As consumer spending slows, Club holding TJX is the off-price retailer to own

Published Wed, Jan 18 20234:04 PM ESTUpdated Wed, Jan 18 20234:06 PM EST

Fresh economic data Wednesday showed U.S. consumer spending slowed during the holiday season as inflation, though easing, continued to squeeze shoppers. That's likely to make off-price retailers like Club holding TJX Companies (TJX) even more attractive to many Americans looking for cost-saving deals in the new year. Total retail sales in the U.S. dropped 1.1% in December month-on-month, the Commerce Department said Wednesday, in the second consecutive monthly decline. Retail sales had fallen by 1% in November. The monthly sales report, which is not adjusted for inflation, showed declines across a range of categories, with a steep drop of 6.6% in department-store sales and a 4.6% fall in sales at gasoline stations. The retail data comes as the Labor Department's producer price index, also released Wednesday, showed prices of wholesale goods and services came down at a faster rate than expected in December. That's a sign the Federal Reserve's interest rate hikes are working to slow inflation, which could benefit consumers. But with the state of the economy still uncertain — inflation remains high, even as fears of a recession persist — Morgan Stanley on Wednesday highlighted off-price retailers like TJX and competitors Ross Stores (ROST) and Burlington Stores (BURL) for their "defensive qualities in the face of recession." Companies like TJX, which operates stores like T.J. Maxx and Marshalls, have benefited from a retail inventory glut that's plagued major department stores over the past year, buying up excess apparel and other items at a discount then passed onto shoppers. Morgan Stanley analysts expect off-price retailers to benefit from consumers shifting spending habits away from high-end shopping toward discounts. "Looking into 2023, we think TJX, ROST & BURL's businesses should benefit from trade down once again, as well as see margin tailwinds on normalizing freight costs & [merchandise] margins, creating an attractive setup for the sub-sector in a potentially challenging macro environment," the analysts wrote in a research note. The analysts singled out TJX as the only off-price retailer to successfully raise prices over the last couple years, helped by their more than 20,000 vendor partners, while also attracting a higher-income demographic compared to competitors. Shares of TJX closed down 2.13% Wednesday, at $79.81 apiece. Bottom line A second consecutive monthly drop in retail sales shows that