The TJX Companies Inc. (TJX) reported adjusted earnings of 90 cents per share for the second quarter ended July 30, 2011. This surpassed the Zacks Consensus Estimate of 89 cents and increased 23.0% from the prior-year quarter.
Based on the quarterly earnings, the company raised its outlook for fiscal 2012 to a range of $3.89 to $3.97 per share, which represents an 11% to 14% increase over the prior year’s adjusted earnings per share from continuing operations of $3.49.
For the third quarter, the company expects diluted earnings per share on a GAAP basis to be in the range of $1.03 to $1.07, a 12% to 16% increase over $0.92 per share last year.
Quarterly Details
Total net sales during the quarter grew 8.0% year-over-year to $5.5 billion, which was in line the Zacks Consensus Estimate. Sales were expected to be stronger, as the unfavorable weather in many U.S. and Canadian regions affected apparel sales.
TJX's consolidated same-store sales increased 4.0% in the quarter driven by same-store sales growth at Marmaxx (+5.0%) and Home Goods (+3.0%), partially offset by a decline of 3.0% in TJX Canada.
TJX's gross margin expanded by 10 basis points to 16.9% from the prior year quarter. Improved buying and occupancy cost leverage were more than offset by the impact of mark-to-market adjustments and lower merchandise margins.
Selling, general and administrative expenses (SG&A), as a percentage of sales, increased 10 basis points from the prior-year period to 16.9%. This favorable increase was due to increased advertising expenses.
Accordingly, TJX's adjusted operating income (gross profit less SG&A) went up to $559.4 million from $496.34 million in the prior-year quarter.
Cash Flow, Balance Sheet and Share Repurchase
TJX exited the quarter with cash and cash equivalents of $977.8 million, compared to $1,380.2 million in the year-ago period. Quarter-end long-term debt was $774.4 million with shareholders equity of $3,105.0 million. The company generated $325.7 million of cash from operations and deployed $441.1 million towards capital expenditure and $131.6 million towards dividend payments.
During the reported quarter, the company repurchased shares worth $311.0 million. For full year, the company intends to repurchase shares worth $1.2 billion.
Our Take
We are encouraged by the company’s flexible off-price business model is flexible, allowing it to react to market trends. low cost structure compared to many other traditional retailers. It focuses aggressively on expenses throughout its business. However, the highly competitive nature of the business is a matter of concern.
Currently TJX holds a Zacks #2 Rank. On a long-term basis, we maintain a Neutral rating on the stock with a short-term Buy rating.
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