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Discount retailers benefit as epidemic makes consumers pay more attention to value for money

U.S. discount retailer Burlington reported a 35% increase in total sales to $2.19 billion and a 120% increase in net income to $171 million in the first quarter, with store sales up 20% year-over-year.

Compared to 2020, the company's net sales jumped 175% and net income rose more than 150%.

The results shattered most analysts' expectations.

Most retailers saw significant year-over-year sales and profit improvements, but "only a handful of retailers achieved the level of compound strength and liquidity that Burlington demonstrated in the first quarter.

This speaks to the strength and potential of Burlington's discounted model, as well as the company's good execution and better liquidity," said Roxanne Meyer, managing director of MKM Partners, in an e-mailed commentary.

Burlington CEO Michael O'Sullivan said in a statement that government aid checks, the rapid spread of vaccines and pent-up consumer demand are the main factors driving traffic to Burlington stores, but he warned that supply chain concerns remain not be ignored, and near-term performance remains uncertain and under pressure.

Michael O'Sullivan said, "The second quarter has started well, but future sales trends remain difficult to predict. At the same time, there is a risk of deterioration in supply chain and freight expenses, all of which could impact our full-year operating margins."

U.S. apparel and home retail chain Ross reported first quarter net sales up 145% year-over-year and 19% over 2019 to $4.5 billion. Net income increased 256% year-over-year, up 13% from 2019, to $476 million.

Sales at Ross stores increased 13 percent year-over-year compared to 2019.

Barbara Rentler, CEO of Ross, commented, "While Ross had a good first quarter, it is difficult at this time to accurately predict the future impact of these factors that have benefited us, particularly the recent government stimulus spending policies.

Credit Suisse analyst Michael Binetti called Ross' "revenue performance outstanding, especially when compared to department stores."

Binetti noted, "It is becoming increasingly clear that as consumers desegregate their homes and return to the market, market share is shifting to discount retailers faster than we thought."

Barbara Rentler echoed this sentiment, noting the turmoil at other apparel retailers.

"In the long term, we remain confident in our opportunity to gain market share as we expect to benefit significantly from a favorable competitive environment given the large number of retail store closures and bankruptcies in recent years," she said.

"This, coupled with a high consumer focus on value and convenience, bodes well for Ross' ability to deliver solid results going forward."

TJX Corporation, which operates T.J. Maxx, Marshall, HomeGoods, Sierra and Homesense stores, reported first-quarter net sales up 129 percent year-over-year and 9 percent from the prior-year period to $10.1 billion.

Net income rose 160 percent year-over-year to $534 million, and TJX's brick-and-mortar inventory was up 16 percent from two years ago.

Neil Saunders, managing director of GlobalData, noted that the desire for new clothes is helping TJX gain new customers, in addition to sending TJX fans back to the stores to shop.

Neil Saunders said, "While consumers have a desire to spend, as inflation rises, they will increasingly value the value and value for money of their goods.

This bodes well for the discount retail industry in general, and TJX in particular, as it offers better deals on nicer clothing and workwear.

Likewise, as consumers emerge from the isolation of their homes, they are eager to explore the stores, making the treasure-hunting shopping experience that TJX is committed to creating all the more appealing."

Five Below, a low-price retailer with more than 1,050 stores in 39 states across the U.S., reported that its net sales jumped approximately 198 percent between the first quarter of fiscal 2020 and the first quarter of fiscal 2021 .

In addition, the retailer's comparable sales soared 162 percent during the same time period.

Five Below reported net income of $49.6 million for the first quarter of fiscal 2021, compared to a net loss of $50.6 million for the same quarter of the previous fiscal year.

In other words, the retailer reported diluted earnings per common share of 88 cents, compared to a diluted loss per common share of 91 cents in the same quarter of the previous fiscal year.

"We are seeing broad strength globally as we provide customers with the great value, popular products they expect from Five Below's amazing shopping experience," said Joel Anderson, president and CEO of Five Below, in the announcement .

"As a result we continue to invest in our physical stores, opening a record 68 new stores in every state in the U.S., including our 39th state, Utah."

The company ended the quarter with 1,087 brick-and-mortar stores in 39 states.

With the opening of approximately 30 new stores, Five Below expects net sales for the second quarter of fiscal 2021 to be in the range of $640 million to $660 million.

The company also expects net income for the period to be in the range of $56.9 million to $63.7 million. It expects diluted earnings per common share to be in the range of $1.01 to $1.13 with approximately 56.4 million diluted weighted average shares outstanding.

In the announcement, Anderson said, "With our inherent flexibility, unique marketing approach and focus on innovation, we believe we remain well positioned to continue to grow Five Below and drive sustainable long-term value for all of our stakeholders."

The news comes as TJX Corporation reported net sales of $10.1 billion for the first quarter of fiscal 2022, an increase of 129 percent over the first quarter of fiscal 2021.

TJX reported first quarter net income of $534 million, in addition to diluted earnings per share (EPS) of 44 cents. It also reported that sales at "stores open for business only" increased 16 percent over the first quarter of fiscal 2020."

British discount retailer B&M saw a surge in full-year profits and sales, with pre-tax statutory profit up 108% to £525.4 million and group revenue up 25.9% to £4.8 billion in the 52 weeks to March 27.

B&M boss Simon Arora said the convenient store network and cost-effective selling prices were helping to put B&M in a strong competitive position for the reopening phase following the commercial lock-up.

French supermarket giant Carrefour and its British counterpart TESCO announced Monday that the purchasing alliance between them will not be extended after it expires at the end of this year. The alliance will officially end on Dec. 31.

In July 2018, Carrefour and TESCO announced they would establish a long-term strategic alliance to cut costs, lower prices and fend off e-commerce threats.

The scope of cooperation will cover areas such as marketing services and data collection, including cooperation with global suppliers, and joint purchasing of private label products.

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