Growth and potential
TJX, which owns both TJ Maxx and Marshall's brands, had a total of 2,285 U.S. discount stores as of February. The company also has 671 HomeGoods stores, 454 TJX Canada stores, and 564 TJX International stores (Europe and Australia), for a grand total of 4,070 stores. Ross, on the other hand, had only 1,409 Ross stores along with 213 dd's DISCOUNTS, for a total of 1,622 stores.
Both companies grew their same-store sales at 3% last quarter. Should that continue, future growth will largely be determined by new store openings. With less than half of TJX's store count, Ross theoretically has more room to grow and thus may sustain the higher growth rate it's had over the past three years.
Valuation
The final showdown comes down to valuation. Because Ross Stores has superior growth prospects, I'd expect it to have a slightly higher valuation, and that's indeed the case. On the basis of both a forward price-to-earnings ratio, as well as the EV-to-EBITDA ratio, Ross carries a slightly higher valuation.
TJX has a higher dividend yield (around 1.6% at current prices), which may lead some to think that TJX may be the choice for value investors. Ross stock yields closer to 1%.
Investors should note, however, that TJX pays out more of its earnings as a dividend, with a payout ratio nearly twice that of Ross. In addition, Ross has bought back more of its market capitalization over the past 12 months than TJX. That means that Ross still is returning a lot of money to shareholders and has the potential to increase its dividend more in the future.
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