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Why Ross Stores Is No Match For TJX Companies; Buy Any Dip In TJX

Ross Stores' customer experience has deteriorated due to very low inventory levels in stores and unattractive displays.

TJX is adding more great names to its portfolio of brands and is growing in e-commerce.

TJX's management is superior at managing inventory and assessing and capitalizing on industry trends.

After a positive quarter of impressive growth, Ross Stores (NASDAQ:ROST) was hit hard due to management lowering guidance. As of late, it seems as if there is some confidence, but the stock has been trading sideways for the most part. Nonetheless, I believe Ross is doing a good job at hitting expansion targets, but TJX Companies (NYSE:TJX) is a better long-term buy and a better run company overall.

Let's take a deeper look into Ross Stores versus its main competitor, TJX. This is one of the only companies that adequately and directly compares to Ross. Others, to a lesser extent, include Kohl's (NYSE:KSS) and Burlington Stores (NYSE:BURL). Ross is to TJX kind of like Burger King is to McDonald's, but with TJX offering brands a tier above Ross'.

TJX's TJ Maxx boasts brands such as Ralph Lauren (NYSE:RL), Kate Spade & Co (NYSE:KATE), Michael Kors (NYSE:KORS), Movado (NYSE:MOV), Coach (NYSE:COH), Juicy, and not to mention the latest addition, Brooks Brothers. Ross offers Guess, Nautica, Polo, Nike (NYSE:NKE), and Kors (to a lesser extent). The disparity in the perceived and actual quality and prestige factor of brands is material, but there is nonetheless a strong similarity in the business models. I believe at the current moment, carrying KATE is a lot more important than carrying KORS. Women switched from having all COH to all KORS and are now looking to move to the next "it" brand, which seems to be KATE. After becoming too widespread, KATE will also lose value. Most people can save up to $150 or so to afford these products. The point is if too many people can afford it, it's not special, and once it becomes a standard, it's essentially not worth owning if you were doing it for the exclusivity. There is a lot of psychology behind this. This is why I believe Tory Burch will be the true winner here for now, as its purses' price points are slightly above Kate's, making it in the unaffordable range, but that is another story.

The shopping experience at Ross and TJX stores is also widely different. After lowering inventory levels by 40% over the past few years, I believe Ross has gone too lean. In its annual report, management states, "For 2015, we are planning selling store inventories to be down slightly on top of these multi-year lows." From a purely observational standpoint, I notice in-store shelves and especially purse racks to be bare. I notice displays to be highly unattractive and products scattered and thrown every which way on their tables. Certain locations look...