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TJX’s Problem? ‘Holding Back Merchants From Buying Too Much, Too Soon’

Charging customers more for off-price merch is working out pretty well for TJX, according to CEO Ernie Herrman, who told Wall Street analysts Wednesday that the Marshalls and HomeGoods owner has seen “zero” customer pushback since prices went up to mitigate operational costs.

“Not only do we do qualitative studies on [pricing], we are actually able to measure a lot down to the SKU level,” he said, adding that “in most cases, we are actually turning our inventories faster than” in 2019, which was a “very, very good year for us.”

He went on to say that though the TJ Maxx parent has “zero concern overall” about the steeper price tags, it’s reacted “quickly” to items where the new pricing wasn’t working. “But I would say…our batting record is…probably 95 percent,” Herrman said.

In a Nutshell: TJX’s results fly in the face of recent reports that rival off-price retailers may be on the hunt for ways to raise margins. Herrman said the retailer, which is “bullish on merchandise margin” for the rest of 2022, is taking advantage of available deals as they come up which helps with liquidity and reduces the number of orders placed too fare in advance.

If TJX does have a problem, it’s that is “holding the merchants back from buying too much, too soon,” Herrman said, pointing to the “unprecedented” availability of product across “good, better and best” brands in the market.

The off-price giant has a “terrific inventory position and we have plenty of open-to-buy” to take advantage of both quality of merchandise and value proposition, he said, citing branded merchandise that will support holiday gifting, as well as new fashion brands coming soon. TJX will also flow new merchandise to its stores each week, so shoppers “see something new every time they visit us,” Herrman continued. “We are confident that we can execute on our merchandising initiatives and manage our supply chain to keep our shelves fully stocked.”

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Herrman said TJX is attracting a significant number of millennial and Gen Z shoppers, which “bodes well for the future.”

“We see an excellent opportunity to grow our global store base by at least another 1,500 stores in our current geographies. We are extremely confident that there will be more than enough real estate locations and merchandise available to support our store growth plans,” he added.

While TJX’s home goods business has been struggling, Herrman said buyers have kept inventories clean and aggressively marked down product to make room for new goods.

Herrman said TJX will buy “4 million” home goods units over the next few weeks to sell in September as it chases areas of opportunity.

“I think that is going to help us drive sales because we’re going to be so fresh. We’re going to be taking some of the best goods—we’re going to be able to pick and choose—out of the market because there’s so much availability,” the CEO said.

To illustrate just what the market is like right now, Herrman said he isn’t even concerned about rivals going after the same merchandise because the supply is so plentiful.

Net Sales: For the quarter ended July 30, net sales declined 2 percent to $11.84 billion from $12.08 billion. Wall Street was expecting $12.05 billion in sales. Total U.S. comparable store sales were down 5 percent, reflecting a 2 percent decline at its Marmaxx division that includes TJX and Marmaxx, and a 13 percent decrease at HomeGoods.

Herrman said comps were “lighter than expected,” likely a result of inflation keeping some shoppers away.

The decline in the U.S. included a 2 percent slip at Marmaxx to $7.24 billion and an 11 percent decrease at Home Goods. TJX International also posted a decline, falling 7 percent to $1.50 billion. The bright spot was TJX Canada, where sales rose 22 percent to $1.25 billion.

Chief financial officer Scott Goldenberg said that apparel comps in the quarter were up slightly at Marmaxx and rose each month as the quarter progressed.

TJX said margins were impacted by incremental freight pressures, although merchandise margins benefitted from the company’s pricing initiatives.

For the six months, total net sales rose 5 percent to $23.25 billion.

Earnings: Net income rose 3 percent to $809.3 million, or 69 cents a diluted share, from $785.7 million, or 64 cents, in the year-ago quarter.

For the third quarter, TJX expects diluted earnings per share (EPS) to be 77 cents to 81 cents, with U.S. comparable store sales to decrease 3 percent to 5 percent.

TJX also lowered its Fiscal 2023 guidance, with diluted EPS between $2.87 to $2.95, versus prior estimates that were between $2.94 to $3.01. The revision reflects lower sales in the second quarter. It is also expecting U.S. store comps to decline by 2 percent to 3 percent, compared with prior guidance of an increase of 1 percent to 2 percent.

For the six months, net income rose 6 percent to $1.4 billion, or $1.18 a diluted share, from $1.32 billion, or $1.08, in the year-ago period.

CEO’s Take: “We [are] set up well to grow our top and bottom lines over the medium and long term. And I’m confident in our plans to grow TJX into an increasingly profitable $60 billion-plus revenue company,” Herrman said.

Additional reporting by Jessica Binns.