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TJX Sees Shares Dip Despite Strong Sales Gains

Off-price leader TJX Companies posted double-digit net sales and income gains in the third quarter, even as gross profit was hit by higher freight and supply chain costs.

In a Nutshell: While other retailers close stores or focus more on e-commerce, off-price specialist TJX Companies is expanding its brick-and-mortar network while delivering strong sales and income gains.

The company, which operated 4,296 stores in nine countries at the end of its fiscal third quarter, increased its store count by 102 units in the period and square footage grew 4 percent over the same period last year. TJX, which operates 1,247 T.J. Maxx stores, 1,091 Marshalls, 745 HomeGoods, 35 Sierra Trading Post and 16 Homesense stores, said customer traffic was the primary driver of comp sales increases at every division.

Despite the success in sales, TJX shares fell more than 3 percent to $47.48 in early trading Tuesday, owed to a miss in analysts’ margin estimates.

Sales: Net sales for the third quarter ended Nov. 3 increased 12.1 percent to $9.83 billion compared to $8.76 billion in the year-ago period. The Marmaxx division, comprised of the TJ Maxx and Marshalls chains, saw net sales rise 12.7 percent to $5.98 billion in the period. HomeGoods net sales were up 19.1 percent to $1.46 billion, while TJX Canada net sales rose 5.5 percent to $1.04 billion and TJX International, which includes net sales in Europe and Australia, posted an 8 percent net sales gain to $1.35 billion.

Comparable store sales rose 7 percent compared to flat sales a year earlier. Gains were seen in all divisions, with a 9 percent increase at Marmaxx compared to a 1 percent decline in the year-ago comparison.

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Earnings: Net income increased 18.8 percent to $762.25 million from $641.44 million in the year-ago quarter. Gross profit margin for the third quarter was 28.9 percent, a 0.9 percent decrease versus the prior year period. Strong expense leverage was more than offset by increased freight costs, higher supply chain costs and an unfavorable year-over-year comparison related to the company’s inventory hedges.

Gross margin came in at 28.9 percent, narrowly missing analysts’ estimates of 29.2 percent.

CEO’s Take: Ernie Herrman, president and CEO, said: “We are extremely pleased with our strong third quarter results as both sales and earnings exceeded our expectations…Marmaxx, our largest division, delivered an outstanding 9 percent comparable store sales increase, and this marks the 17th consecutive quarter that customer traffic was up at TJX and Marmaxx. Across our geographies, customers responded to our great merchandise and great values as we believe we continued to capture market share. We also saw continued strength in our apparel businesses.”

Continuing, Herrman said, “With our very strong third quarter results, we are updating our full-year outlook for sales and earnings per share. The fourth quarter is off to a solid start and we have many initiatives planned to keep driving traffic and sales this holiday season and beyond.”