, Marshalls and HomeGoods saw some of the heaviest traffic and significantly above the Ross and Burlington stores he visited.

“While margin/EPS profiles have come under pressure from freight and wages at TJX and ROST - sales productivity, lease adjusted ROIC and free cash flow are accelerating into CY19. We see upside to guidance and consensus estimates for ROST and TJX and an acceleration in EPS growth exiting this year at a double-digit pace,” Kernan wrote in a note.

The analyst said TJ Maxx had the highest traffic and the best in-store presentation among peers.

Kernan also highlighted that PVH Corp PVH’s Calvin Klein and Capri Holdings Ltd CPRI Michael Kors were the brands most prevalent in all three Burlington stores the group visited, and Calvin Klein and Tommy Hilfiger were prevalent in all stores visited.

Burlington’s new store cohort is an opportunity, as the company unveils a new brand standard.

“Everything about the visual presentation including the lighting, flooring, category signage, sight lines, and improved accessibility and customer navigation should lead to improved productivity vs. the existing chain as 353 out of the 675 stores are in new or remodeled format - with 456 stores in new brand standard by year-end FY19 on a base of 725,” the analyst wrote in the note.

Related Links:

Freight Costs, Higher Wages Likely To Weigh On Ross Stores' Margins

Wells Fargo Calls A Peak In Discount Retail, Downgrades TJ Maxx's Parent Co.

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