Amid better-than-expected sales and earnings per share totals that saw the off-price retailer generate more than $10 billion in the third quarter, TJX is embracing a category that has kept the company afloat during Covid-19—home furnishing.
In a Nutshell: The parent to TJ Maxx, Marshalls and HomeGoods has temporarily closed 471 of its 4,574 stores due to local government mandates in response to the pandemic, with the vast majority of these stores located in Europe. These stores account for approximately 3 to 4 percent of total sales, Scott Goldenberg, chief financial officer and senior executive vice president at TJX, said in the company’s earnings call Wednesday.
But despite the uncertainty from the closures, TJX is maintaining a positive outlook on the year ahead.
“The short-term environment is a little more volatile when you look at all the Covid cases rising,” Ernie Hermann, CEO of TJX, said during the earnings call. “However, I’m going to give you a complete 180 and just say we are very bullish on the longer-term outlook, because that feels significantly better than it did at the beginning of Q3 when we didn’t know where all this was heading. Certainly the recent news of the vaccines and what that could do in terms of helping…when customers get comfortable shopping in stores in general, I think we are going to be positioned extremely well to come out of the box and gain more market share from brick-and-mortar across many areas.”
Goldenberg also noted opportunities in real estate, anticipating 100 store openings across banners next year. The company is on track to open 50 new stores this year despite the temporary closures, and opened 17 new locations in the third quarter alone.
Hermann pointed out that the company has “significantly improved our assortment in the seasonality of our product,” with TJX shifting to higher demand categories such as home, beauty and activewear across the Marmaxx, TJX Canada and TJX International groups.
TJX’s HomeGoods banner has been so successful that the company is launching a full e-commerce site, HomeGoods.com, in the back half of 2021, which Hermann anticipates is still “a year away.” HomeGoods.com does not currently sell any merchandise and is positioned more as a venue to help online shoppers find their local store. HomeGoods was the best-performing segment throughout the company with a 15 percent year-over-year open-only comparable store sales boost in the quarter, as well as net sales of $1.9 billion.
TJX has added “hundreds” of new vendors this year, with merchandise flow to stores improving in the third quarter and expected to incrementally improve throughout the fourth quarter. Hermann said in the call that consumers responded favorably to the company’s fresh merchandise specs, while markdowns were better than anticipated. He also said that the e-commerce sites for its U.S. and U.K. businesses will continue to add new categories and brands ahead of the holiday season, particularly for consumers who prefer to shop online.
Total inventories as of Oct. 31, were $5 billion, a 20.3 percent decrease compared with $6.3 billion at the end of the third quarter last year. The year-over-year decline in balance sheet inventory was due to lower planned store inventory levels to accommodate social distancing, stronger-than-expected third quarter sales, and merchandise delivery delays due to continued bottlenecks in the supply chain.
Overall product availability in the marketplace remains “excellent,” Goldenberg said.
For the first two weeks of the fourth quarter, overall “open-only” comp store sales were down 7 percent, similar to the trend the company saw during the last week of October.
TJX did not provide guidance.
During the third quarter, TJX generated $4.1 billion of operating cash flow and ended the quarter with $10.6 billion in cash. Due to the strong cash flow and increased liquidity in the third quarter, the company is reinstating its quarterly dividend, subject to board approval. The expected dividend would actually be 13 percent higher than the last dividend paid in March before it was suspended.
In August, TJX increased its borrowing capacity under revolving credit facilities with a new $500 million facility, making a total of $1.5 billion available to the company.
Net sales: Net sales for the third quarter were $10.1 billion, a 3.2 percent decrease from the $10.5 billion from last year’s quarter. The Marmaxx segment, which includes T.J. Maxx and Marshalls sales in the U.S., saw a dip of nearly 9 percent to $5.8 billion from $6.4 billion in the prior year quarter. HomeGoods sales jumped 18.6 percent from $1.6 billion to $1.9 billion, by far the top performer across TJX. TJX Canada saw a net decline of 5 percent, while TJX International (Europe and Australia) only saw a sales decrease of 0.3 percent.
Overall open-only comparable store sales at TJX were down 5 percent versus last year, which the company said was “well above” initial estimates. This measure is defined differently from the traditional comparable store sales metric, in that it reports the sales increase or decrease of stores for the days they were open in the current period against sales for the same days in the prior year.
Marmaxx saw a 10 percent decline in open-only comp sales, while HomeGoods jumped 15 percent. TJX’s Canadian and International branches declined 7 percent and 6 percent, respectively.
Net earnings: TJX generated third-quarter net income of $867 million, still ahead of the $828 million generated in the same period last year. Diluted earnings per share amounted to 71 cents, versus 68 cents in the prior year. Like the open-only comparable store sales, the diluted earnings per share ended up outpacing TJX’s original expectations for the quarter. The company’s lower tax rate in the third quarter of resulted in an increase in earnings per share of approximately nine cents compared to the prior year.
CEO’s Take: Hermann shared more about capturing additional share of the home category, saying that TJX has increased its home mix across all banners in the short term ahead of its HomeGoods.com launch.
“We believe the strength of our buying team—which numbers over 400 home buyers—our global buying offices and our strong relationships with vendors around the world, will capitalize on the best merchandise available in the marketplace and bring our shoppers exciting home fashions at teriffic values,” Hermann said. “We are looking forward to bringing them our great brands and values 24 hours a day, seven days a week.”