TJX Cos (TJX), an off-price retailer of apparel and home fashions, is trading slightly higher today after reporting Q2 (Jul) results this morning. Let's take a closer look.
In case you're not familiar, TJX is the largest off-price retailer of apparel and home fashions. It operates a total of 3,913 stores in nine countries (US, Canada, UK, Ireland, Germany, Poland, Austria, the Netherlands and Australia). In the US, its flagship brand is T.J. Maxx (1,194 stores) but it has other major brands as well, including Marshalls (1,043 stores) and HomeGoods (619 stores). In addition, it operates Winners (258 stores), HomeSense (112), and Marshalls (63) in Canada. And in Europe, it operates 522 T.K. Maxx and 51 HomeSense stores. That's not a misprint, they operate as T.K. Maxx in Europe and T.J. Maxx in the US.
TJX founded T.J. Maxx in 1976 and acquired Marshalls in 1995. Both chains sell family apparel (including footwear and accessories), home fashions (including home basics, accent furniture, lamps, rugs, wall decor, decorative accessories and giftware) and other merchandise. TJX differentiates T.J. Maxx and Marshalls through different product assortment (an expanded assortment of fine jewelry and accessories and a designer section called The Runway at T.J. Maxx and a full line of footwear, a broader men's offering and a juniors' department called The Cube at Marshalls). This differentiated shopping experience at T.J. Maxx and Marshalls encourages customers to shop both chains.
TJX offers its customers a rapidly changing assortment of brand name and designer merchandise at prices generally 20-60% below department and specialty store regular prices. Its stores are known for their value proposition and they offer a treasure hunt shopping experience through the rapid turn of inventories. TJX uses opportunistic buying strategies to acquire merchandise cheaply in a variety of ways. It's also able to leverage its substantial size to get volume discounts from suppliers.
Turning to the Q2 (Jul) results, EPS grew 1% YoY to $0.85 from $0.84 last year. That $0.85 number was above prior guidance of $0.81-0.83. Revenue rose 6.0% year/year to $8.36 bln, which was above prior guidance of $8.20 bln. The guidance for Q3 (Oct) was decent as the company expects EPS of $0.98-1.00, which generally in-line with market expectations. However, TJX is known for low-balling guidance then often reporting a nice beat (the same thing happened this quarter).
Same store comps in JulQ were good at +3%, above prior guidance of +1-2%, despite a tough +4% comp hurdle in the prior year period. Breaking it down by segment, Marmaxx (TJ Maxx plus Marshalls) reported JulQ comps of +2% while HomeGoods was very strong at +7%, despite a tough +5% hurdle last year. TJX Canada came in at +7% (lapping a huge +9% comp last year) while TJX International (Europe & Australia) was +1%.
Of note, TJX always presents same store comps on a constant currency basis so it does not reflect changes in foreign exchange rates. Many retailers do include the impact of FX. So that's helping comps a bit. In terms of comp guidance, TJX expects OctQ comps to come in around +1-2%.
TJX says it's pleased with its JulQ results. EPS came in above guidance despite significant headwinds from foreign currency exchange rates. Customer traffic was up and was the primary driver of TJX's comp store sales growth at every division and overall merchandise margin was up. In addition, TJX is confident that it's gaining market share at each of its four major divisions.
In sum, the JulQ results were quite good when you consider some ugly quarters for the retail segment in 1H17. The stock has been trending lower since early May when it was trading above $80. That tells us that investors are concerned about the overall retail climate and probably some concerns about TJX's JulQ report. However, TJX has seemed to navigate the difficult retail environment fairly well.