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TJX Offsets Cost Uptick With ‘Surgical’ Price Increases

The TJX Cos. Inc. appears to be firing on all cylinders as it gears up for the holiday season.

In a Nutshell: The off-pricer easily beat Wall Street’s estimates.

Unlike Target Corp., which saw investors grow concerned over its third-quarter gross margin pressures due to higher supply chain costs, TJX had relatively smooth sailing in the same reporting period.

TJX said its “very strong sales and merchandise margin increases more than offset incremental freight expense of 1.6 percentage points as well as substantial investments to expand distribution capacity, higher incentive accruals and wage increases.”

In addition, the company said it didn’t have a problem sourcing inventory. “Overall availability of quality, branded merchandise in the marketplace remains excellent. The company is in a strong position to deliver a consistent flow of fresh gift assortments throughout the holiday season as most of the inventory needed has already been delivered to the company or is scheduled to arrive in its stores and online in time for the holidays,” the company said.

“We saw robust trends throughout the quarter, with comp sales exiting the quarter as strong as the beginning of the quarter. Further, our home businesses across all of our divisions continued their phenomenal performance, and overall apparel open-only comp-store sales increased mid-single digits,” Ernie Herrman, TJX’s president and CEO, said in a statement. The company uses open-only stores for its comp comparison because of temporary closures across its store network due to Covid restrictions. Herrman also reiterated the company’s confidence that it can continue to gain market share and reach its strategic vision of becoming a “$60 billion company.”

The CEO told analysts during the company’s conference call on Wednesday that its flexible model has been a tremendous advantage in the current environment because it has allowed TJX to “expand and contract categories and merchandise in our stores so that customers have full racks and shelves to shop when they visit.” Between a wide selection of product and gift-giving items, Herrman said the off-pricer expects to have “something for everyone” when they go over their shopping lists. “We also believe that our great values will resonate with consumers as much as ever in an inflationary environment,” he added.

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Herrman also told analysts that the company has benefited from TJX’s ability to surgically raise prices on select items, a strategy that he said is “well underway.” Looking ahead in terms of profitability, the CEO also said the company is “very optimistic about the margin opportunity from our strategy to surgically adjust prices, while maintaining our value proposition for consumers.” He also told analysts that the company didn’t get any push back from customers on the increases, and said that there is probably a lot more room to surgically increase prices when looking at its department store brand.

The company’s CFO Scott Goldenberg said overall customer traffic was up, driven by a mid-single digit traffic increase in the U.S. And he said of the pricing strategy: “We believe our pricing initiative is working as we’ve rolled it out to very select items across categories. We’re extremely please that sales, inventory turns and the markdown rates in the third quarter remain very strong where we have selectively adjusted our retails.”

Home continued to be the outstanding performer, with the Marmaxx home business “continuing its outstanding performance posting a comp increase in line with HomeGoods,” the CFO said, noting also that apparel comp sales were up mid-single-digits. The HomeGoods banner, which includes HomeGoods and HomeSense saw outstanding increases in both customer traffic and average basket, according to Goldenberg.

Net Sales: Net sales for the quarter ended Oct. 30 rose 24 percent to $12.53 billion from $10.12 billion. When compared with the same 2019 pre-pandemic period, net sales rose 20 percent from $10.45 billion.

By business segment, the company said Marmaxx U.S. stores, its T.J. Maxx and Marshall’s nameplates, saw open-only comparable store sales rise 11 percent from a year ago, with net sales up 25 percent to $7.21 billion. Its HomeGoods banner in the U.S. saw open-only comp store sales rise 34 percent, with net sales up 20 percent to $2.25 billion. TJX Canada operation saw open-only comp store sales rise 8 percent, with net sales gaining 27 percent to $1.3 billion. The TJX International operation across Europe and Australia saw an open-only comp store gain of 10 percent, as net sales rose 23 percent to $1.76 billion.

Total inventories as of the end of the quarter were $6.6 billion, up from $6.3 billion a year ago.

For the nine months, net sales rose 64 percent to $34.7 billion from $21.19 billion. When compared to the same 2019 pre-pandemic period, net sales rose 18 percent from $29.51 billion.

Earnings: The company said net income rose 18 percent to $1.02 billion, or 84 cents a diluted share, from $866.7 million, or 71 cents, in the year-ago quarter. When compared with 2019 pre-pandemic figures, the increase was 24 percent from $828.3 million.

Wall Street was expecting adjusted diluted earnings per share of 81 cents on revenue of $12.27 billion.

The company said that for the start of the fourth quarter of fiscal 2022, “overall open-only comp store sales growth is up mid-teens over the fourth quarter of fiscal 2020.”

For the nine months, net income was $2.34 billion, or $1.92 a diluted share, against a net loss of $235.1 million, or 20 cents, in the year-ago period. When compared with 2019 pre-pandemic figures, net income rose 2 percent from $2.29 billion.

CEO’s Take: “Beyond this year, we believe we are set up extremely well to significantly grow our market share and improve our profitability. On the top line, we see tremendous opportunities with our sales in traffic driving initiatives and our global store growth plans. We have gained significant market share this year and we see excellent opportunities to keep attracting more consumers around the world. Giving us confidence is the appeal of our values, great brands and treasure hunt shopping experience,” Herrman said.