TJX ran into second-quarter supply-chain snafus and logistical challenges, along with lower foot traffic at Marmaxx division, which hurt second quarter results.
In a Nutshell: The off-price giant wasn’t able to ramp up and optimize inventory flow back into stores that reopened after shutting amid the escalating coronavirus pandemic. The parent to TJ Maxx, Marshalls and Home Goods cited supply chain and logistics challenges internally and at some of its vendors as businesses ramped up. “The company has put strategies in place to mitigate some of these inventory delays,” TJX said on Wednesday when it reported second-quarter results.
The company reported a wider-than-expected loss for the quarter, largely due to prolonged store closures and problems getting inventory into stores, as well as lower foot traffic at TJ Maxx and Marshalls.
“The company experienced very strong initial sales across all of its retail banners and countries upon reopening, some of which was due to pent-up consumer demand. Following the early wave of stronger than anticipated demand, the company’s traffic and sales moderated as it moved through the second quarter and into the third quarter,” said TJX, which has reopened more than 4,500 global stores plus its e-commerce sites. “The company believes that this was due to a number of COVID-19-related factors, including the impact on consumer behavior and demand, and lighter inventories in its stores than it planned.”
President and CEO Ernie Herrman pointed to the company’s “excellent” merchandise margin as well as the top and bottom lines outperforming TJX’s internal plans as evidence of resilience in the face of pandemic headwinds.
“Further, we saw especially strong sales at our HomeGoods and Homesense chains, as well as the home departments within our other chains, across geographies,” he added. “Specifically, HomeGoods delivered double-digit, open-only comp store sales increases each month of the quarter.”
Lifted lockdowns ended up creating confusion in the TJX supply chain, Herrman told Wall Street analysts, and driving logistical delays. This was particularly true in Canada, where it couldn’t get its distribution center open until a month after stores were back in business. In other parts of the supply chain, Herrman cited issues with vendors’ ability to ship goods as social distancing requirements meant that they weren’t operating at full capacity.
TJX has started buying some goods for packaways earmarked for the first quarter of next year, Herrman said. Goods in the market are “extremely” available right now, with “more out there than we can buy in total,” he added. While there are plenty of goods and opportunities available, not everything is right for TJX stores. As shopping patterns return to normal, Herrman expects business to pick up in the third and fourth quarters. “The driver will be foot traffic,” he said.
Overall, Herrman said TJX is seeing healthy turns in store stock despite leaner inventory levels. “Customers are loving what we have in the stores and the productivity is great. We’re just getting hit with not enough people in the stores. That has to normalize, but when she or he is in the store, they are buying,” he said.
Meanwhile, the off-pricer’s “long-standing vendor relationships continue to serve us well,” Herrman said of the company’s more than 21,000 vendors across 100-plus countries. Despite the current e-commerce boom, Herrman doesn’t believe in-store shopping will go away as people want to walk in the store, get inspired and evaluate merchandise quality themselves.
Net Sales: For the three months ended Aug. 1, net sales fell 31.8 percent to $6.67 billion from $9.78 billion.
By division, comparable store sales on an open-only basis and not including e-commerce sites were down 6 percent at Marmaxx, which includes its TJX and Marshalls businesses, up 20 percent at HomeGoods, down 18 percent at TJX Canada and down 1 percent at TJX International, which includes overseas operations in Europe and Australia. Overall comp sales were down 3 percent. The company provided open-only comp store sales as a guidance and did not report its usual comp store sales numbers.
The company said total inventories at the end of the quarter were $3.7 billion, versus $5.1 billion a year ago, though it has “significantly increased” its buying since the middle of July to support inventory flow.
For the six months, net sales fell 41.9 percent to $11.08 billion from $19.06 billion.
Earnings: The net loss for the quarter was $214.2 million, or 18 cents a diluted share, against net income of $759 million, or 62 cents, in the year-ago quarter.
Wall Street was expecting an adjusted loss of 10 cents a diluted share on revenue of $6.57 billion.
Looking ahead, the company said it is planning overall open-only comp store sales to fall in the range of 10 percent to 20 percent, in line with sales trends since the middle of July and through August month-to-date. TJX said it paid off the $1 billion it drew down from its revolving credit line in March.
For the six months, the net loss was $1.10 billion, or 92 cents a diluted share, against net income of $1.46 billion, or $1.19, a year ago.
CEO’s Take: “As to the future, we are confident that when more customers are comfortable with in-store shopping, we will be in a great position to continue gaining market share as we have for many years. We have been a trusted, value leader for more than 40 years, and we see a long runway of successful growth ahead for TJX,” Herrman said.