Stock Strategist: Off-Price Retailers Fall Victim to COVID-19, but Long-Term Prognosis Good

[Morningstar Logo]( [Company Site]( [Company News]( [Membership]( [Portfolio]( [Stocks]( [Options]( [Funds]( [ETFs]( [Markets]( [Tools]( [Personal Finance]( [Discuss]( Stock Strategist Off-Price Retailers Fall Victim to COVID-19, but Long-Term Prognosis Good Chains' recovery will eventually come; in the meantime, check out the full-price sale. [tab_bar] by Zain Akbari, CFA | 5/8/2020 1:00:00 PM America’s virtually instant transformation into a lazaretto will undo longstanding comparable sales growth streaks for off-price retailers in 2020, but the long-term factors underlying their narrow economic moats and ability to transcend their full-price counterparts’ more chronic woes remain in place. Also, we think strengthened balance sheets should provide ample ammunition for combating short-term turmoil. The near term is not without challenges; while a difficult-to-digitize business model protects TJX [TJX]( Ross [ROST]( and Burlington [BURL]( long term, their limited e-commerce options are a liability at present. We think shoppers are likely to stay wary about lingering in stores for extended periods on a bargain hunt, particularly if social distancing efforts continue to limit work and social opportunities outside the home. The speed of the recovery influences valuation, with up to a midteens negative percentage impact in the more pessimistic scenarios we analyze. However, long-term investors should focus on the sector’s capacity to capture low-single-digit comparable growth with significant store footprint expansion once the pandemic fully recedes. Ross is the best positioned of the three off-price retailers we cover, with a conservative operational and balance sheet approach, and TJX is not far behind. Burlington’s turnaround injects some potential for volatility. We see their valuations as fair and suggest investors await more attractive entry points that may emerge as a volatile 2020 unfolds. We think investors favoring retail should instead consider no-moat Kohl’s [KSS]( or narrow-moat Nordstrom [JWN](. To read more, click [here](. Sponsored Links [Buy a Link Now]( Podcast: Investing Insights From Morningstar.com Listen to a roundup of the latest videos featured on Morningstar.com [in this podcast]( available through iTunes. Free Issue | Morningstar's Stock Newsletter >> Morningstar StockInvestor is celebrating more than 10 successful years of high-quality stock investing. Its two real-money portfolios have outperformed the S&P 500 since 2001. [Get new ideas for the core of your stock portfolio](. Search Most Recent Articles [4 Common Money Questions, Answered]( [Is Remdesivir-Maker Gilead Sciences a 'Buy'?]( [What Separated the Winners and Losers in the Bond Fund Whipsaw?]( Latest Analyst Reports [Ball]( [Magna International]( [Corteva]( [Ansys]( [Linde]( ABOUT OUR EMAIL TO UNSUBSCRIBE this email address to the Stock Strategist newsletter, please click "reply" and then click "send." This will unsubscribe only this email address to this specific newsletter. All subscription changes will take effect within one business day. Replies are not read by individuals, so please do not use this for queries about Morningstar.com. If you have questions about Morningstar.com or your membership, send a note to [joe@morningstar.com](mailto:%20joe@morningstar.com). ABOUT OUR PRIVACY POLICY Please [click here]( to learn about Morningstar's privacy policy. (c) Copyright 2020. Morningstar, Inc. 22 West Washington Chicago, Illinois, 60602 All rights reserved.