Before the open today,
discount apparel and home goods retailer The TJX Companies (TJX 51.57, +1.85, +3.72%) reported solid 4Q18 results,
highlighted by impressive +6% comparable store sales growth. TJX has been
consistently surpassing its peers in terms of comparable store sales growth,
leading to solid market share gains. As we explain in more detail below, the
company has been able to achieve this through a combination of a unique
"treasure hunt" shopping experience, a wide selection of merchandise,
the overall value it offers, and a flexible supply chain format.
Additionally, due to its strong cash flow generation of $4.09 bln (+35% yr/yr) in FY19, TJX boosted its quarterly dividend to $0.23/share from $0.195/share. While the company did issue Q1 EPS guidance that was modestly below expectations ($0.53-$0.54 vs. $0.58 consensus), investors seem to be focusing in on TJX's continued outperformance relative to its peers, as well as its growth prospects and capital spending plans, which include a mix of new store launches, store remodels, supply chain improvements, further increases to its dividend, and the continuation of its share buyback program.
For the quarter, TJX posted EPS of $0.68, exceeding the high end of its prior guidance of $0.66-$0.67. Gross margin decreased a bit to 27.8% from 27.9% in the year ago quarter on a comparable basis. Freight costs continues to pressure margins, but merchandise margin also climbed sharply, helping to offset those costs.
On the top line, revenue was up 1.5% to $11.1 bln, while comparable store sales growth was exceptional once again at +6%. What is especially encouraging is that growth was solid across all of its banners, ranging from +4 to +7%.
For a couple points of comparison, peer Ross Stores (ROST) projected Q4 comparable store gains of 1-2% in its Q3 earnings press release (co expected to report on 3/5). JC Penny (JCP), meanwhile, posted a 5.4% decline in comparable sales last quarter and stated that it expects FY18 comps to be down low single digits (reports tomorrow morning). Kohls (KSS) recently reported a 1.2% increase in holiday comparable sales, while reaffirming its expectation for FY19 comps of 1-2%. Based on its leading comp growth, TJX says it is convinced it is gaining market share in the U.S. Canada, Europe, and Australia.
In a very difficult environment for brick-and-mortar retailers, in which e-commerce giants like Amazon (AMZN) continually take share, the question is: How is TJX thriving in this intensely competitive market? First and perhaps most importantly, TJX credits its differentiated treasure hunt experience where buyers seek out deals on merchandise they may not have originally expected to purchase, and, on items they may not be able to easily find at other retailers. The idea is to make each shopping experience a unique one by quickly and seamlessly changing out merchandise.
In order to accomplish that, TJX needs its nimble and flexible supply chain. In fact, the company says it can buy close to need and can change its floor space to accommodate hot brands and categories, allowing it to capture additional sales.
Additionally, its loyalty programs continue to expand and is seeing strong momentum, leading to more frequent customer visits and cross-selling across its retail brands (TJ Maxx, Marshalls, HomeGoods, Winners, etc.)
As for its outlook, TJX guided for Q1 EPS of $0.53-$0.54 vs. the $0.58 consensus with comp growth of 2-3%. And, for FY20, it expects EPS of $2.55-$2.60 vs. the $2.59 consensus, while assuming comparable store sales growth of 2-3%. Keep in mind, though, that TJX has been outperforming its own comp growth expectations.
During the earnings call this morning, management commented that Q1 is off to a solid start and that it is in a "great inventory position" with plenty of liquidity. In addition to opening new stores, TJX plans to use this liquidity to build on its e-commerce platform, which experienced double-digit growth in FY18. Specifically, it plans to launch an e-commerce channel for its Marshall's brand later this year.
Furthermore, TJX will be ramping up marketing with initiatives planned across TV and digital platforms, looking to strengthen its loyalty programs.
Another major catalyst for the company could come from store expansion efforts. While it already has a substantial base of about 4,300 stores, it believes it can grow its footprint to a total of 6,100 stores over time. That only accounts for new stores that would be within its current supply chains, in its current countries.
In a tough business climate for retailers, TJX has done an admirable job differentiating itself by offering a unique shopping experience in which consumers seek out new deals on new assortments of products each time they visit. Its supply chain management has been integral in executing this strategy as it is able to quickly adapt to hot trends across many product categories. This approach has led to market share gains, and, it has led to strong cash flow generation, enabling the company to increase its dividend while maintaining its growth initiatives. That combination of strong execution, growth potential, and income generation is what is particularly appealing to investors.