We're raising our price target on TJX after the discount retailer's impressive earnings beat

Published Wed, Feb 28 20243:01 PM ESTUpdated Thu, Mar 14 202412:06 PM EDT

TJX Companies beat on nearly every earnings metric on Wednesday except its forward guidance. But not to worry: The discount retailer is conservative with its estimates — and has lately tended to overdeliver. Total revenue for the three months ended February 3 advanced 13% year-over-year, to $16.4 billion, exceeding analysts' forecasts of $16.2 billion, according to estimates compiled by LSEG. Adjusted earnings-per-share (EPS) climbed 37% on an annual basis, to $1.22, outpacing analysts' estimates of 1.12 cents per share, LSEG data showed. Bottom line Guidance came up short for both the current quarter and the full fiscal year. But over the last eight quarters, this management team met the high end of their estimates twice and exceeded them six times. On the post-earnings conference call, CEO Ernie Herrman said the first quarter is off to a good start with many initiatives planned to keep driving sales and to bring more shoppers to its stores, which include T.J. Maxx, Marshalls, and HomeGoods. "Availability of quality branded merchandise in the marketplace continues to be outstanding. We are in a terrific position to continue flowing a fresh assortment of goods to our stores and online this spring and throughout the year," he said. At the Investing Club's recent Annual Meeting on Saturday, we added TJX to our list of 12 core holdings , which we generally define as industry-leading companies with great management teams and strong track records of creating shareholder value. For the reported fourth quarter, the company's top-line beat was driven by better-than-expected revenue performance in all key segments, driven by an increase in customer transactions. Though selling, general, and administrative expenses were a bit higher than expected, most of this was offset higher up in the income statement with a lower-than-expected cost of goods sold (COGS). Higher sales and lower COGS resulted in better-than-expected gross margin expansion that trickled down to a bottom-line beat. The company's pretax profit margin also expanded versus the year-ago period, benefiting from a higher merchandise margin. The strong merchandise margin was attributable to less shrink (theft), reduced freight costs, and lower markdowns. The better-than-expected sales also resulted in improved expense leverage, meaning sales were up without incremental cost increases. The quarter benefited from an extra week — 14 weeks versus 13 weeks last year — which resulted in an estimated 10 cents per share benefit to earnings. Excluding those extra days, earnings were still up 26% year over year on a per-share basis. Management was able to return a total of $1.2 billion to shareholders in the quarter, with $797 million coming via buybacks and another $379 dividend payments. Consumer spending remains strong, but shoppers are increasingly looking for deals without sacrificing quality. Given the strength of the reported numbers and positive commentary on the high amount of available merchandise, TJX should continue to snap up more market share. As a result, we are raising our price target on TJX shares to $110 from $100 and reiterating our 2 rating. Guidance On the call, management said the full-year gross margin stands to benefit by 10 to 20 basis points versus last year thanks to an increased profit margin on merchandise that will only be partially offset by supply chain investments. Freight shrink (theft) charges are expected to be flat versus last year. For capital expenditures, management plans to open new stores, while remodeling and relocating existing ones. They will also invest in the distribution network and infrastructure to support continued growth. For the first quarter, gross margin performance — guidance implies a 90-basis point expansion versus the prior year period — also stands to benefit from an improved merchandise margin that benefits from lower freight costs and higher prices, only partially offset by supply chain investments. Quarterly results Fiscal fourth-quarter same-store sales rose 5% year over year, well ahead of the 3% to 4% range for which the company had guided and above the 4.3% increase expected by Wall Street. "We saw comp sales growth at every division driven by customer transactions, which underscores our confidence in our ability to gain market share across all of our geographies," Herrman said in the release. The company reported same-store-sales growth across all divisions: Marmaxx , which includes Marshalls and T.J. Maxx, was up 5% year over year, compared with the 7% growth seen in the company's third quarter. HomeGoods advanced 7%, a deceleration from the third quarter's 9% rate. TJX Canada rose 6%, accelerating from the 3% rate seen in the prior quarter. TJX International gain 3%, well above last quarter's 1% rate. (Jim Cramer's Charitable Trust is long TJX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Shoppers at a TJ Maxx store in New York.

