When consumer spending is low, it is obvious that the retailers are going to have a tough time. People are unwilling to spend and want to save each penny spent. In such a situation, it is very difficult to attract customers and instigate them to spend. However, in such a case, the retailer, which provide discounts to the customers tend to benefit. Customers would reach out to off price retailers in order to save the most in their purchases.
TJX Companies (TJX, Financial) is an off-price retailer, which has benefited from a drop in overall consumer spending in the U.S. Its shares have appreciated by an impressive 243% in the last five years, as more and more people turned to the retailer for their needs. The company reported a decent quarter this time also. Its third-quarter numbers were ahead of Street's estimates, resulting in a sharp increase in stock price.
Looking into the numbers
Revenue for the quarter jumped 6% to $7.36 billion, missing on the analysts' estimate of $7.45 billion. Although it was unable to meet the estimates, the top line was driven by higher demand for its products. Also, there was an increase in the store traffic, resulting in 2% growth in same store sales. This was lower than last year's comp sales of 5%. This is indeed an important metric since it shows growth in sales, excluding the effect of new store openings.
Overall, apparel sales suffered during the quarter, mainly because of extremely warm weather which lowered demand for winter clothes and other outer wear. However, categories such as accessories and jewelry remain unaffected by the weather conditions and therefore performed well.
The company registered growth across all the segments. Comp sales at T.J. Maxx grew 1% and 7% in the Home Goods segment. Also, performance in Canada was good with a 3% increase in sales from the region. However, sales in Europe declined 1% as unreasonably warm weather affected sales.
The gross margin of the company rose to 29.4% over last year and was largely driven by higher revenue. Also, the bottom line of the company was impressive. Earnings stood at $0.85 per share, a surge of 13% over last year. Earnings were in line with the analysts' expectations.
As against the peers
When compared to other industry players such as Urban Outfitters (URBN, Financial), TJX has been a better performer. In the last year, Urban Outfitters' share price has declined 16%, whereas TJX surged 5%. Urban Outfitters recently reported third quarter numbers were mixed. Although the top line increased 5%, the bottom line missed the analysts' estimate by $0.06 per share.
Efforts to look forward to
TJX is making a number of moves to grow. It has taken measures to strengthen its online business. It has added new categories to attract more customers and expand its business. It has also expanded its product assortments.
Conclusion
It is clear that TJX Companies is a doing well, and its future, too, looks bright, given its efforts to grow. It has also been expanding its online operations. Further, it repurchased 7.5 million shares during the quarter and plans to repurchase $1.6 billion to $1.7 billion worth shares in the future. Also, it provided a bright outlook, which further impressed the investors. These factors make TJX Companies a desirable pick.
