TJX Companies Inc. (TJX) reported adjusted earnings of $1.06 per share for the third quarter ended October 29, 2011. Although earnings were in line with the Zacks Consensus Estimate, they shot up 15% from the year-ago level. The growth was partly offset by warm weather in most parts of Europe and America, sudden lowering of Celsius in Europe during the end of the quarter bucked up sales in the region.
Foreign currency movement contributed 1% to the earnings of the third quarter. Overall net impact of foreign currency exchange rates had a positive impact of 3 cents on third quarter earnings per share compared with a neutral impact last year.
Based on the quarterly earnings, the company updated its outlook for fiscal 2012 to a range of $3.93 to $3.97 per share, which represents a 13% to 14% increase over the prior year’s adjusted earnings per share from continuing operations of $3.49.
For the fourth quarter, the company expects diluted earnings per share on a GAAP basis to be in the range of $1.19 to $1.23, a 13% to 17% increase over $1.05 per share last year. The management is optimistic about the company’s performance due to the upcoming holiday season coupled with comfortable inventory position of the company.
Quarterly Details
Total net sales during the quarter grew 5.0% year-over-year to $5.79 billion, which was slightly below the Zacks Consensus Estimate of $5.83 billion. Sales were expected to be stronger, as the unfavorable weather in many U.S. and European regions affected apparel sales.
TJX's consolidated same-store sales increased 3.0% in the quarter driven by same-store sales growth at Marmaxx (+4.0%) and Home Goods (+5.0%), partially offset by a decline of 2.0% in TJX Canada and flat growth in TJX Europe. Sales in Canada and Europe were impacted by unfavorable foreign currency exchange rates.
TJX's gross margin expanded 60 basis points from the prior year quarter to 28.1%. The margin expansion was mostly due to improved buying, occupancy cost leverage and 0.2% positive impact of mark-to-market adjustments. However, this was partially offset by flattish merchandise margins.
Selling, general and administrative expenses (SG&A), as a percentage of sales, remained constant from the prior-year period at 16.5%.
Cash Flow, Balance Sheet and Share Repurchase
TJX exited the quarter with cash and cash equivalents of $956.9 million, compared to $1,339.1 million in the year-ago period. Quarter-end long-term debt was flat at $774.5 million with shareholders equity of $3,183.3 million. The company generated $505.1 million of cash from operations and deployed $222.2 million towards capital expenditure and $71.9 million towards dividend payments in the third quarter.
During the reported quarter, the company repurchased shares worth $295.0 million. For the 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. TJX has a 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. Stiff competition from Kohl’s Corporation (KSS) and Target Corporation (TGT) coupled with slow recovery of the U.S. economy are matters of concern.
Currently TJX holds a Zacks #3 Rank, implying a short-term Hold recommendation. On a long-term basis, we maintain a Neutral rating on the stock with a short-term Buy rating.
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