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TJX Readies

Triple-digit hikes in ocean freight costs haven’t fazed TJX, which is putting the finishing touches on HomeGoods’s built-from-scratch e-commerce site and aiming for “$60-billion-plus” in revenue.

In a Nutshell: Second-quarter apparel sales generated strong low-teens comp increases, TJX president and CEO Ernie Herrman told Wall Street analysts, while the home category also put in a good showing across the firm, which operates the TJ Maxx, TK Maxx, Marshalls, HomeGoods, Homesense, Sierra Post and Winners banners.

“Our strong sales growth and merchandise-margin increase more than offset the persistent expense headwinds we have been facing,” he said. “The buying environment has been excellent, and our teams have done a terrific job sourcing the right mix of goods and getting them to our stores to satisfy the strong customer demand.” TJX’s laser focus on value, he added, presents a “tremendous advantage in an inflationary environment” while its off-price model offers a “winning formula” in the race to $60 billion in revenue.

Fashion-driven home products turned in “truly phenomenal” Q2 results company wide, Herrman said. That’s a far cry from Walmart’s and Target’s decelerating sales in the home category.

Strengthening sales in men’s, women’s and kids’ apparel have bolstered average tickets and helped TJX grab market share as rival stores shut down. Discussing the company’s good, better, best merchandise strategy, Herrman said the competition’s branded goods “don’t trade up quite as high.”

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TJX is “excited about our store and online merchandising plans for the back half of the year, especially the back-to-school and holiday shopping seasons,” Hermann added. “The marketplace is loaded with a great selection of apparel and home merchandise across good, better and best brands.”

Meanwhile, is set to go live in Q3, with a slightly differently approach than TJX’s other dot-coms. Hermann said the forthcoming site is seen as a complement to the store experience, capitalizing on the impulse-buying behavior seen in certain areas of the home category. HomeGoods’ existing inventories will populate the new digital store, helping shoppers nab items to outfit a full room. In the store, customers might buy just two chairs from a six-chair set, for example, so the leftovers might end up in the soon-to-launch web store, where a broader consumer base can access the goods.

Supply-chain constraints are driving TJX buyers to place their orders earlier and with longer lead times, in some cases, Hermann pointed out. Though this approach might cost a bit more, he said the strategy supports TJX’s plans to grow market share and acquire “customers for the future.”

And supply-chain disruption could actually work to the company’s benefit, offering “classic off-price textbook execution” where “more uneasiness out there” could ultimately mean better prices for TJX, Herrman said.

Herrman didn’t rule out the possibility of raising prices down the road. With rivals offering fewer promotions, the pressure to trim prices seems to be moderating, he said. As TJX heads into Q4 and the next year, the company could be in a “great position to surgically look at the way we’re retailing goods,” whether raising prices or pursuing other strategies to drive average unit retail.

Meanwhile, chief financial officer Scott Goldenberg expects intermodal transportation costs for trucking and ocean freight to continue climbing this year, noting that in some cases freight rates have skyrocketed 200 percent.

Net Sales: For the quarter ended July 31, total net sales jumped 81 percent to $12.08 billion from $6.67 billion last year, though a more moderate 23 percent gain versus 2019. Overall open-only comparable store sales rose 20 percent in the quarter, reflecting first quarter trends, particularly for home and apparel. At HomeGoods, “open-only comps increased a phenomenal 36 percent, with consistent strength across all major categories and geographic regions for HomeGoods and Homesense,” Goldenberg said.

By division, sales in the U.S. at Marmaxx—TJX stores and Marshalls—spiked 86 percent to $7.35 billion from $3.96 billion, while HomeGoods sales jumped 69 percent to $2.08 billion from $1.24 billion. TJX Canada sales rose 73 percent to $1.02 billion from $591.9 million. TJX International sales were up 84 percent to $1.62 billion from $880.3 million.

Inventories as of July 31 totaled $5.1 billion, on par with the year-ago quarter.

For the six months, net sales more than doubled to $22.16 billion from $11.08 billion.

Earnings: The company posted net income of $785.7 million, or 64 cents a diluted share, against a net loss of $214.2 million, or 18 cents, in the year-ago quarter. When compared with the same 2019 pre-pandemic quarter, net income for the three months rose 4 percent from $759.0 million.

Wall Street was expecting adjusted diluted earnings per share of 57 cents on revenue of $11.01 billion.

For the six months, net income was $1.32 billion, or $1.08 a diluted share, against a net loss of $1.10 billion, or 92 cents, last year.

CEO’s Take: “Sales are very strong as we start the third quarter, with overall open-only comp store sales up mid-teens. While the environment remains uncertain, particularly with the Delta variant, we are convinced that TJX is in a position of strength…. We are confident in our ability to reach our long-term strategic vision of TJX becoming a $60 billion company,” Herrman said.