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TJ Maxx Owner: ‘Most Recession Proof’ Name in Retail?

Cowen analysts described TJX as the “most recession proof” name in softlines retail after the TJ Maxx, Marshalls and HomeGoods owner reported an earnings beat Wednesday even as Amazon, Walmart and Target all disappointed in recent weeks.

In a Nutshell: “First quarter average basket was up, driven by a higher average ticket and U.S. customer traffic was down slightly,” TJX chief financial officer Scott Goldenberg told Wall Street analysts in a conference call Wednesday. U.S. comp sales improved in the March-April period, while total U.S. comp store sales were flat, he added.Apparel sales at U.S. TJ Maxx and Marshalls stores posted “very strong” 6 percent comps, while home categories at HomeGoods and Marmaxx declined 7 percent, although U.S. open-only home comp sales rose over 40 percent, Goldenberg said. TJX has been using the open-only store metric as a pandemic comparison.

The company attributes the home business decline to a tricky pandemic comp unrelated to “our pricing initiative,” Goldenberg said.In general, store inventory turns for every division and overall markdowns were favorable to pre-pandemic levels, he said. Inventory was up 37 percent to $7 billion from $5.1 billion at quarter-end.“We still have plenty of open-to-buy for the second quarter and second half of the year. We remain well positioned to take advantage of excellent deals we are seeing in the marketplace and flow fresh merchandise to our stores and online throughout the year,” Goldenberg said.CEO Ernie Herrman said TJX’s open-to-buy runs into the “hundreds of millions” as the retailer is “buying to a $50-plus billion sales plan,” giving it plenty of bandwidth to chase categories for the third quarter. “I can’t emphasize this enough—we are extremely confident that we’ll continue to have plenty of quality branded merchandise available across good, better and best brands to support our growth plans,” Herrman said. “Our global buying team of more than 1,200 buyers sources goods from the universe of approximately 21,000 vendors in more than 100 countries.”While other retailers are closing stores, TJX offers vendors a solution to clear excess product. “To be clear, overall product availability has never been an issue for TJX,” Herrman said.TJX adapted its product mix and categories to respond to consumer trends and preferences, while pricing adjustments supported the quarterly bottom line. The company’s “value proposition is as appealing as ever” while inflation remains a top consumer concern, Herrman said.The company opened 26 stores in the quarter, bringing the total to 4,715 globally, but Herrman sees significant store growth opportunities for all of TJX’s divisions. “We see our flexible buying supply chain and store formats as tremendous advantages which allow us to open stores across a wide customer demographic. All of this gives us confidence in our long-term plan of opening more than 1,500 additional stores in our current markets with our current banners,” he said.TJX believes the “expense headwinds we’ve been facing for the last three years will begin to moderate going forward,” he added.Net Sales:  For the three months ended April 30, net sales increased 13 percent to $11.41 billion from $10.09 billion.By business, U.S. sales saw Marmaxx gain 3 percent to $6.87 billion on a comp sales gain of 3 percent, while HomeGoods fell 5 percent to $2.04 billion as comp sales fell 7 percent—but still healthy as comps were on top of the year-ago gain of 40 percent. TJX Canada sales jumped 41 percent to $1.08 billion, while TJX International sales surged 63 percent to $1.42 billion.Earnings: Net income rose 10 percent to $587.47 billion, or 49 cents a diluted share, from $533.93 billion, or 44 cents, in the year-ago quarter. Excluding a charge of 19 cents for the write-down of TJX’s minority investment in Russian off-price retailer Familia, which it is divesting, adjusted diluted earnings per share (EPS) were 68 cents.Wall Street was expecting adjusted diluted EPS of 60 cents on revenue of $11.59 billion.For the second quarter, TJX expects U.S. comparable store sales to fall 1 percent to 3 percent, with diluted EPS in the range of 65 cents to 69 cents and sales between $12.0 billion to $12.2 billion.For the full year Fiscal 2023, the company expects U.S. comps to improve 1 percent to 2 percent, with diluted EPS between $2.94 to $3.01. Adjusted diluted EPS is expected in the range of $3.13 to $3.20, which at the high end is also 4 cents above the original projection. For the full year, TJX sales are expected in the range of $51.3 billion to $51.8 billion. Herrman has said that the company believes it can become a $60-billion-plus retailer.CEO’s Take: “Longer term, I am confident about our ability to capture market share and improve the margin profile of TJX. Our goal is to return to our fiscal 2020 pretax margin level of 10.6 percent within three years,” Herrman said. “We are convinced that our differentiated treasure hunt shopping experience and outstanding values will continue to resonate with consumers and drive the successful growth of our business in the U.S. and internationally for many years to come.”

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