Off-Price Retail: Coverage Resumption – Quality Comes at a Price

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Foundation

August 5, 2026 04:01 AM GMT

Off-Price Retail | North America

Morgan Stanley & Co. LLC

Alex Straton

Equity Analyst

Coverage Resumption – Quality

Comes at a Price

Katy Delahunt

Research Associate

Lauren Levine

Research Associate

We view Off-Pricers as attractive given their higher-quality

earnings profile & de-risked forward estimates, though we see

more compelling risk/rewards in select Specialty Retail &

Department Store stocks. We are Overweight rated BURL & TJX,

with BURL our preferred investment in the group. We’re Equalweight ROST – an out-of-consensus view.

Shakhnoza Mamadalieva

Research Associate

Retail, Off-Price

North America

Industry View

Attractive

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We’re resuming coverage of the Off-Price Retail sector with an Attractive

Industry View. We view Off-Price as one of the highest-quality areas within

Softlines Retail, supported by a structurally advantaged business model that drives

more consistent operating performance than traditional apparel retail. Over the

NTM, we identify three reasons to be constructive. First, Off-Pricers’ quality profile

is well-suited in the context of our US Equity Strategy team’s top-down call that the

business cycle is transitioning from early to mid-cycle. This is a phase when stock

leadership typically shifts from lower to higher quality companies, & investors place

greater emphasis on earnings stability & strong margins – which should support OffPrice (more here & here). Second, we see a favorable earnings outlook, & model

modest upside to ’26e & ‘27e consensus EPS estimates on average. Lastly, we think

the valuation backdrop is supportive, as ongoing consumer & tariff uncertainty likely

keeps Consumer investor interest concentrated in the highest-quality players – thus

sustaining the sector’s valuation premium.

That said, we see a less compelling risk/reward in Off-Price than in select

Specialty Retail & Department Store stocks. While we continue to believe OffPrice deserves a premium valuation, we think today's ~high-20s forward P/E

multiples already reflect much of the group's superior earnings durability &

consistency. By comparison, Specialty Retail & Department Store stocks currently

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