Wells Fargo names top retailing stock amid shifting market dynamics

Investing.com -- Wells Fargo has identified Burlington Stores as its top pick in the off-price retail sector, citing favorable valuation and margin improvement potential, while expressing caution on competitors TJX Companies and Ross Stores despite varying momentum across the group.

The investment bank’s latest analysis highlights shifting share dynamics in the off-price retail space over the past six months. Wells Fargo notes that TJX’s market share gains have reversed to losses, with the second quarter showing the largest share decline since 2022. Meanwhile, Ross Stores has seen accelerating share gains on robust first-half comparable store sales. The firm also points out that improving department store performance has limited off-price retailers’ ability to capture market share, which had previously been fueled by traditional retailers’ underperformance.

Burlington Stores

Wells Fargo names Burlington as an overall top pick and its favorite name in the off-price sector. The stock trades at a three-year valuation low while the margin improvement story continues to show potential and comparable store sales remain stable. For the third quarter, Wells Fargo believes comparable sales are tracking at 2% versus Street expectations of 2.9%. The firm notes concerns about El Niño weather patterns, but says the fourth quarter plan incorporates negative cold weather comps and includes a tariff-driven category tailwind. The setup requires margin upside, with the company needing to deliver a positive comparable sales result through the holiday season. Street and buyside estimates are fairly aligned at approximately $13.50 in 2027 earnings per share.

Ross Stores

While Wells Fargo acknowledges Ross as the strongest fundamental story in the group with visible momentum, the firm does not favor the risk/reward profile at current levels. Near-term trends likely remain robust and share gains are notable, but rate-of-change, valuation and inventory dynamics give the firm pause. To maintain momentum, Wells Fargo believes comparable sales need to reach low double digits in the third quarter, high single digits in the fourth quarter, and low single digits in the first quarter. Third quarter comparable sales are tracking at 10% versus Street expectations of 6.9%. Unlike Burlington and TJX, buyside estimates are well above Street at approximately $9.75 in 2027 earnings per share versus Street estimates of approximately $9.00.

TJX Companies

Wells Fargo remains sidelined on TJX as the company digests multi-year stock outperformance against a slowing macro environment and challenges at its Marmaxx division. The near-term debate centers solely on whether Marmaxx has fixed its issues or has problems yet to be resolved. Management maintains that issues are execution-driven and fixable in real time. For the third quarter, Wells Fargo believes Marmaxx comparable sales are tracking at 1% versus Street expectations of 1.8%. The firm says Marmaxx comps need to show sequential improvement from the second quarter’s 1% result, warning that failure to do so could see the valuation multiple revert to 20-22 times earnings. Street and buyside estimates are fairly aligned at approximately $5.75 in 2027 earnings per share.

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