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TJ Maxx owner shows momentum ahead of opening new home furniture brand

  • The parent company of off-price chains TJ Maxx, HomeGoods and Marshall's reported second-quarter profit and sales that outpaced Wall Street expectations.
  • TJX also posted better-than-expected comparable sales growth of 3 percent.
  • CEO Ernie Herrman said there remains "tremendous global store growth potential for TJX."
  • TJX's new store concept, HomeSense, is set to open in the U.S. for the first time this week.
Marshalls store
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Off-price retailer TJX proved on Tuesday that its "treasure hunt" strategy still makes sense. And even more-so when considering today's tumultuous retail environment.

As more and more shoppers steer clear of malls and department stores, TJX is winning them over with discounts on Michael Kors handbags and trendy home accessories.

The parent company of off-price chains TJ Maxx, HomeGoods and Marshall's reported profit and sales for the second quarter that outpaced Street expectations. TJX also posted better-than-expected comparable sales growth of 3 percent.

"Customer traffic was up and was the primary driver of our comp store sales growth at every division," TJX CEO Ernie Herrman said in a statement. "We are confident that we are gaining market share at each of our four major divisions."

One notable bright spot in TJX's latest report was its sales of home furnishings through the HomeGoods nameplate. Same-store sales in this division climbed 7 percent, compared to 5 percent growth during the same period last year.

The retailer has long been optimistic about selling more furniture and home decor, especially as other apparel retailers struggle to grow sales and even, for some, head toward bankruptcy.

This week the company's bets will be put to the test, as it rolls out another home goods brand in the U.S. under the TJX umbrella, called HomeSense.

HomeSense will "complement" HomeGoods with its lines of furniture, lighting and art, the company has said, promising analysts and investors that cannibalization shouldn't be a concern.

"We believe that an enormous opportunity remains for us to gain additional share in the U.S. home market," Herrman said on Tuesday's earnings conference call. In addition to opening HomeSense stores across the U.S., TJX is also continuing to open new HomeGoods locations in 2017, the company said.

Important to note, about half of TJX's overall sales are in non-apparel categories, and management has said it's prepared to adapt as consumers seek new products.

Furniture e-retailer Wayfair's impressive growth or Amazon's attempt to create its own private labels for home items offer examples of why companies are increasingly trying to tap into this market.

"[HomeSense] will allow the company to better take advantage of the strong growth in home retail and to grow its presence in categories, like furniture and larger furnishing items, which are a relatively weak part of HomeGoods proposition," GlobalData Retail Managing Director Neil Saunders wrote in a note to clients.

"HomeSense can make some substantial market share gains over a short period. ... The new venture will help provide a new growth vector in the US."

TJX said that while e-commerce sales are growing, "the ability to touch and feel the merchandise, shop for a wide variety of brands and items under one roof, and take [purchases] home that same day, remains a tremendous draw."

CEO Herrman said there remains "tremendous global store growth potential for TJX."

Long term, TJX could open up to 5,600 stores with its current banners, which is 1,700 more stores than are open today, he added. "We continue to see store openings as an attractive investment and a very good use of capital."

The bottom line remains, off-price continues to steal share from traditional retailers, BMO Capital Markets analyst John Morris wrote in a note to clients on Tuesday. With inventories leaner, TJX is positioned to enter the third quarter of 2017 "very liquid," he said.

Shares of TJX have been hit, like other retailers, over the past year, though the stock is not hardly down as much as full-price competitors. With Tuesday's gains, shares are down about 6 percent in 2017.

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