Beating and Raising the TJX Companies with Strong Results
The TJX companies (NYSE: TJX† proves that it is not all doom and gloom in the retail sector. While front-line retailers like Target and Walmart struggle with growth and margins, discounted retailers like The TJX Companies come into their own. Not only are customers looking for bargains, but there is also a plethora of merchandise for The TJX Companies to sell. The company took advantage of store closings last year and increased its stock by nearly 38%, while buying back shares and paying a nice dividend. The bottom line is that The TJX Companies is well positioned for the year, expanding margins and increasing guidance where others in retail are doing the exact opposite.
The TJX Companies Have a Mixed Quarter
The TJX Companies had a mixed quarter but that’s about as bad as the news gets. Revenue of $11.41 billion missed the Marketbeat.com consensus by 145 basis points, but we chose to focus on 13.1% YOY growth and margin. On a segment basis, the Marmaxx segment grew 3% (12% on an open-only basis), while the Homegoods segment shrank 7%. However, household goods sales are still up 17% on an open-only comparison, so the data isn’t as bad as it seems. On a three-year basis, compared to 2019 prepandemic levels, sales are up 23%.
On the margin side, the news is a bit mixed, but the gross margin contraction of 20 basis points is offset by 220 basis points of operating margin expansion, so ultimately bullish. The detail that stands out, however, is that margin came in better than expected and led to bottom line outperformance despite weak sales. Adjusted earnings per share of $0.68 were up in the 1, 2, and 3 year comparisons, and $0.08 better than expected, including a $0.19 write-down on Russia. The TJX Companies owns a minority stake in a Russian off-price retailer from which it is in the process of divesting itself.
The outlook is equally mixed and biased, with second-quarter revenue and earnings expected to decline year-on-year and the fiscal year expected to expand. The FY guidance calls for EPS of $3.13 to $3.20 against the $3.16 Marketbeat.com consensus that has yet to be adjusted for Russia’s impact. As the company continues to work on improving margin, we also see upside risk in the numbers, at least on the bottom line.
Capital Returns Help Lift the TJX Companies
Paying a healthy dividend and buying back stock with their cash flow, the TJX companies are on track to deliver more than $3 billion in capital returns to shareholders. The company bought $600 million worth of stock in the first quarter and is expected to buy an additional $1.9 billion by the end of the year. That’s worth about 2.9% of the market cap and that’s on top of the dividend. The dividend is worth about 1.9% with stocks trading at $61 and it comes with a positive expectation for distribution growth. The board approved an increase for Q1 which has already been announced and the payout ratio is comfortably low and below 40%.
The Technical Outlook: The TJX Companies Confirm Support
Price action in The TJX Companies popped up in the wake of the earnings report and has ended the emerging downward trend. The caveat is that price action found resistance at the high end of the recent range and resistance caps the advance. If the market can’t get above USD 62.60, there is a risk that the downtrend will resume regardless of the outlook, but we don’t think that will happen. Our worst case scenario is rangebound trading at current levels. The best case scenario is that price action will rise above $62.60 and start a new uptrend, but we are a little skeptical about that just because the general market conditions are so bad.