Scott Mlyn | CNBC

Total revenue for the three months ended February 3 advanced 13% year-over-year, to $16.4 billion, exceeding analysts' forecasts of $16.2 billion, according to estimates compiled by LSEG.

Adjusted earnings-per-share (EPS) climbed 37% on an annual basis, to $1.22, outpacing analysts' estimates of 1.12 cents per share, LSEG data showed.

Bottom line

Guidance came up short for both the current quarter and the full fiscal year. But over the last eight quarters, this management team met the high end of their estimates twice and exceeded them six times. On the post-earnings conference call, CEO Ernie Herrman said the first quarter is off to a good start with many initiatives planned to keep driving sales and to bring more shoppers to its stores, which include T.J. Maxx, Marshalls, and HomeGoods.

"Availability of quality branded merchandise in the marketplace continues to be outstanding. We are in a terrific position to continue flowing a fresh assortment of goods to our stores and online this spring and throughout the year," he said.

At the Investing Club's recent Annual Meeting on Saturday, we added TJX to our list of 12 core holdings, which we generally define as industry-leading companies with great management teams and strong track records of creating shareholder value.

For the reported fourth quarter, the company's top-line beat was driven by better-than-expected revenue performance in all key segments, driven by an increase in customer transactions. Though selling, general, and administrative expenses were a bit higher than expected, most of this was offset higher up in the income statement with a lower-than-expected cost of goods sold (COGS).

Higher sales and lower COGS resulted in better-than-expected gross margin expansion that trickled down to a bottom-line beat. The company's pretax profit margin also expanded versus the year-ago period, benefiting from a higher merchandise margin. The strong merchandise margin was attributable to less shrink (theft), reduced freight costs, and lower markdowns. The better-than-expected sales also resulted in improved expense leverage, meaning sales were up without incremental cost increases.

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The quarter benefited from an extra week — 14 weeks versus 13 weeks last year — which resulted in an estimated 10 cents per share benefit to earnings. Excluding those extra days, earnings were still up 26% year over year on a per-share basis.

Management was able to return a total of $1.2 billion to shareholders in the quarter, with $797 million coming via buybacks and another $379 dividend payments.

Consumer spending remains strong, but shoppers are increasingly looking for deals without sacrificing quality. Given the strength of the reported numbers and positive commentary on the high amount of available merchandise, TJX should continue to snap up more market share. As a result, we are raising our price target on TJX shares to $110 from $100 and reiterating our 2 rating.

Guidance

On the call, management said the full-year gross margin stands to benefit by 10 to 20 basis points versus last year thanks to an increased profit margin on merchandise that will only be partially offset by supply chain investments. Freight shrink (theft) charges are expected to be flat versus last year. For capital expenditures, management plans to open new stores, while remodeling and relocating existing ones. They will also invest in the distribution network and infrastructure to support continued growth.

For the first quarter, gross margin performance — guidance implies a 90-basis point expansion versus the prior year period — also stands to benefit from an improved merchandise margin that benefits from lower freight costs and higher prices, only partially offset by supply chain investments.

Quarterly results

Fiscal fourth-quarter same-store sales rose 5% year over year, well ahead of the 3% to 4% range for which the company had guided and above the 4.3% increase expected by Wall Street. "We saw comp sales growth at every division driven by customer transactions, which underscores our confidence in our ability to gain market share across all of our geographies," Herrman said in the release.

The company reported same-store-sales growth across all divisions:

Marmaxx, which includes Marshalls and T.J. Maxx, was up 5% year over year, compared with the 7% growth seen in the company's third quarter.

HomeGoods advanced 7%, a deceleration from the third quarter's 9% rate.

TJX Canada rose 6%, accelerating from the 3% rate seen in the prior quarter.

TJX International gain 3%, well above last quarter's 1% rate.

(Jim Cramer's Charitable Trust is long TJX. See here for a full list of the stocks.)

As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade.

THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.