Off-price retailer TJX's quarterly results show strong demand. We're unconcerned by a softer profit outlook

Published Wed, Feb 22 20232:19 PM ESTUpdated Wed, Mar 8 20231:52 PM EST

Club holding TJX Companies (TJX) reported solid fiscal fourth-quarter 2023 results Wednesday, as stronger-than-expected sales highlighted robust consumer demand for discounted quality merchandise at stores like TJ Maxx. Total revenue advanced 5% year-over-year, to $14.5 billion, exceeding analysts' forecasts for $14.01 billion, according to estimates compiled by Refinitiv. U.S. sales of $11.41 billion also surpassed the $11.03 billion predicted by analysts. Adjusted earnings-per-share (EPS) climbed 14.1% on an annual basis, to 89 cents, in line with analysts' estimates provided by Refinitiv. Bottom line It was an overall decent quarter for the off-price retailer, with total revenue, same-store sales and operating cash flow exceeding expectations. The Marmaxx division — which includes department stores TJ Maxx and Marshalls — was the highlight of the quarter, posting impressive 7% same-store-sales growth year-on-year in the U.S. for its strongest quarter of fiscal 2023. Moreover, the company on Wednesday said it's "well-positioned to take advantage of the outstanding availability of quality, branded merchandise in the marketplace and flow fresh merchandise to its stores and online this spring." Though earnings matched consensus estimates, it appears analysts' forecasts would have been exceeded if not for higher-than-expected "shrink," or theft at stores. Management initially anticipated a 0.5 percentage point pretax profit margin benefit versus the prior year, but instead realized a 0.6 percentage point shrink charge. The bottom line was also impacted by foreign currency dynamics, which resulted in a 3-cent-per-share headwind. TJX's earnings guidance for its first quarter of the fiscal year 2024 and for the full fiscal year came up slightly short, in part due to higher-than-expected capital expenditures for new stores, remodeling, and relocations. But revenue guidance exceeded expectations, demonstrating strong consumer demand. Given the strong top-line guidance, the likelihood that management is guiding conservatively on earnings, and its confidence in achieving a 10.6% pretax margin by fiscal year 2025 — 10 basis points ahead of expectations — we are undeterred by the lighter bottom-line outlook. As a result, we reiterate our 1 rating , while raising our price target to $88-per-share, up from $84. Guidance On the full year guide, management is embedding an $800 million benefit due to a 53rd week in fiscal year 2024. On the pretax margin, management expects lower freight costs, better buying and strategic retailing to result in an 80-basis-point to 100-basis-point tailwind that will more than offset the headwinds of "incremental wage and supply chain costs." The full year outlook also includes an expected pretax margin benefit of about 10 basis points and a diluted earnings benefit of roughly 10 cents per share, due to the 53rd week in fiscal 2024. Excluding this benefit, management expects to realize a pretax margin of 10% to 10.2% and earnings in the range of $3.29 to $3.41 per share. Management continues to target a pretax profit margin of 10.6% in fiscal year 2025, slightly ahead of the 10.5% rate Wall Street had predicted. TJX on Wednesday also said it would repurchase roughly $2 billion to $2.5 billion worth of shares in fiscal 2024. In addition to the $1.5 billion remaining under the previous share repurchase authorization, the board authorized another $2 billion worth of stock to be purchased. At the same time, the company raised its quarterly dividend by 13%, to roughly 33 cents a share, which should be officially declared in March and payable in June. Quarterly results Total fiscal fourth-quarter U.S. same-store-sales* rose 4% year-over-year, well ahead of the high end of the "flat to up to 1%" guidance range management provided the quarter prior. That was driven by a 7% same-store-sales increase at Marmaxx, which was partially offset by a 7% same-store-sales decrease at the HomeGoods division. On a constant currency basis, sales at TJX Canada were up 10% year-over-year, while sales at TJX International — which includes operations in Europe and Australia — were up 11% annually. Meanwhile, management said that on a per-store basis, as of Jan. 28, inventories were up 1% year-over-year, or 2% on a constant currency basis. Thanks to robust cash flow generation, management was able to return $791 million to shareholders — $450 million via the repurchase of 5.7 million shares and the remaining $341 million through dividends. In total, TJX bought back $2.26 billion worth of stock in fiscal 2023. * Note: TJX defines same-store-sales as sales at stores that have been in operation for all of, or a portion of, two consecutive fiscal years. This excludes new stores, stores closed permanently or those closed for an extended period of time, as well as e-commerce. (Jim Cramer's Charitable Trust is long TJX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A shopper carries a bag outside a TJ Maxx store in New York, U.S.

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