2023-05-17 13:00:21 ET
Summary
- The TJX Companies, Inc. is fresh off their Q1 earnings release and is fluctuating between gains and losses for the day.
- This follows strong pretax margin strength and positive revisions to full-year guidance.
- Though shares currently trade near the top of their 52-week range, I continue to view TJX as a potential outperformer relative to their competition.
- Compared to their full-price peers, the outlook for off-price retailers is likely to remain positive in the periods ahead.
- And strong sales in combination with continued margin strength could send shares to new 52-week highs.
The TJX Companies, Inc. ( TJX ) is fresh off their Q1 earnings release and it is fluctuating despite largely positive news.
Though the overall quarter was mixed, with concentrated strength offset in part by weakness elsewhere, management still provided upward revisions to guidance following strong margin performance.
And though they are expecting a softer second quarter, they still expect comparable sales to be up between 2% and 3%. This is after producing Q1 comparable sales that were just shy of consensus estimates.
At present, shares are up just under 3% YTD and are currently trading just under their 52-week high.
Seeking Alpha - Basic Trading Data Of TJX
This brings their total gains over the past year to about 45%. This handily outperforms their off-price peers, Ross Stores ( ROST ) and Burlington ( BURL ), who are each in the positive for the year but markedly less so. And compared to Target ( TGT ), TJX continues to prove that off-price retail is among the best bets in the retail industry.
Seeking Alpha - 1-YR Returns Of TJX Compared To Peers
In a prior update , I noted that shares could ride to new 52-week highs in 2023 and could even reach into the $100/share range. Following results, I continue to maintain a bullish view on the stock’s outlook.
Notable Strength In Marmaxx Division
In the first fiscal quarter of 2024, TJX reported total revenues of +$11.8B. This was up 3.2% YOY but shy of estimates by +$40M. Earnings, on the other hand, landed above expectations at $0.76/share.
In individual segments, their Marmaxx division, their largest division, led the way higher, with reported YOY growth of 7%. But this was offset, to an extent, by weakness in both their HomeGoods and TJX Canada divisions, which were down 3% and 4%, respectively.
This, however, was due primarily to currency headwinds. On a constant currency basis, TJX Canada was up 3% and International was up 5% after turning in flat results on an unadjusted basis.
Q1FY24 Earnings Release - Total Sales Summary By Division
Positive Overall Comparable Sales Growth, Despite Weakness In HomeGoods Division
Though TJX took a 7% hit on comparable sales from their HomeGoods division, it’s worth noting the division was up against a challenging comparable environment, given the outsized growth experienced in prior periods.
Despite the decline in HomeGoods, overall comparable sales were up 3% on higher customer traffic levels, as well as a 5% increase at Marmaxx. In addition, TJX Canada and International both produced positive comparable sales growth during the quarter.
Q1FY24 Earnings Release - Comparable Store Sales Performance By Division
Pretax Margin Strength Ahead Of Expectations
Most notable during the quarter was their pretax profit margin, which came in at 10.3%. This was well above the 7.5% rate reported in the same period last year. Driving the improvement was a combination of a better freight environment and the timing of expense recognition on certain line items.
The favorable freight environment also contributed to stronger overall gross profit margins. During the quarter, margins were up to 28.9%. This is up 100 basis points from the same period last year. In addition, merchandise margins also received a boost from a better purchasing environment for products.
Positive Revisions To Forward Guidance
Looking ahead to the second quarter, management does expect a softer environment. Comparable sales, for example, are expected to be up between 2% and 3%. This would be shy of their first quarter run rate.
In addition, pretax profit margins are expected to fall in the range of 9.3% and 9.5%. This would be more in-line with previous expectations, following a double-digit performance in Q1.
Despite the softer second quarter, overall guidance was still revised positively higher for the full year. 2024 margins, for example, are expected to be in the range of 10.2% and 10.4%. In addition, earnings are now expected to be about $3.44/share at the midpoint. This would be up over $0.10/share at the midpoint from previously stated guidance.
Why TJX Remains A Buy Following Earnings?
In Q1, TJX turned in a pretax profit margin of 10.3%. This is notably above previously stated targets of between 9.8% and 9.9%. In addition, elevated customer traffic levels enabled the company to turn in comparable sales that came in at the high end of their expectations.
The strong overall quarterly performance allowed management to raise full year guidance for both pretax profit margin and overall earnings. And all considered, I view the revised targets as attainable.
As shown by their earnings release, consumers continue to place an emphasis on the off-price retail model, especially during recessionary market environments such as this.
In addition, despite more normalized inventory levels across the sector, management is still landing on attractive buying opportunities, which consequently is enabling them to drive margins above their targeted range.
At 22x forward earnings, investors may not necessarily view shares as a value addition at first glance. But shares don’t trade significantly out of range from their peers. ROST and BURL, for example, trade at about 21x and 28x, respectively.
And, in my view, TJX is worth the premium due to their more resilient business model. Household incomes of TJX’s overall customer base, for instance, are higher than ROST. This provides one protective barrier in the event of any sustained economic downturn.
Compared to other retailers, I view off-price retail as a preferred investment in the current market environment. As such, I continue to maintain my positive outlook on TJX, and I see shares trading to new 52-week highs, with the $100/share range a distinct possibility.
For further details see:
TJX Companies: Q1 Results Show It Can Outperform On Continued Margin Strength