On Sep 26, 2014, we issued an updated research report on The TJX CompaniesInc. (TJX). The discount retailer reported mixed second-quarter fiscal 2015 results on Aug 19, 2014. Higher sales during the quarter were partly offset by weaker margins due to markdowns on prices.
TJX’s second-quarter fiscal 2015 earnings of 75 cents per share beat both the Zacks Consensus Estimate as well as year ago results by 2.7% and 14% backed by higher sales. Net sales of $6.9 billion were in-line with the Zacks Consensus Estimate and surpassed year-ago results by 7% backed by higher comps. Comps grew 3% year over year on the back of higher same-store sales at Home Goods, TJX Europe, TJX Canada and Marmaxx stores. However, comps growth was slower than the year-ago growth of 4% mainly due to lower consumer spending.
TJX’s margins suffered as both pre-tax profit margin and gross margins shrank 0.3 percentage points (pp) and 0.2 pp from the prior-year quarter, respectively.
However, we are optimistic about the long-term prospects of the stock because of its strong fundamentals. The company hassolid business momentumbacked by rising store traffic that boosted comps by a compound annual growth rate of 5% over the past five years. Significantly, TJX boasts comps gain in 42 out of 44 quarters in its 36-year history. The company is perfectly positioned for the long-term consumer environment and that its strong business momentum should continue despite the challenging retail environment.
It also has an aggressive store expansion policy in place. The company is regularly opening stores and expanding fast across the U.S., Europe and Canada. Its focus on e-Commerce is also commendable. TJX has plans to aggressively market its official website tjxmaxx.com during the second half of fiscal 2015. These initiatives are expected to boost the company’s top line in the future.
Other stocks in the retail sector worth considering are Family Dollar Stores Inc. (FDO), Ross Stores Inc. (ROST) and Burlington Stores Inc. (BURL).
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