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TJX CEO on 51% Q4 Net Sales Bump: ‘We’re the Price Leader’

The owner of HomeGoods and Marshalls feels good about reaching $60 billion after putting the bow on a $50 billion year, TJX CEO Ernie Herrman told Wall Street analysts Wednesday.

But to get to the next level as an “increasingly profitable” company, the Framingham, Mass.-based retailer will have to overcome persistent wage, labor and supply chain cost increases.

In a Nutshell: Rising fourth-quarter freight costs led the TJ Maxx parent to fall short of Wall Street’s estimates for adjusted diluted earnings per share (EPS) of 91 cents on an expected $14.22 billion in revenue. Shares of TJX slipped 0.7 percent in early afternoon trading to $64.80 after the company reported EPS of 78 cents on $13.85 billion in revenue.

Hermann said TJX’s price increase strategy is “working very well” and could be a “multi-year opportunity” for the off-price retailer. He expects escalating wage costs will become a permanent problem factored into TJX’s operating model, unlike the outlook for a short-lived uptick in freight expenses.

The off-price enterprise added thousands of new vendors last year to its existing matrix of roughly 21,000. “We feel great about the areas of our business that we directly control and we’ll continue to look for ways to mitigate the expense pressures currently impacting our business,” Herrman said, noting growth among Gen Z and millennial shoppers.

TJX, Herrman said, gives vendors a much-needed outlet to move overstock product, especially as retailers fold up shop and congestion impedes supply chains from functioning as usual. The company is finding “excellent” and readily available “quality branded merchandise” across the three tiers of “good, better and best brands,” he added.

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So far, TJX’s first quarter, which began on Jan. 30, is off to a good start, according to Herrman.

“We are not seeing promotional creep yet,” he said, adding that the off-price chain is “ultra sensitive” to this phenomenon, but has been “seeing things go the other way.”

“Regardless of inventory levels, inflation is hitting everybody so dramatically,” the CEO continued. Retailers will have no choice but to lift their ticket prices to counter inflation and shipping, he said, while most promotions will really just reflect higher actual retail prices.

TJX believes it has an opportunity to “improve profitability once the retail environment stabilizes and some of the expense headwinds begin to moderate,” Herrman pointed out. “All of this tells us that we have an excellent opportunity is significantly grow our top and bottom lines over the medium and long term.”

The off-price giant company opened 117 net new stores in 2021, relocated 50, and remodeled more than 300. It operated 4,689 stores at the end of the fourth quarter and plans to open 170 new stores in Fiscal 2023. TJX eventually wants to get to 6,275 doors worldwide.

Net Sales: For the fourth quarter ended Jan. 29, net sales rose 27 percent to $13.85 billion from $10.94 billion. U.S. open-only comparable store sales rose 13 percent versus a 6 percent gain a year ago, marking the fourth consecutive quarter of comps in the “low teens or better,” Herrman said.

E-commerce got a boost last year with new categories and brands flowing into each digital nameplate and finally coming online in the fall. Still, online shopping drives a small percentage of TJX’s business, Herrman said.

Chief financial officer Scott Goldenberg said apparel sales shrank in January “consistent with what we have seen during previous Covid spikes” that preceded the current, though seemingly waning, Omicron wave. Freight costs could reach their apex in the next Q4, he said, adding that transportation and shopping contract renegotiations indicate that supply chain expenses might be subsiding from their fever pitch.

By division, Marmaxx sales in the U.S. for T.J. Maxx and Marshall’s rose 20 percent to $8.28 billion, while HomeGoods improved 13 percent to $2.52 billion. TJX Canada sales were up 50 percent to $1.25 billion. TJX International sales gained 88 percent to $1.80 billion.

For the year, net sales rose 51 percent to $48.55 billion from $32.14 billion.

Earnings: For the quarter, net income more than doubled to $940.2 million, or 78 cents a diluted share, from $325.5 million, or 27 cents, a year ago.

Wall Street expected adjusted diluted EPS of 91 cents on revenue of $14.22 billion.

For the first quarter of Fiscal 2023, TJX expects a 1 percent to 3 percent increase in U.S. comparable store sales, versus as “outsized 17 percent” bump for the comparable Fiscal 2022 quarter. For Fiscal 2023, the company plans to return to its historical definition of comparable store sales consisting of just U.S. stores. During the pandemic, TJX relied on an open-only metric due to period store closures. Diluted EPS is expected in the range of 58 cents to 61 cents, versus 44 cents a year ago.

For full year Fiscal 2023, TJX expects U.S. comparable store sales to rise 3 percent to 4 percent.

For the year, net income totaled $3.28 billion, or $2.70 a diluted share, versus $90.5 million, or 7 cents, in 2020.

CEO’s Take: “In an inflationary environment, we believe more consumers will be seeking out our values. Importantly, I am as confident as ever in the medium and long term outlook for TJX. We’re the price leader in every country that we operate in and believe we are in an excellent position to capture additional market share in these regions for many years to come,” Herrman said.