Discount retail operator TJX shows it can deliver profits in a slowing economy

Published Wed, May 17 20233:52 PM EDTUpdated Wed, May 17 20233:57 PM EDT

Club holding TJX Companies ' (TJX) weaker-than-expected sales for its fiscal 2024 first quarter were more than offset by strong expense management, resulting in a beat on profitability — further demonstrating the off-price retailer's ability to navigate gathering economic headwinds. Total revenue for the three months ended April 29 advanced 3.3% year-over-year, to $11.78 billion, missing analysts' forecasts for $11.82 billion, according to estimates compiled by Refinitiv. Reflected in the result is a $151 million foreign-exchange headwind. Excluding that, on a constant currency basis, sales were up 4.6% on an annual basis. Adjusted earnings-per-share (EPS) climbed 55% on an annual basis, to 79 cents, outpacing analysts' estimates of 71 cents per share, Refinitiv data showed. Bottom line Despite the top-line miss, this was a solid quarter for TJX — the company behind department stores T.J. Maxx, Marshalls and HomeGoods — with management demonstrating the ability to diligently control expenses, boosting overall profitability. A tailwind from lower-than-expected freight costs also bolstered the bottom line. Of course, as management noted Wednesday, they were also able to put the right items in the right stores at the right time. We saw the power of the TJX business model. Same-store-sales (SSS) growth came in at the high end of management's guidance range, driven by an overall increase in customer traffic and positive SSS growth in three of the four operating segments. That included 5% SSS growth at Marmaxx — comprised of the Marshalls and T.J. Maxx brands — which is the company's largest operating division. The strong first-quarter results — coupled with what management described as "a good start" to the current quarter and "phenomenal off-price buying opportunities in the marketplace" — allowed management to raise their pretax profit margin and earnings guidance for the full year. The operating environment undoubtedly remains uncertain for the retail industry, with consumers increasingly cost conscious amid a slowing economy. But we continue to believe that TJX Companies' focus on providing best-in-class value — along with the team's ability to flexibly source product and stock stores with a curated mix of better-and-best brands — puts the company in a position to gain retail market share. As a result, we reiterate our 1 rating on the stock and a price target of $88 a share. Guidance For the 53-week fiscal year ending Feb. 3, 2024, the company reiterated that it expects overall comparable SSS to rise 2% to 3%. For that same period, TJX raised its pretax profit margin outlook to be in range of 10.3% to 10.5%, while increasing its diluted EPS projection to be in a range of $3.49 to $3.58. Excluding benefits from the 53rd week in TJX's fiscal 2024 calendar, the company expects its adjusted pretax profit margin to be in a range of 10.2% to 10.4% and adjusted diluted EPS to be in a range of $3.39 to $3.48. The outlook includes an updated view on freight expenses, which are tracking lower than management had previously expected. That should aid profit margins for the full year by over 100 basis points, more than previously anticipated. It also continues to include an estimated $800 million benefit due to the 53rd week. Also included in the full year guide is the assumption that shrink, or theft, is about in line with what was seen in fiscal year 2023. The company said it's taking action to better protect inventories, including the use of tagging, tethering and casing store merchandise, while also hiring so-called loss-prevention workers. Management reiterated the intention to repurchase about $2 billion to $2.5 billion worth of shares in fiscal 2024. Quarterly results Fiscal first-quarter SSS rose 3% year-over-year, matching the high end of the 2% to 3% guidance range management provided the prior quarter. That was driven by a 5% same-store-sales increase at Marmaxx, a 1% increase at TJX Canada and 4% advance at TJX International. HomeGoods same-store-sales declined 7% in the quarter. On a constant currency basis, sales at TJX Canada were up 3% year-over-year, while sales at TJX International — which includes operations in Europe and Australia — were up 5% annually. Meanwhile, management said that on a per-store basis, as of April 29, inventories were down 5% year-over-year, or 4% on a constant currency basis, adding that the company "is well-positioned to take advantage of the outstanding availability of quality, branded merchandise in the marketplace ." Though cash flow generation wasn't as strong as we were looking for, management was still able to return $841 million to shareholders — $500 million via the repurchase of 6.5 million shares and the remaining $341 million through dividends. (Jim Cramer's Charitable Trust is long TJX Companies. 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. 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A shopper carries a bag outside a TJ Maxx store in New York, U.S.

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