After missing on Q3 comparable store sales and giving some weak guidance this morning, shares of TJX (TJX 67.90, -2.86 -4.0%) give back gains from the latter half of last week. The stock tested late-July lows this morning, but the 67-level held up and the shares now trade in about the middle of the daily range.
The standout of the print was by and large the comp miss. Mid-August guidance (from the Q2 report) was missing this morning as Q3 comps came in flat versus guidance of 1-2% growth – and last year’s 5% increase. As a small caveat, TJX management noted Q3 comps included about 37 stores (mostly in Puerto Rico) which were significantly impacted by hurricanes during the quarter.
Out of TJX’s largest segment, Marmaxx (which consists of business results from TJMaxx and Marshall’s stores), the comp showed a 1% decline versus last year’s 5% growth. Revenues in the segment grew slightly to about $5.3 billion.
At HomeGoods, the company’s discount furniture store, comp sales were up 3% versus up 6% a year ago. Net sales were up about 14% to about $1.2 billion.
At TJX Canada and TJX International, Q3 comps were up 4% and 1%, respectively. Additionally revenues in both areas were up +15% and +13%, respectively.
On the whole, TJX reported in-line Q3 earnings of $1.00 per share on worse than expected total revenues of $8.76 billion. Further, for Q3 the movement in foreign currency exchange rates had a one percentage point positive impact on consolidated net sales growth. The overall net impact of foreign currency exchange rates had a $0.04 positive impact on Q3 EPS, compared with a neutral impact last year.
Additionally, management believes that warmer temperatures in the U.S. during the quarter dampened demand for apparel at the Marmaxx division. While sales were not as strong as the company would have liked, it was pleased that sales trends at Marmaxx improved as the weather turned more seasonable. Further, customer traffic, or transactions, were strong and up at every major division. Importantly, TJX consolidated merchandise margin increased, which the company believes speaks to the flexibility of our off-price business model.
Also, gross profit margin for Q3 was 29.8%, up 0.3 percentage points versus the prior year. This was due to gains related to the company’s inventory hedges as well as an increase in merchandise margin, but partially offset by higher supply chain costs and expense deleverage on the flat consolidated comparable store sales.
As for guidance, TJX sees in-line Q4 EPS of $1.25-1.27; this guidance reflects an assumption that wage increases will negatively impact EPS growth by 1%. The company also anticipates that the combination of foreign currency and transactional foreign exchange will positively impact EPS growth by 1%. This EPS outlook is based upon estimated consolidated comparable store sales growth of 1% to 2%.
This guidance, then, takes the company’s FY18 EPS view to $3.91-3.93 (from $3.89-3.93). Also, given on the conference call TJX management gave expectations for FY18 consolidated sales in the $35.6-35.7 billion range (lowered on the high end from $35.6-35.8 billion). Further, unchanged 1-2% comp growth remains unchanged and the company sees Marmaxx comp growth of 1% (from the previous expectation of 1-2% growth) for the year, resulting in sales of about $22.2 billion (modestly below the prior expectation of $22.3-22.4 billion). At HomeGoods, TJX sees comps of +4% with sales of $5.1 billion on segment profit of 13.6-13.7%. For TJX Canada, the company sees comps up 4% (versus prior expectations for 3-4% growth) with revenues of about $3.6 billion (compared to prior $3.5-3.6 billion expectations) and TJX International comps of 1% (versus expectations of 1-2% growth prior) with revenues of about $4.8 billion.