TJX Companies Zooms Past Expectations

Same stores sales at established stores rose 4%, above expectations of the 2% to 3% increase

Source: TJX
Source: TJX

Off-price retailer The TJX Companies Inc. (NYSE: TJX), which operates T.J. Maxx, Marshalls, and HomeGoods, announced its Q2 FY17 financial results on August 16th, 2016.

The Framingham, Massachusetts-based company is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. As of July 30th, 2016, the Company operated a total of 3,675 stores in 9 countries and three e-commerce sites. These include 1,165 T.J. Maxx, 1,013 Marshalls, 538 HomeGoods, and 9 Sierra Trading Post stores, as well as tjmaxx.com and sierratradingpost.com in the U.S.; 250 Winners, 104 HomeSense, and 45 Marshalls stores in Canada; 473 T.K. Maxx and 43 HomeSense stores, as well as tkmaxx.com, in Europe; and 35 Trade Secret stores in Australia. Read more about TJX Companies’ financial results below.

Q2 FY17 financial highlights

TJX Companies reported a revenue increase of 7% to $7.88 billion during Q2 FY17. Sales for the Marmaxx division, which runs Marshalls and T.J. Maxx, climbed 6% to $5.1 billion. The Company buys goods through closeouts and sells them at discounted prices, helping it to achieve higher earnings and sales. In contrast, departmental stores have been reporting weaker profits and sales as shoppers turn to lower-price competitors and online operators.

During the reporting quarter, TJX Companies’ same stores sales at established outlets rose 4%, above expectations for a 2%-3% rise. Combined comparable sales for T.J. Maxx and Marshalls improved 4%. HomeGoods comparable sales grew 5%, while TJX Canada’s comparable sales grew 9% during Q2 FY17. In its TJX International unit, which includes Europe and Australia, comparable sales improved 2%.

TJX Companies’ selling, general, and administrative costs as a percentage of sales were 17.7% during Q2 FY17, up 0.8% versus the prior year’s ratio, primarily due to wage increases and investments to support growth. Gross profit margin rose to 29.4% from 29.1% amid stronger merchandise margins and inventory hedging gains. For Q2 FY17, the Company’s consolidated pretax profit margin was 11.6%, a 0.4% decrease compared to the prior year period.

Foreign currency exchange rates had a two percentage point negative impact on consolidated net sales growth in Q2 FY17. Overall, foreign currency exchange rates had a $0.03 positive impact on Q2 FY17 EPS compared to a $0.02 positive impact in the year-ago period.

As a result, TJX Companies’ net income jumped 2.3% to $562.2 million during Q2 FY17, or $0.84 per share, from $549.3 million, or $0.80 per share, in the year-ago period.

H1 FY17 financial highlights

Source: TJX
Source: TJX

For H1 FY17, TJX Companies’ net sales jumped 8% to $15.4 billion over the year-ago period. Consolidated comparable store sales for H1 FY17 increased 6%. Net income for H1 FY17 was $1.1 billion and diluted EPS grew 7% to $1.60 over the prior year’s $1.49.

For H1 FY17, foreign currency exchange rates had a two percentage point negative impact on consolidated net sales growth. Overall, foreign currency exchange rates had a $0.02 negative impact on EPS in H1 FY17 compared to a $0.01 negative impact in the year-ago period.

Inventory

TJX Companies’ total inventories as of July 30th, 2016, were $3.9 billion compared to $3.7 billion at the end of the second quarter last year. Consolidated inventories on a per-store basis as of July 30th, 2016, including distribution centers, but excluding inventory in transit and the Company’s e-commerce businesses, were down 2% on a reported basis (flat on a constant currency basis). Hence, TJX Companies’ has a huge advantage in terms of inventory position to buy fresh, branded assortments for the fall and holiday seasons.

Store update

In contrast to other retailers that have been closing stores, TJX Companies has been expanding its footprint, increasing its store count by 14 in Q2 FY17 to bring its total to 3,675. The Company increased square footage by 5% over the same period last year.

Share repurchases

t3During Q2 FY17, TJX Companies repurchased $400 million worth of common stock, retiring 5.2 million shares. For H1 FY17, the Company spent $775 million in repurchases of TJX stock, retiring 10.2 million shares. The Company expects to repurchase approximately $1.5 to $2.0 billion of common stock in FY17.

Guidance for full year FY17

For Q3 FY17, TJX Companies expects diluted EPS to be in the range of $0.83 to $0.85 compared to $0.86 in the year-ago period. This guidance reflects an assumption that wage increases will negatively impact EPS growth by 3%. The Company also expects the combination of foreign currency and transactional foreign exchange will have an additional 3% negative impact on EPS growth. This EPS outlook is based upon estimated consolidated comparable store sales growth of 2%-3%.

TJX Companies has also raised its full year guidance and now expects diluted EPS to be in the range of $3.39 to $3.43, a 2% to 3% increase over $3.33 in FY16. This guidance reflects an assumption that wage increases will negatively impact EPS growth by 3%. The Company also expects the combination of foreign currency and transactional foreign exchange will have an additional 3% negative impact on EPS growth. This EPS outlook is now based upon a raised estimate of consolidated comparable store sales growth of 3% to 4%.

Stock Performance

t4TJX Companies’ stock ended the day at $78.19, gaining 0.28%, at the close on Wednesday, August 17th, 2016, having vacillated between an intraday high of $79.09 and a low of $77.50 during the session. The stock’s trading volume was at 6,746,544 for the day. The Company’s market cap was at $51.72 billion as of Wednesday’s close.

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