TJX Companies Gains on Higher Comps, Increased Costs a Drag

TJX Companies Inc. TJX is one of the few retailers that have managed to stay above the troubled waters of the retail sector. In fact, the company has maintained its solid earnings trend and outpaced estimates for the last 10 quarters in a row.

Shares of TJX Companies have also outperformed the Zacks categorized Retail – Discount & Variety industry over the past two years. The stock has gained 14.9% in the past two years, outperforming the Zacks categorized industry’s gain of 6.9%, which is currently placed at top 42% of the Zacks Classified Industries (110 out of 265).

Let’s Delve Deeper

TJX Companies’ wide array of products and aggressive store opening strategy has been boosting sales The company has been undertaking innovative marketing and advertising campaigns through multiple mediums (TV, radio and social media) to boost traffic at its stores for the past few quarters. The company’s endeavor to boost international presence by acquiring Australia-based Trade Secret that complement its business and help it to capitalize on the growth opportunities in the country.

TJX Companies has reported positive comparable store sales (comps) growth in the past 32 quarters. Higher traffic driven by both new and existing customers shopping more frequently resulted in the company’s impressive performance. The company’s fresh stock and widespread sourcing machinery has helped it to maintain a loyal customer base.

The company is consistent in its efforts to expand rapidly across the U.S., Europe and Canada. TJX Companies at present has almost 3,800 stores in nine countries. The company plans to take the store count up to 5,600 stores over the long term. TJX Companies plans to open approximately 250 stores in fiscal 2018. This includes further testing of the Sierra Trading Post brick-and-mortar format, with 15 additional store openings planned across the U.S. this year.

However, estimates have declined since the past 30 days. For the second quarter, the Zacks Consensus Estimate has declined 9.7% to 84 cents and were down 0.8% to $3.81 per share in fiscal 2018 over the past 30 days period.

Recently, the company reported first-quarter fiscal 2018 results, wherein while earnings exceeded expectations, revenues missed the same owing to disappointing comps growth. In the reported quarter comps grew 1%, compared with the year-ago figure of 7%. Following the results, the company narrowed its fiscal 2018 earnings guidance.

In fact, retailers including Macy's Inc. M and J.C. Penney Co Inc. JCP also reported sluggish sales recently, as they struggled to attract customers amid tough retail conditions. Also, regular customer shift to online shopping was a major deterrent.

Further, TJX Companies expects its pre-tax margins to remain under pressure for the next few quarters due to an increase in employee payroll. The company announced wage increase of all full- and part-time hourly U.S. store associates during fourth-quarter fiscal 2016 conference call. Higher wages are expected to negatively impact fiscal 2018 earnings by 3%.

Further, the company expects incremental investments, additional supply chain costs and pension costs to pressure margins in the coming quarters. TJX Companies remains exposed to unfavorable foreign currency translations as it has a considerable international presence.

Nevertheless, we are encouraged by the fact that the company is working on brand enhancing initiatives in the form of product innovation and marketing campaigns. It has also been striving to upgrade its e-Commerce business and also boost its global presence. Whether these ongoing initiatives will be able to spark a turnaround in the company’s performance is a wait-and-see story.

Zacks Rank & Key Picks

TJX Companies currently carries a Zacks Rank #3 (Hold).

A top ranked stock in the retail sector includes Rocky Brands, Inc. RCKY, which sports a Zacks Rank #1 (Strong Buy) and posted a positive surprise of 42.9% in the preceding quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.

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