The current macro backdrop is likely benefiting the off-price retail sector as increased value-seeking behavior among consumers has helped lift same-store sales growth expectations for the first quarter, Deutsche Bank said in a note on Friday.
The brokerage remains constructive on discount retailers, which tend to grow during an economic slowdown. In addition, merchandising initiatives and store openings should help sustain sales momentum, according to the note.
"Sentiment towards off-price retail remains positive with elevated (first quarter 2026) SSS expectations," Deutsche Bank Analyst Krisztina Katai said. "This reflects tailwinds from stimulus in the US and increased value-seeking behavior, which combine with company-specific SSS initiatives and easier compares."
US consumer sentiment declined to fresh lows in May amid cost pressures tied to the Middle East conflict, University of Michigan's preliminary survey showed earlier this month. A fragile ceasefire between Washington and Iran appears to be holding, though the two sides are yet to finalize a framework on a peace deal.
The brokerage expects comparable sales to grow low teens for Ross Stores (ROST), between 7% and 8% for Burlington Stores (BURL) and 5% to 6% for TJX's (TJX) Marmaxx.
Top-line strength and average unit retail gains position off-price retailers to absorb incremental freight pressures, but it is unclear whether the current momentum is driven by stimulus or other sustainable trends, Deutsche Bank said.
"That said, fears of a consumer slowdown in recent weeks have led to the group de-rating materially to start (the fiscal second quarter) -- which we believe creates a buying opportunity," Katai said.
Ross Stores and TJX are "best positioned" to top estimates due to incremental transactions, Katai said. Deutsche Bank remains "sidelined" on Burlington Stores.
Ross Stores, TJX and Burlington Stores are scheduled to release their first-quarter results later in May.
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