We're adjusting our price target on TJX Companies following a stellar quarter

Published Wed, Aug 16 20232:33 PM EDTUpdated Wed, Aug 16 20233:28 PM EDT

TJX Companies ' (TJX) stronger-than-expected fiscal year 2024 second-quarter results on Wednesday demonstrate the off-price retailer's ability to offer value to consumers no matter the economic climate, prompting us to raise our price target on the stock. Total revenue for the three months ended July 29 advanced 7.7% year-over-year, to $12.76 billion, exceeding analysts' forecasts for $12.45 billion, according to estimates compiled by Refinitiv. Adjusted earnings-per-share (EPS) climbed 23% on an annual basis, to 85 cents, outpacing analysts' estimates of 77 cents per share, Refinitiv data showed. Bottom line TJX Companies — which operates off-price retail stores like T.J. Maxx, Marshalls and HomeGoods — saw quarterly sales outpace expectations on the back of better-than-expected top-line results and same-store sales growth at every division of the business. At the same time, TJX delivered gross-margin expansion of 260 basis points year-over-year, as merchandise margins improved thanks to lower freight costs. Operating cash flow more than tripled analysts' forecasts, while same-store sales growth was double what analysts had predicted. In addition to the reported results, management raised its full-year guidance, returned $932 million to shareholders – $550 million of which came via share repurchases — and reiterated the company's intent to repurchase approximately $2 billion to $2.5 billion of stock this fiscal year. TJX repurchased $1.04 billion in stock in the first half of its fiscal year. Management said Wednesday that momentum had increased throughout the last quarter and that "the third quarter is off to a very strong start." The results demonstrate TJX's ability to thrive, even with a shift in discretionary spending to services from goods. Indeed, as U.S. consumers spend their excess cash increasingly on travel and experiences, they are more inclined to seek out deals at TJX-run chains. The company's ability to offer a best-in-class, constantly refreshed treasure-hunt shopping experience — helped by a strong off-price buying environment — allowed customer traffic to grow at every operating division. As a result, we're raising our price target on TJX stock to $100 a share, up from $88. But we're maintaining a 2 rating on the stock, meaning we would wait for a pullback before buying up more shares. TJX YTD line TJX Companies (TJX) year-to-date performance. Guidance For the fiscal year ending Feb. 3, 2024, TJX management raised its overall comparable same-store sales forecast to a range of 3% to 4%, up from a prior range of 2% to 3%. Excluding the impact of a 53 rd week in the fiscal year, management raised the company's pretax profit margin outlook to a range of 10.6% to 10.7%, ahead of analysts' forecasts and up from a previous estimate of 10.2% to 10.4%. The 53 rd week is expected to add about 10 cents per share to the company's bottom line and benefit the pretax profit margin by 10 basis points. Management now expects adjusted EPS for the fiscal year to be in a range of $3.56 to $3.62 per share, in line with Wall Street's expectations and ahead of a previous estimate of $3.39 to $3.48 per share. For the current quarter, management is expecting earnings in the range of 95 cents to 98 cents per share, a half penny short of analysts' expectations at the midpoint. Management's same-store-sales growth forecast of 3% to 4% matched forecasts at the midpoint, though the pretax profit-margin forecast of 11.3% to 11.5% came up short. Given the full-year and third-quarter guidance, management is planning for fourth quarter same-store-sales growth of 3% to 4%, ahead of the 3% analysts predicted. Additionally, excluding the impact of an extra week in that quarter, management expects to realize a pretax profit margin of 10.3% to 10.5% and earnings in a range of $1 to $1.03 per share, slight misses versus expectations on both fronts. But we're unconcerned by these quarterly misses. Traditionally, management has proven conservative with its guidance — and the team could be under-promising in order to over-deliver, as the company demonstrated Wednesday. Quarterly results Fiscal second-quarter same-store sales rose 6% year-over-year, significantly ahead of the 2% to 3% range for which the company had guided. It was also a significant acceleration from the 3% same-store-sales the company delivered in its fiscal first quarter and double what Wall Street was expecting. The company reported same-store-sales growth across all divisions: Marmaxx , which includes Marshalls and T.J. Maxx, was up 8% year-over-year, compared with the 5% growth seen in the first quarter. HomeGoods advanced 4%, flipping positive versus the first quarter's 7% decline. TJX Canada was up 1%, the same rate seen last quarter. TJX International was up 3%, a slight deceleration versus last quarter's 4% annual rate. Notably, management said Wednesday that both comparable-store sales growth and customer traffic improved sequentially each month of its fiscal second quarter. Meanwhile, the company's higher-than-expected cost of sales is not a surprise given the top-line beat —and more than forgivable thanks to gross-margin performance coming in better than expected, at 30.2%. While we will be monitoring the growth rate of selling, general and administrative expenses going forward, last quarter was negatively impacted by a few one-time items, along with wage and payroll increases and incentive accruals. But more importantly, operating-cash-flow performance was superb, more than tripling expectations. (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 . 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A shopper carries a bag outside a TJ Maxx store in New York, U.S.

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