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Marshalls Owner Still ‘Trying to Figure Out the Home Trend’

Last year’s shoplifting and theft spree caught TJX off guard, CEO Ernest Herrman told investors Wednesday, explaining how the Marshalls, TJ Maxx and HomeGoods owner wasn’t prepared for the “shrink surprise” that cut into full-year merchandise margins.

In a Nutshell: The off-price retail giant ended the fourth quarter of 2022 with $5.8 billion in inventory from $6.0 billion a year earlier.

“I believe the freshness of our mix really sets us apart as we ship ever-changing selections to our stores and online throughout the quarter,” Herrman said, noting how raising prices grew margins and boosted the bottom line. He’s convinced there’s room to raise prices again because inflation is making competitors charge more too.

Right now TJX is seeing a “phenomenal” selection of brand-name merchandise out there. “We are in a great position to take advantage of the opportunities we are seeing in the marketplace,” Herrman said, which suggests he won’t have to hold back merchants from buying too much, too soon.

The off-price retail company stands to benefit from other merchants’ store closures, which along with the sluggish economy is creating an “influx of inventory and better brands,” Herrman said. But if there’s one problem plaguing TJX it’s that it’s still “trying to figure out the home trend nationally,” he continued, saying the company might need a few more quarters before it cracks the code.

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Today’s value-hungry shoppers spell goods news for the HomeGoods parent. “The consumer does continue to shift toward value and that’s one of the reasons our top line is so healthy and we don’t think that’s going to change for a number of years,” the CEO said.

He circled back to the store closure phenomenon, saying the changing landscape means TJX is “becoming even more important to vendors today than we were even as recently as a year ago [and certainly more than] we were three years ago.” Because the off-price chain focuses on national brands, it has a leg up on retailers that have pinned their fortunes on promoting private labels, which in turn makes them into importers.

Herrman addressed the “shrink surprise” TJX wasn’t ready for. “[S]hrink was the only component of our operational performance that wasn’t very strong,” he said, pointing to an “outsized shrink charge in the fourth quarter that resulted in pretax profit margin coming in below our plan,” resulting in a 110-basis-point shrink impact and a 30-point headwind versus 2019. Chief financial officer John Klinger said TJX is taking steps to address not just shrink, but wage and supply chain costs as well.

Apparel and accessories did well in the quarter at T.J. Maxx and Marshalls, while home goods sales underperformed. Herrman believes in HomeGoods’ long-term potential, which will see the addition of 500 HomeGoods and HomeSense stores in the years ahead.

“Our ability to buy goods across good better and fast categories gives us tremendous flexibility in the vendor marketplace,” Herrman said.

The retailer ended the year with $5.5 billion of cash. TJX returned $791 million to shareholders in the fourth quarter. The total return for the year was $3.6 billion, including $2.25 billion for the repurchase of TJX stock and $1.34 billion in shareholder dividends.

During 2022, the company opened 50 T.J. Maxx and Marshalls stores, remodeled 225, and opened over 50 HomeGoods and HomeSense locations and now operates 4,835 locations. It plans to add about 150 stores this year.

Net Sales: For the three months ended Jan. 28, net sales rose 4.8 percent to $14.5 billion form $13.9 billion in the year-ago period. U.S. comparable store sales rose 4 percent, with Marmaxx—the T.J. Maxx and Marshalls nameplates—up 7 percent and HomeGoods down 7 percent.

By division, Marmaxx U.S. sales rose 8 percent to nearly $9 billion, while HomeGoods sales were down 4 percent to $2.42 billion. TJX Canada sales rose 3 percent to $1.3 billion, while TJX International sales for across Europe and Australia were up 1 percent to $1.82 billion.

For the year, net sales rose 2.9 percent to $49.9 billion from $48.6 billion, while U.S. comparable store sales were flat.

Earnings: Net income increased 10.4 percent to $1.04 billion, or 89 cents a diluted share, from $940 million, or 78 cents, in the same year-ago quarter.

Wall Street was expecting diluted earnings per share (EPS) of 89 cents on revenue of $14.07 billion.

For the first quarter, TJX expects diluted EPS in the range of 68 cents to 71 cents, on a comparable store sales increase of 2 percent to 3 percent.

For the fiscal year ending Feb. 3, 2024, TJX guided diluted EPS to the range of $3.39 and $3.51, on an overall comparable store sales gain of 2 percent to 3 percent. Estimates include 53rd week to the calendar year.

For the full year, net income gained 6.5 percent to $3.5 billion, or $1.18 a diluted share, from $3.28 billion, or $2.70, a year ago.

CEO’s Take: “Importantly, we continue to see many opportunities to capture market share, and improve profit profitability over both the short and long term,” Herrman said.

The CEO added that the company see the potential to “open more than 1,400 additional stores across our current geographies, which we believe will attract even more shoppers to our great assortments and values.”