TJX Net Drops as Comps Grow 3%

January slowdown met with aggressive promotions, leaving inventories lean.

T.J. Maxx

The TJX Cos. Inc., the largest U.S.-based off-price retailer, managed to generate increases in its net and same-store sales but suffered a rare earnings “miss” as profits fell short of Wall Street’s expectations by a penny.

This story first appeared in the February 27, 2014 issue of WWD.  Subscribe Today.

The company attributed the relative softness to its commitment to a lean inventory position, an objective met with a 1.6 percent decline in year-end inventories, to $2.97 billion from $3.01 billion a year ago.

Carol Meyrowitz, chief executive officer, noted on a Wednesday conference call that, when severe weather cut into its North American traffic last month, “we stuck to our off-price discipline and took aggressive markdowns in January, particularly in apparel, to clear the product. Although this impacted merchandise margins, it allowed us to begin the new year with extremely clean inventory.”

Gross margin declined to 27.6 percent of sales in the quarter from 28.6 percent a year ago. But, as Meyrowitz pointed out, TJX merchants are in a position to capitalize on excess stock elsewhere. “We see a marketplace absolutely loaded with buying opportunities for branded merchandise and a value-minded consumer,” she said.

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In the three months ended Feb. 1, the Framingham, Mass.-based operator of TJ Maxx and Marshalls saw profits pull back 3.7 percent to $582.3 million, or 81 cents, from $604.8 million, or 82 cents, in the year-ago period and against the analysts’ consensus estimate for a flat earnings per share of 82 cents. TJX noted that, eliminating the 14th week of the 2012 quarter, year-ago EPS would have been 74 cents.

Revenues grew 1.1 percent to $7.81 billion from $7.72 billion in 2012 and comparable-store sales advanced 3 percent. While the Marmaxx unit made up of TJ Maxx and Marshalls saw sales grow 0.6 percent, to $5.01 billion, with 3 percent comp growth, TJX Europe’s sales were up 9.1 percent, to $1.15 billion, with comps ahead 9 percent.

Jefferies analyst Randal Konik maintained his “hold” rating and $60 price target for the stock, believing it to be “fairly valued,” but had positive comments about the viability of the off-price model and the company’s ability to expand in Europe and other international markets. The company said Wednesday that it intends to expand into Austria in 2015, adding to an international footprint already covering the U.K., Ireland, Germany and Poland.

“Overall, the off-price model proves to be very resilient and TJX continues to gain share,” Konik wrote in a research note.

For the full year, net income grew 12.1 percent to $2.14 billion, or $2.94 a diluted share, while revenues were up 6 percent to $27.42 billion, on a 3 percent rise in comps. The top-line figure is just slightly lower than Macy’s year-end volume of $27.93 billion, up 0.9 percent year on year, reported on Tuesday.

The company, which has $970 million remaining on its existing share-repurchase authorization, added $2 billion to its buyback budget.