By  on August 19, 2014

The off-price apparel model received a vote of confidence from investors Tuesday after The TJX Cos. Inc. reported a return to positive comparable-store sales at its Marmaxx unit in the second quarter following a flat performance in the first three months of the year.

Shares of TJX rose 8.7 percent to $58.56 on a combination of the comp gain, the company’s better-than-expected improvements in quarterly sales and revenues and its upward revision of full-year guidance.

TJX’s strong quarter and strong outlook benefited its competitors too, with Ross Stores Inc. shares up 4 percent to $69.25 and Burlington Stores Inc.’s ahead 1.5 percent to $34.78. With do-it-yourself giant Home Depot checking in with strong earnings as well, the entire retail sector shined on Tuesday. The S&P 500 Retailing Industry Group was up 1.9 percent to 934.51.

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TJX’s Marmaxx unit — consisting of the TJ Maxx and Marshalls stores in the U.S. — posted a 2 percent comp gain for the quarter after coming in flat during a difficult first quarter in which U.S. retailers battled the elements and consumer inertia. Comps for the quarter overall were up 3 percent, led by a 6 percent gain at TJX Europe and a 5 percent gain at HomeGoods.

Overall sales at Marmaxx just missed the $4.5 billion mark in the quarter, rising 4.6 percent to $4.49 billion.

Sales and traffic trends improved throughout the quarter, but traffic comparisons didn’t turn positive until last month and comp increases were attributable to higher average tickets.

On a conference call with analysts, Carol Meyrowitz, chief executive officer, said that, in addition to weak traffic in the first quarter, the apparel business at Marmaxx was complicated by “some execution issues in juniors and dresses. I’m happy to say that we saw improvement in those categories in the second quarter.”

Women’s apparel in general strengthened as the quarter proceeded.

The past year has seen a significant expansion of TJX’s e-commerce activities, from the integration of Sierra Trading Post, acquired in December 2012, to the introduction or expansion of Web sites for each of its nameplates, including both tjmaxx.com and marshallsonline.com. While brick-and-mortar merchandise margins rose, overall gross margin fell 20 basis points, to 28.6 percent of sales, on the negative impact of merchandise margins online as well as mark-to-market adjustment on hedging instruments.

Meyrowitz repeatedly raised notes of caution about the development of e-commerce, currently about 1 percent of revenues, or $300 million a year, both because of its impact on the bottom line and the ways in which it can be fit into TJX’s existing businesses.

“We love Sierra,” she said. “We’re learning a lot, but we’re going to do it slow because we do want to make money.”

Sierra, she said, is profitable, “but there aren’t a lot of e-commerce businesses out there that are making a ton of money….”

Beyond profitability, her concern is in using the e-commerce channel to help build a greater franchise with younger customers and also in realizing the omnichannel dream of having one channel complement the other.

“We’re focused on adding more brands and differentiating the selection [online] from our stores to drive traffic in both directions,” she said. “We are seeing most returns coming to our stores, which is a great way to enable us to introduce online shoppers to our physical store.”

Stifel Nicolaus analyst Richard Jaffe applauded the “slow and deliberate approach” embraced by TJX “to ensure that online growth is incremental to the company’s brick-and-mortar business.…Management views e-commerce as both defensive — needed to compete in today’s omnichannel retail market — and offensive — [it] attracts new customers and drives traffic to stores as customers return over 70 percent of their online merchandise to stores.”

He reiterated his “buy” rating on the stock while raising his price target to $70 from $65.

In the three months ended Aug. 2, the Framingham, Mass.-based off-price giant generated net income of $517.6 million, or 73 cents a diluted share, 7.9 percent above year-ago profits of $479.6 million, or 66 cents. Excluding a 2-cent charge to cover the early extinguishment of debt, adjusted earnings per share were 75 cents, 2 cents better than analysts, on average, had expected.

Revenues rose 7.4 percent to $6.92 billion from $6.44 billion a year ago. The consensus estimate was for sales of $6.88 billion.

The company now expects third-quarter earnings in a range of 81 to 85 cents a diluted share based on comp growth of between 1 and 2 percent. For the full year, adjusted EPS is forecast at $3.10 to $3.18. When the company reported first-quarter results in May, the full-year projection was set at $3.05 to $3.17.

Meyrowitz expressed confidence in the company’s plans for the fourth quarter, including a marketing campaign that will generate more impressions without an increase in the percentage of sales allotted to marketing.

In the first half, net income was up 4.2 percent to $971.9 million, or $1.37 a diluted share, while sales rose 6.1 percent to $13.4 billion.

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