We all know why we're here. The TJX Companies (TJX) is the kind of company that benefits through the purchase of bulk inventories at discounted prices from retailers that are possibly higher up on the economic food chain, but had mismanaged for one reason or another their stock.
TJX then sells these inventories at off-peak prices to consumers. In other words, with so many retailers carrying too much or just incorrect inventories, and an economy that we think is headed into either a recession or something darned close to it, TJX should excel. Only thing. While the economy does appear to be decelerating, it has not come close to falling completely out of bed. Let's move on...
TJX, which is the parent organization for TJ Maxx, Marshalls, Sierra, HomeGoods and Homesense stores, released the firm's first quarter financial performance for the first quarter on Wednesday morning. For the three month period ended April 29th, TJX posted a GAAP EPS of $0.76 on revenue of $11.783B. The bottom line print beat Wall Street by a nickel, while the top line number fell just short of expectations despite year over growth of 3.2%.
For the quarter, comp store sales increased 3%, which was at the high end of the company's plan. This increase was driven by store traffic. Comp store sales increased 5% at Marmaxx stores. The Marmaxx banner includes all TJ Maxx, Marshalls and Sierra locations, while the HomeGoods banner in places will include both HomeGoods and Homesense locations.
The Quarter
While revenues increased 3.2% to $11.783B, cost of sales increased 1.8% to $8.374B, as operating expenses grew 6.9% to $2.238B. There were no impairments made as there had been ($218M) for the year ago period. After accounting for interest and taxes, net income "popped" 51.8% to $891M.
Segment Performance
- Marmaxx generated sales of $7.366B (+7.2%), and comp store sales growth of 5%, producing a profit of $1.028B (+13.7%).
- HomeGoods generated sales of $1.966B (-3.4%), and comp store sales growth of -7%, producing a profit of $144M (+18%).
- TJX Canada generated sales of $1.038B (-4.1%), and comp store sales growth of 1%, producing a profit of $117M (-7.9%).
- TJX International generated sales of $1.413B (-0.3%), and comp store sales growth of 4%, producing a profit of $38M (+192.3%).
Guidance
For the current quarter, TJX sees overall comp sales growth of 2% to 3%. The firm sees a pre-tax profit margin to be in a range of 9.3% to 9.5%. Diluted EPS is seen at $0.72 to $0.75. That was a little light, as I see Wall Street looking for something around $0.79 with $0.75 being the low end of the range of expectations.
For the full fiscal year, TJX also sees overall comp store sales growth of 2% to 3%. The firm sees a full year pre-tax profit margin of 10.3% to 10.5%, which is up from prior guidance of 10.1% to 10.3%. Diluted EPS of $3.49 to $3.58 is now expected. That's also up from previously offered guidance of $3.39 to $3.51, which is nice, but Wall Street was already looking for something close to $3.55.
Fundamentals
For the period reported, TJX generated $745M in operating cash flow (up from $-634M a year ago). Out of this came $361M in the purchase of new property, leaving the firm with quarterly free cash flow of $384M. The firm repurchased $492M worth of common stock during the period, while paying out dividends of $343M to shareholders. Returns to shareholders amount to roughly 217% of free cash flow, which would be some sloppy management if the cash was not available on the balance sheet. That said, the cash is there.
The firm did end the quarter with a cash position of $5.025B and inventories of $6.441B, putting current assets at $12.595B. This is in line with where current assets were one year ago. Current liabilities add up to $10.534B, of which a very small portion is short-term debt. That leaves the firm's current ratio at 1.2, which is healthy. With retailers, we try not to harp on things like quick ratios (unless something is really notable) as the nature of the business is inventory-centric.
Total assets amount to $28.681B, including very little goodwill or any other intangible assets. Total liabilities less equity comes to $22.259B. Included here is long-term debt of $2.86B, which is something that the firm could handle almost twice over out of pocket. This balance sheet is in good shape.
My Thoughts
The stock is a little on the expensive side at 22 times forward looking earnings. That said, it's not expensive relative to its group. Ross Stores (ROST) trades at 20 times. Burlington Stores (BURL) trades at 28 times.
Sales performance is more or less in line with expectations with solid to improving margin performance. The guidance was brought up to where Wall Street already was. I like the balance sheet. I don't like returning more cash to shareholders than free cash flow generated. That said, they definitely had the cash on hand. I would not like this to be habit.
Yes, I still think the economy is going to struggle. Yes, I still think that TJX is a retailer that will do better in that environment. I am not going anywhere.
Readers will see a two-month ascending triangle pattern with a $79.50 pivot trading above all of its key moving averages. That's bullish. Let's zoom out.
Looking back over the past year and a half or so, we see a giant cup with handle pattern with an $82.50 pivot. If we use the shorter-term pattern, we are looking at a price target of about $91.
That "big picture" chart places the target price at about $95. I'll worry about which one was correct when we get there, and I do think we'll get there. I am long the stock. My panic point is $72, which is where I my 8% rule would currently go into effect.
