Off-price retailer TJX delivers another earnings beat, making its stock a buy

Published Wed, Nov 15 20233:31 PM EST

TJX Companies (TJX) reported better-than-expected fiscal year 2024 third-quarter results on Wednesday, while again raising its outlook for the full fiscal year — prompting us to upgrade the stock to a buy-equivalent rating. Total revenue for the three months ended October 28 advanced 9% year-over-year, to $13.3 billion, exceeding analysts' forecasts of $13.15 billion, according to estimates compiled by LSEG. Adjusted earnings-per-share (EPS) climbed 13% on an annual basis, to $1.03, outpacing analysts' estimates of 99 cents per share, LSEG data showed. Bottom line TJX Companies — which operates off-price retail stores like T.J. Maxx, Marshalls and HomeGoods — reported a strong set of results, with total revenue, earnings, profit margins and same-store sales all coming in ahead of expectations. Same-store sales were positive in every segment, with results in the Marmaxx and HomeGoods divisions "entirely driven by customer traffic," according to the company. Gross-margin performance was also 200 basis points better than the year ago period, which management attributed to a "higher merchandise margin due to the significant benefit from lower freight costs." Still, the benefit of lower freight costs was partially offset by supply chain investments and shrink, or theft. Management also returned $1 billion to shareholders during the quarter, via $650 million worth of stock repurchases and another $380 million in dividends. Management was forced to shave the company's fourth-quarter guidance range to reflect a 3 cent-per-share expense that was pushed out from the third quarter to the fourth. However, the strong third-quarter performance — which outpaced the high-end of guidance by 5 cents per share — still allowed TJX to raise its full-year outlook. The company also reiterated its same-store sales forecast for the fourth quarter, while increasing its same-store sales forecast for the full year. As a result, we view selling pressure Wednesday due to investors nitpicking the fourth-quarter revision — without accounting for the increase to the full-year forecast — as a buying opportunity. Shares of TJX were down roughly 2.6% in late-afternoon trading, at around $90.05 apiece. Taken together, the results and the guidance indicate that TJX's department stores remain a go-to for buyers feeling the crunch of inflation, while prioritizing value into the holiday shopping season. As a result, we are upgrading shares to a 1 rating from a 2, while reiterating a $100-per-share price target. Guidance For the current, fiscal fourth quarter, management is expecting EPS in the range of $1.07 to $1.10, short of analysts' expectations and down from an initial range of $1.10 to $1.13 a share. The pretax profit-margin forecast of 10.4% to 10.6% also came up short relative to forecasts and is below a previous range of 10.7% to 10.9%. Management's same-store-sales growth forecast of 3% to 4%, however, is unchanged from prior guidance and matches Wall Street's forecasts at the midpoint. At the same time, the company raised its full-year forecast, despite the cut to the current-quarter outlook. For the fiscal year ending Feb. 3, 2024, TJX now expects overall comparable same-store sales to be in a range of 4% to 5%, up from a prior range of 3% to 4%. Including the impact of a 53 rd week in the fiscal year, management now expects the company's pretax profit margin to hit 10.8%, the high end of the 10.7% to 10.8%, range previously provided, and in line with analysts' forecasts. The 53 rd week is expected to add about 10 cents per share to the company's bottom line and benefit the pretax profit margin by 10 basis points. And management now expects adjusted EPS for the fiscal year to be in a range of $3.71 to $3.74. That's largely in line with analysts' expectations and up from a previous range of $3.66 to $3.72 per share. Notably, management is often conservative with its guidance, allowing it room to overdeliver — as was the case with Wednesday's results. Quarterly results Fiscal third-quarter same-store sales rose 6% year-over-year, significantly ahead of the 3% to 4% range for which the company had guided and above the 4.6% increase Wall Street was expecting. Management attributed the entire increase to customer traffic. The company reported same-store-sales growth across all divisions: Marmaxx , which includes Marshalls and T.J. Maxx, was up 7% year-over-year, compared with the 8% growth seen in the company's second quarter. HomeGoods advanced 9%, a material acceleration from the second quarter's 4% rate. TJX Canada was up 3%, also accelerating from the 1% rate seen in the prior quarter. TJX International was up 1%, a slight deceleration versus last quarter's 3% rate. As was the case with TJX's last earnings report, the company's higher-than-expected cost of sales is not cause for concern as it's a function of higher-than-expected sales results. In fact, gross-margin performance was better than expected, at 31.1%, versus the 30.6% implied by Street forecasts. The growth rate of selling, general and administrative expenses remains a watch item going forward, as we don't want it sustain a much higher rate than sales growth. However, as was the case with TJX's fiscal second quarter, the result was negatively impacted by a few one-time items, including wage-and-payroll increases and incentive accruals. More importantly, operating-cash-flow performance came in comfortably ahead of expectations, increasing 11% versus the year ago period. Lastly, while pretax profits were better than expected, they would have been even stronger if not for a 30-basis-point headwind resulting from the shutdown of HomeGoods' online business. The company on Wednesday said it had decided to shutter those online operations because management "did not see a path to profitability over the long term." Fortunately, all costs associated with that development were reflected in Wednesday's release and won't be a headwind going forward. (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 . 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A T.J. Maxx store in Pasadena, California.

Mario Anzuoni | Reuters