While TJX Cos. Inc. has been a stellar performer in the off-price sector, a report from Morgan Stanley said the retailer could garner market share gains from ongoing trends in the retail space.
In a research note, Morgan Stanley equity analyst Kimberly Greenberger, said, “Industry store closures and bankruptcies create new vendor opportunities, better real estate availability, and a deeper talent pool for store associates, all of which should support ongoing market share gains.”
According to the analyst, store closures increase the supply of inventory that’s available from manufacturers as they seek growth retailers to replace lost revenue. Store closures, in turn, open the possibility of new, attractive real estate sites in existing markets. Another benefit, according to Greenberger, is that real estate availability can also alleviate “upward rent pressure.”
As for the labor pool, Greenberg said, “Competitive wages and tangible bonus prospects attract well-qualified candidates who seek advancement at a growing brick-and-mortar retailer.”
Morgan Stanley’s research note followed investor meetings with TJX chief financial officer Scott Goldenberg, and assistant vice president for investor relations Jeff Botte, earlier this month. One of the drags on EBIT margin that company executives noted in TJX’s last conference call on fourth quarter results was higher wages in some states. And while incremental freight expense could moderate in the upcoming quarters, Greenberger pointed out that the easing of those pressures could be offset by increased supply chain costs for new distribution center operations, and upgrades to support expansion.
She concluded, however, that the supply chain investments could position the retailer for improving EBIT (earnings before interest and taxes) margin and earnings growth beyond 2020.
As TJX expands its retail footprint, it will likely need to add more distribution centers in 2021 and beyond. Currently, as Greenberger noted, the distribution centers receive merchandise from “more than 21,000 vendors. The goods are then sorted and shipped to 4,000-plus stores.”
The off-pricer’s new marketing campaign, “It’s Not Shopping, It’s Maximizing,” is reminiscent of its 2010 “From Fashionista to Maxxinista” campaign, which resonated well with consumers. “We expect this latest campaign to be similarly impactful,” she wrote. The advertising spend incorporates a rebalance of dollars between traditional ads, such as television spots, and digital on social media to target younger consumers.
Either way, the future looks to still be bright for TJX.
“Significant global growth potential, a world class off-price buying organization, and secular tailwinds position TJX as a core long-term holding,” Greenberger said. The analyst has an “Overweight” rating on the off-priced sector. The sector consists of three of the key retail operators: TJX, Ross Stores and Burlington Stores.
