TJX Companies Maintains Its Momentum

Demitrios Kalogeropoulos, The Motley Fool

TJX Companies (NYSE: TJX) is still on a roll. The off-price retailer had lifted investor expectations following a banner fiscal 2018 that included significantly faster growth. This week, TJX confirmed that this positive momentum has carried on into early 2019, even though challenges remain in a key international market.

More on that struggling segment in a moment. But first, here's a look at the retailer's headline numbers:

 Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Revenue

$9.3 billion

$8.7 billion

7%

Net income

$700 million

$716 million

(2%)

Earnings per share

$0.57

$0.56

2%

Data source: TJX financial filings. 

What happened this quarter?

Sales beat management's predictions for the fourth straight quarter, mainly thanks to gains at the core Marshalls and TJ Maxx brands. The chain endured rising costs in several key categories, leading to reduced profitability. However, executives still see a brightening earnings outlook.

Two women shopping for shirts.

Image source: Getty Images.

Here are the key highlights of the quarter:

  • Comparable-store sales growth was 5%, compared to 6% in the prior quarter, which included the holiday season. The increase was again led by broadly positive results across its retailing banners, but the Marshalls and TJ Maxx segment, called "Marmaxx" by management, was the standout performer as comps jumped 6%. The company continued to struggle in the weakening Canadian market, where comps ended up flat.
  • The company added 75 stores to its base, equating to a 4% increase in square footage compared to last year.
  • Gross profit margin ticked lower due to rising supply chain and freight costs. Selling expenses jumped, too, thanks to rising wages. As a result, pre-tax operating margin fell to 10% of sales from 11% a year earlier.
  • Inventory levels kept pace with sales growth, up 7% after accounting for currency shifts.
  • TJX spent $350 million on stock buybacks, consistent with its plan to repurchase around $2 billion of its shares in 2019. Dividend payments spiked to $238 million from $197 million due to an 18% payout hike.

What management had to say

CEO Ernie Herrman in a press release highlighted the retailer's broad-based growth. "It is terrific to see the continued strength of our largest division, Marmaxx, with an outstanding 6% comps increase," he said. "Once again," Herrman continued, "customer traffic was the primary driver of our consolidated comp increase and was up at each of our four major divisions."

The CEO said this trend is an "indicator of the enduring appeal of our great values on an eclectic and exciting mix of merchandise ... as well as the resiliency of our off-price retail model."  

Looking forward

Consistent with previous updates to investors, management said it is seeing plenty of appealing buying opportunities across the retailing industry right now. Those attractive merchandise options are the key driver behind TJX's market-thumping sales growth.

That said, the company kept its sales outlook unchanged, and its prediction of gains ranging from 2% to 3% implies a slowdown over the next few quarters.

TJX did lift its earnings outlook, though. Profits should now rise to between $2.56 per share and $2.61 per share, an increase of 5% to 7% over the previous fiscal year's result. That boost is coming despite higher labor costs and increased supply chain expenses, and it reflects generally healthy operating and financial trends from this off-price retailing giant.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.