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TJX Calls Out Q4’s Category Stars

TJX Cos. on Wednesday posted a rare miss on Wall Street’s Q4 earnings per share and revenue estimates, largely due to store closures.

In a Nutshell: President and CEO Ernie Herrman said the retailer’s open-only comparable store sales were down just 3 percent, topping internal plans.

“Our brands, values, and exciting gift assortments resonated with customers, and we achieved these results despite numerous COVID-related headwinds. Overall open-only comp store sales improved each month of the quarter and were positive in January. Further, open-only comp store sales exceeded our plans across each of our divisions, including at HomeGoods which once again delivered a double-digit increase. We also saw continued strength in our home and beauty departments,” Herrman said.

Consumers have generally turned their attention to home goods in the wake of the coronavirus pandemic and shelter-in-place, work-from-home lifestyles.

Despite the earnings miss, at least one Wall Street analyst still rates TJX shares at “Outperform.”

“With ongoing uncertainty around the store opening trajectory, we understand the immediate pre-market pressure. However, the reasons for owning TJX were never for [fourth quarter] and as stores do open, we continue to expect TJX to become increasingly important to both shoppers and vendors, driving meaningful long-term share opportunity,” Simeon Siegel, analyst at BMO Capital Markets, said after TJX reported earnings results.

“Encouragingly, management again called out [merchandise] margin growth as we’ve been noting tight inventory and lower promotions across the sector,” Siegel added. “TJX entered [the fourth quarter] with inventory down 20 percent, and ended the quarter down 11 percent.” Siegel believes retail shelves were “too lean” in the second half of 2020, although he expects that to normalize this year.

Net Sales: For the quarter ended Jan. 30, net sales fell 10 percent to $10.94 billion from $12.21 billion.

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Total comparable store sales for open-only doors fell 3 percent in the quarter. By business segment, the Marmaxx group that includes T.J. Maxx stores and Marshalls in the U.S. saw comps decline 7 percent. HomeGoods in the U.S. rose 12 percent. TJX Canada posted a 4 percent decline in comps, while TJX International for stores in Europe and Australia was up 2 percent.

About 960 stores, mostly in Europe, are temporarily closed due to government mandates. Stores in Europe were closed for about 63 percent of the fourth quarter, while those in Canada were closed for about 32 percent in the same period, it said.

Sales by business division saw Marmaxx decline 6 percent to $6.92 billion, HomeGoods up 14 percent to $2.23 billion, TJX Canada down 26 percent to $837 million, and TJX International down 44 percent to $961 million.

The company said total inventories at the end of the fiscal year were $4.3 billion, versus $4.9 billion at the end of Fiscal 2020. The consolidated pretax profit margin was 4.6 percent, including the impact from a debt extinguishment charge, it added.

“Overall product availability in the marketplace remains excellent and the company continues to focus its buying towards the categories that have had the strongest demand. The company is well positioned to deliver a fresh assortment of merchandise to its stores and e-commerce sites throughout the spring season,” TJX said.

For the year, net sales were down 23 percent to $32.14 billion from $41.72 billion.

The company said it opened 43 new stores, bringing its total fleet to 4,572 doors by the end of Fiscal 2021. The company has delayed the opening of most of the new stores planned for Fiscal 2021 until Fiscal 2022.

Earnings: Net income dropped 67 percent to $325.5 million, or 27 cents a diluted share, from $984.8 million, or 81 cents, a year ago. TJX estimated that store closures in the quarter negatively impacted earnings per share by 18 cents to 21 cents.

Wall Street was expecting adjusted diluted earnings per share of 62 cents on revenue of $11.48 billion.

TJX said it completed the sale of $500 million aggregate principal amount of 1.15 percent, 7.5-year notes and $500 million aggregate principal amount of 1.6 percent, 10.5 year notes on Nov. 30, 2020. The proceeds were used to fund the cash tender for $364.5 million of its 4.5 percent notes and $754.15 million of its 3.875 percent notes on Dec. 4, 2020. The notes were due April 15, 2050 and April 15, 2030, respectively. The company incurred a charge for the early extinguishment of debt, which reduced fourth quarter and full year Fiscal 2021 pretax income by $312 million.

The company declined to provide financial guidance.

For the first three weeks of February, the start of its Fiscal 2022 Q1, overall open-only comp store sales trends were better than the fourth quarter of Fiscal 2021 and were positive in the periods before and after the recent winter storms. TJX expects total sales, pretax margins and earnings per share in first quarter Fiscal 2022 to be negatively impacted from temporary store closings.

For the year, net income plummeted to $90.5 million, or 7 cents a diluted share, from $3.27 billion, or $2.67, in 2019.

CEO’s Take: “As we start the new fiscal year, while uncertainty around COVID-19 remains, we feel very good about the strength of the business and our market share opportunities beyond the health crisis. We are convinced that our entertaining, treasure hunt shopping experience, our differentiated, branded merchandise selections, and value proposition will continue to resonate with consumers. We see many opportunities to leverage our flexible business model, gain more customers, and continue driving the successful growth of TJX for many years ahead,” Herrman said.