TJX had another fine year. While full year results are not yet available, we expect that sales rose 5%-6% and that EPS (absent one-time items) grew about 16% to $2.85. All four store divisions are performing well and the European operation is getting close to matching the profit margin at the more mature North American business.
Given the extent by which TJX’s stock price gain has outpaced its earnings growth in recent years, including 2013, it is clear that the stock has been re-rated. For many years, TJX shares traded at below-average multiples of earnings, despite an EPS growth rate that has averaged 16% for the past 15 years. The company also generates very high returns on invested capital and churns out ample free cash flow, most of which is returned to stockholders in the form of dividends and share repurchases. We believe there is room to grow the store base by roughly 4%-5% per year and the company typically repurchases 3%-4% of its shares annually. TJX has reported same store sales growth in 29 of the past 30 years. As a result, we continue to expect the company to grow EPS at low double digit rates even if operating margins stop expanding.
TJX is the largest off-price apparel and home goods retailer in the United States, Canada and the UK and has a growing presence in Poland and Germany. As US department stores struggle to remain relevant to shoppers, apparel vendors have been forced to search for new channels of growth. We believe TJX is now the largest customer for many apparel vendors and is a trusted partner to them.
Source: Sequoia Fund's 2013 Annual Report - Management's Discussion of Fund Performance
