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Digging through bargain bins of 90%-off jorts may not be glamorous, but it’s all the rage these days as cost-conscious shoppers scrounge through cheap stores to skirt tariff-induced sticker shock.
The shift in buying behavior played out this week for investors as discount retailers reported relatively robust earnings and rosy outlooks for the rest of 2025. For example: Although Ross Stores missed revenue estimates and reported an $0.11 dent in EPS due to tariffs today, the overstock outlet predicts that same-store sales will grow 2% to 3% this quarter.
Rising prices are beginning to scare skittish shoppers out of higher-end stores, but Ross is perfectly positioned to absorb all that unsold inventory and serve it up for a fraction of the price. As CEO Jim Conroy explained in a statement, “We anticipate pricing across retail will move higher as we progress through the year, which will lead consumers to seek more value this fall season.”
Ross isn’t alone: TJX, the company behind TJ Maxx and Marshalls, raised its full-year profit outlook in the wake of higher-than-anticipated earnings and revenue. So did Walmart, which reported a 4.8% jump in same-store sales in Q2. Although tariffs inflated Walmart’s prices by 1%, the megachain also rolled out 7,400 temporary price reductions, about 2,000 more than the previous quarter. CEO Doug McMillon vowed to keep prices low “for as long as we can.”
Should investors shop discount stores, too?
Outlet stores’ strong performance looks all the more impressive compared to how their pricier competition is doing.
Take Target: Comparable same-store sales have remained flat or fallen for 11 quarters straight, prompting this hip-yet-struggling store to oust its CEO of 11 years. Still, fresh leadership will have a tough time balancing tariff pressures with discerning cheapskates, especially as BofA analysts anticipate the store may need to raise prices at nearly twice the rate of its big-box rival Walmart.
“Tar-zhay’s aspirational vibe is on the bench. Discount retail is winning because the game shifted from style points to scoreboard math,” Running Point Capital Advisors Chief Investment Officer Michael Ashley Schulman told Brew Markets. “Walmart is spreading the hit, raising prices on only about a tenth of imported items, with grocery traffic subsidizing the rest. TJ Maxx and Ross live off turnovers, scooping up other retailers’ over-order fumbles and turning them into treasure-hunt touchdowns. Off-price thrives because chaos is their transfer portal—mispriced inventory flows to them, not away from them—so they win ugly.”
So, what does that mean for you? “For investors, bet on margin defense under tariff pressure, turnover ratio, and a playbook tilted to staples over sizzle,” Schulman said.—JD