The owner of TJ Maxx and Marshalls isn’t so sure if inflation is forcing shoppers to switch to cheaper goods.
That’s because the off-price giant’s focus on selling “good, better, best” brands means it’s not chasing a single customer profile, TJX CEO Ernie Herrman told Wall Street analysts in a call Wednesday.
“It makes it a little tougher to read if there [is] trade down or not because we’re not going after a certain demographic,” he said of how the Ross and Burlington rival targets “all different income levels.”
In a Nutshell: “As we enter the fourth quarter, we’re in a terrific position to take advantage of the tremendous buying environment,” Herrman said. “The marketplaces are absolutely loaded with quality branded merchandise across good, better and best brands.”
The HomeGoods owner will “flow fresh product to our stores and online multiple times a week, which is a key differentiator of our business compared to many other retailers,” he added.
With more then 1,200 buyers sourcing from roughly 21,000 vendors in 100-plus countries, the “availability of quality branded inventory has never been an issue for us,” Herrman said.
Because customers have put up “very, very little resistance” since the off-price titan started charging more for certain products, the CEO sees an opportunity for some prices to “go up again,” especially as TJX’s slight increases pale in comparison to competitors’ 10 percent or 20 percent bumps.
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Herrman isn’t worried inventory hanging around too long with TJX authorizing “aggressive timely markdowns throughout the year.”
Apparel sales which outpaced overall store sales serves an “extremely healthy barometer for us,” according to the CEO, who pointed to TJX’s “brand driven” rather than private-label clothing assortment as the key to winning in women’s, men’s and children’s fashion.
TJX’s European business is outperforming rivals even if it’s slowed down a bit, Herrman noted.
HomeGoods’ average basket increased slightly the division’s third-quarter segment profit margin reached 8.9 percent as freight costs improved. HomeSense, TJX’s newest banner, opened a Newport News, Va. store Thursday after adding to its roughly 40-store footprint with new locations in Sarasota, Fla. and Richmond, Va. debuting in recent weeks.
“Homesense brings customers even more of what we know they love—beautiful, quality home merchandise at incredible values,” said John Ricciuti, president of HomeGoods and Homesense in the U.S., in a statement last month. “We are thrilled that Homesense brings a vast and unique selection for customers to discover and curate the homes of their dreams.”
Chief financial officer Scott Goldenberg said merchandise arriving earlier than planned drove inventory up 26 percent from a year ago. “We saw plenty of liquidity on our end,” he said, noting that the company is “in an excellent position to take advantage of the great buying environment, including packaway opportunities.”
TJX has adjusted open to buys so it will have fewer receipts this year, Goldenberg said.
Merchandise margins came in flat in the quarter. Smarter buying helped offset incremental freight and wage costs.
During the quarter, the company officially got rid of its Russian Familia investment.
Net Sales: For the quarter ended Oct. 29, net sales rose 3 percent to $12.17 billion from $12.53 billion last year. Comparable stores sales in the U.S. dipped 2 percent, with the Marmaxx business including T.J. Maxx and Marshalls up 3 percent while HomeGoods fell 16 percent.
Total U.S. sales dipped 1 percent to $9.40 billion. By division, Marmaxx U.S. sales rose 3 percent to $7.46 billion, while the HomeGoods business in the U.S. slumped 14 percent to $1.95 billion. Sales at TJX Canada were down 1 percent to $1.29 billion, while sales at TJX International for Europe and Australia tumbled 16 percent to $1.48 billion.
Inventories at the end of the quarter were $8.3 billion, up from $6.6 billion a year ago.
For the nine months, net sales rose 2 percent to $35.42 billion from $34.7 billion a year ago.
Earnings: Net income for the third quarter gained 4 percent to $1.06 billion, or 91 cents a diluted share, from $1.02 billion, or 84 cents, from a year ago. Adjusted diluted earnings per share (EPS) were 86 cents.
Wall Street expected adjusted diluted EPS of 80 cents.
For the fourth quarter, TJX expects diluted EPS between 85 cents and 89 cents. It upped its outlook for U.S. comparable store sales to be flat to up 1 percent versus the year-ago U.S. open-only comp store sales increase of 13 percent.
For the full year Fiscal 2023, TJX guided diluted EPS at between $2.93 to $2.97, with adjusted diluted EPS at between $3.07 to $3.11. Forecasts at the upper end were lowered slightly due to unfavorable foreign exchange rates. For the year, TJX raised its comparable store sales outlook and expects it down 1 percent to 2 percent, versus a 17 percent gain for U.S. open-only comp store sales gains last year.
For the nine months, net income was up 5 percent to $2.6 billion, or 89 cents a diluted share, from $2.34 billion, or 78 cents, in the same year-ago period.
CEO’s Take: “Looking forward, while not immune to macro factors, we are convinced that our flexible business model and value proposition will continue to be tremendous advantages, as they have been for more than four decades and through many kinds of retail and economic environments,” Herrman said. “We are excited about the abundance of deals we see in the marketplace for quality, branded product.”