Home Depot vs. TJX: A microcosm of what's happening in retail

Customer Jacek Mroczkowski tosses bags of concrete mix into his truck at a Home Depot store in Washington.
Andrew Harrer | Bloomberg | Getty Images

Tuesday's earnings from Home Depot and former retail darling TJX highlight two important trends: the do-it-yourself (DIY) business shows no sign of deteriorating and discounters like TJX and Ross Stores are no longer "safe havens" from the decline in retail store sales.

It's hard to describe how strong Home Depot's earnings and topline beat were, but consider this: U.S. same store sales were up 6 percent. This, for a company that is expected to have revenues of close to $100 billion in 2017. That is an amazing statistic. Most companies are struggling to get 2 percent growth, let alone 6 percent, let alone in the retail space.

They got there by selling more--average ticket was up 3.9 percent, and they got more people in the store: transactions were up 1.6 percent. Wow.

Home Depot is riding the perfect wave. Everything is aligning for them:

1) they are increasing market share;

2) spending on home improvement is growing;

3) home prices are appreciating;

4) Household formation is finally growing again.

These are just the fundamentals. Home Depot also has the advantage of being in that small group of large companies I call "buyback monsters," companies that have been decreasing their shares outstanding for year by buying back stock:

Home Depot: buyback monster

(shares outstanding)

2004: 2.3 billion

2010: 1.7 billion

2017: 1.3 billion

Home Depot cut its shares outstanding almost in half in the last 12 years. This means that—all other things being equal—Home Depot's earnings per share look almost 50 percent better than it would if they had the same shares in 2004.

Get it? Rising home prices + more households + more stock buybacks = Home Depot up 19 percent this year.

Sadly, such is not the case with discounters. A couple years ago, discounters were all the rage--TJX and Ross Stores were the saviors for store retailers. Other full-priced stores like Macy's and Nordstrom rushed to open off-price outlets.

Things change fast. Today TJX reported earnings slightly above expectations, but second quarter guidance was well below Street estimates. First quarter same store sales were up only 1 percent. Any company reporting a positive same store sales can hold its head high in this market—but this was still below expectations.

It's the same story elsewhere. Store sales in Nordstrom's off-price brand--Nordstrom Rack--were DOWN 0.9 percent year-over-year, even though ecommerce was strong. Saks Off-Fifth discount store also delivered a same store decline of 6.8 percent.

Bottom line: there's a few "safe" spaces left in retail: DIY (Home Depot, Lowe's Sherwin Williams), beauty (Ulta, Coty), but almost everything else—teen apparel, luxury, footwear, drugs and now the discount space—are under pressure.