The TJX Companies (TJX, Financial) is an off-price apparel and home fashions retailer operating in the U.S., Canada and Europe. The company posted a stellar first-quarter fiscal 2016 results, beating consensus estimates on top- and bottom-line. TJX may be one of the better retailers in the market, but does it still hold a buy sentiment among investors? Let’s take a look.
Looking back
During the reported quarter, TJX Companies' consolidated comparable-store sales, or comps, increased 5% year-over-year on top of 2% in the year-ago quarter. This was on the back of solid comps growth at Marmaxx, Home Goods, TJX Canada and TJX Europe of 3%, 9%, 11% and 3% year-over-year, respectively. This marks the 25th consecutive quarter of comps growth.
On the back of robust comps growth, net sales came in at $6.9 billion, representing an increase of 6% year-over-year. Analysts’ were expecting around $100 million less. This indeed is a solid performance given the fact that retail segment was projected to be weak in the first-quarter, declining 1.5% year-over-year. Most importantly, the top-line growth was despite the negative impact of currency translations.
On the back of solid top-line growth, TJX reported earnings of $0.69 per share, registering a gain of 8% year-over-year. Analysts’ were expecting earnings of $0.67 per share.
During the reported quarter, TJX bought back 6.1 million common shares at a total cost of $415 million and also declared a 20% hike in quarterly dividend, making it the 19th consecutive quarter of dividend increase.
Looking ahead
TJX plans to repurchase approximately $1.8 to $1.9 billion worth of common shares during fiscal 2016. This will drive bottom-line growth due to reduced share count.
According to a Moody’s report:
“The three largest off-price retailers -- TJX , Ross Stores (ROST, Financial) and Burlington (BURL, Financial) -- will see above-average growth, in the 6%-8% range, over the next five years, compared with 4% growth for the broader retail industry, Moody's Investors Service says in a new report. The leaders in the space have thousands of vendor relationships and significant scale, so supply constraints aren't likely to hinder their growth.”
“The off-price apparel and home sector will continue to outperform other areas of the retail industry, including through economic cycles, as it builds a loyal customer base, “ Tuhy says in the report, "Off-Price Apparel and Home Retailers to Remain One of Leading Retail Groups."
During the quarter, TJX opened first two stores in Austria. Going forward, the off-price retailer will be venturing into sixth country in Europe – Netherland – sometime later during the current fiscal year.
So, the market potential is huge and the optimism is also reflected in the second quarter and full year guidance. The company expects second quarter earnings to be in the range of $0.72 to $0.74 per share versus $0.73 per share in the year-ago quarter. Comps are expected to inch up by 2% to 3%. On the back of comps growth, the company expects second quarter sales to be in the range of $7.1 billion to $7.2 billion.
For the full year, TJX has revised upwards the earnings per share to $3.21-$3.27 from earlier guided range of $3.17 to $3.25. This is against earnings of $3.15 per share in the prior fiscal year. Comps are expected to grow in the range of 2%-3%. The off-price retailer is expecting to surpass $30 billion in sales this year.
Wrapping up
TJX ‘s first quarter was stellar, given the fact that retail industry is struggling. The off-price retailer is confident of surpassing the $30 billion sales mark and earnings guidance for the full year has been revised upwards. For the next five years growth is expected to be at a CAGR of 10.08%.
However, for the second quarter, during the last 30 days there have been 20 downward revisions in EPS and none upwards. For the full year, there have been 17 upwards and 5 downward revisions. So, for the near-term this is not a buy. But, if you are a long-term investor, this should catch your attention.
