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TJX Companies Up 29% YTD: Can Solid Comps Sustain Momentum?


The TJX Companies, Inc. TJX appears to be a preferred pick, given this off-price retailer’s sturdy comparable store sales (comps), which, in turn, have been gaining from solid traffic. These upsides were witnessed in the company’s recently reported third-quarter fiscal 2019 results, which was followed by a raised outlook.

Markedly, TJX Companies has seen its shares rally 28.7% in a year, crushing the industry’s growth of close to 18%. Though the company is grappling with escalated freight and wage expenses, we expect continued traffic growth, solid merchandising initiatives and efficient inventory management to help counter these hurdles and aid this Zacks Rank #3 (Hold) stock.

Splendid Comps — Key Driver

TJX Companies has been reporting positive comps for a while now. During the third quarter of fiscal 2019, TJX Companies’ consolidated comps grew 7% year over year, fueled by increased customer traffic at all segments. Management is particularly impressed with the performance of its largest division — Marmaxx. Notably, the quarter marked the 17th straight period of higher customer traffic for both Marmaxx and the company as a whole. In fact, all segments reported higher comps, courtesy of consumers’ favorable response to the company’s brands and impressive merchandise assortments at reasonable prices.

Management is optimistic about fiscal 2019 and focuses on implementing its sales initiatives to attract traffic. TJX Companies’ stores are also expected to benefit from solid merchandise assortment and brands. That said, management raised its fiscal 2019 comps guidance. Consolidated comps are now expected to grow 5% in fiscal 2019, up from 3-4% growth projected earlier. Management also expects Marmaxx to witness comps growth of 6%, up from the prior forecast of 3-4% growth. For fourth-quarter fiscal 2019, the company expects consolidated comps growth of 2-3%.

Store, E-Commerce & Other Expansion Initiatives

TJX Companies regularly opens stores and expands rapidly across the United States, Europe and Canada. While many retailers are resorting to store closures, TJX Companies added around 102 stores in the third quarter and plans to continue expanding its store base to about 6,100 stores in the long term. Further, TJX Companies has undertaken several initiatives to boost online sales and strengthen its e-commerce business. TJX Companies’ off-price model along with its strategic store locations, impressive brands and fashion products has been driving the company’s performance, both in stores and online. Also, the company is committed toward boosting comps growth, through effective marketing initiatives and loyalty programs. Incidentally, TJX Companies’ aggressive marketing and advertising campaigns through multiple mediums (TV, radio and social media) have been boosting traffic at its stores.

Cost Woes Likely to be Countered

Increased wage costs have long been a worry for TJX Companies. In the third quarter of fiscal 2019, the company witnessed escalated freight and supply-chain costs, which along with other factors dented the gross margin. Wage increases and higher freight costs are expected to negatively impact earnings per share growth by 5% in the fourth quarter and fiscal 2019. Moreover, gross margin is expected to contract year over year in both the periods.

Nonetheless, the company’s aforementioned drivers appear to be strong enough to counter these challenges. The company is well positioned to take advantage of solid opportunities in the market for branded merchandise, given its impressive inventory and liquidity position.

Further, TJX Companies commenced the fourth quarter on a strong note, and focuses on boosting traffic during the holiday season through its gifting and marketing initiatives. These factors along with a stellar third-quarter show led to a raised guidance for fiscal 2019. For fiscal 2019, TJX Companies projects adjusted earnings per share of $2.08-$2.09 (on a post-split basis), reflecting year-over-year growth of 8%. Earlier, management expected the bottom line to be $2.05-$2.07 per share (on a post-split basis), representing 6-8% increase from the year-ago quarter. Including benefits from tax reforms and pension settlement charges, earnings are anticipated to be $2.41-$2.43 per share compared with $2.02 in the year-ago quarter.

Check These Solid Retail Bets

Fossil Group FOSL, with a Zacks Rank #1 (Strong Buy), flaunts a spectacular earnings surprise history. You can see the complete list of today’s Zacks #1 Rank stocks here.

Macy’s Inc. M, with a Zacks Rank #2 (Buy), has a long-term earnings per share growth rate of 8.5%.

Abercrombie & Fitch ANF, also with a Zacks Rank #2, has a long-term earnings per share growth rate of 12.5%.

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