Although a strong dollar and weaker margins cut into the TJX Cos. Inc.’s bottom line, the off-price giant delivered higher sales for the third quarter, and said it expects to grow the top line to $40 billion.
Investors cheered the results by sending the shares up 3.9 percent to $68.18, giving the company a market capitalization of $46 billion. Over the past year, the stock has traded as high as $76.93 and as low as $59.69.
Carol Meyrowitz, chairman and chief executive officer, said results “continued our excellent trend from the first two quarters and significantly exceeded our plans.” She said traffic was “excellent” and apparel, accessories and home goods delivered a “strong performance” during the quarter.
The retailer said sales for the quarter rose 5.3 percent to $7.75 billion from $7.37 billion in the same period last year as same-store sales gained 5 percent, which is on top of a 2 percent increase for the same period last year. Net income slid 1.3 percent to $587.3 million, or 86 cents a share, from $595 million, or 85 cents, in the prior year. Gross margins dropped to 29 percent, which is 0.4 percentage points below last year.
Profits came in above what analysts’ estimates had expected, according to Thomson Reuters. Top-line growth was particularly strengthened by robust comps in Canada, which swelled 10 percent in the quarter, and Europe, which showed a 7 percent gain. Still, the currency impact was significant.
“The movement in foreign currency exchange rates had a three percentage point negative impact on consolidated net sales growth in the third quarter of fiscal 2016 versus the prior year,” the retailer said in its report. “The overall net impact of foreign currency exchange rates had a [4 cents a share] negative impact on third-quarter fiscal 2016 earnings per share, compared with a [one cent] positive impact last year.”
The company said inventory levels were higher in the quarter, but that it was on plan due to the holiday shopping season. By way of outlook, the retailer said it expects fourth-quarter earnings to range between 91 cents and 93 cents, which compares to 93 cents last year. “This guidance reflects an assumption that the combination of foreign currency, transactional foreign exchange, the company’s wage initiative, incremental investments to support growth and pension costs would have a 9 percent negative impact on [earnings-per-share] growth,” the company said. “This guidance also reflects a negative impact to EPS from the acquisition of Trade Secret that was not contemplated in the company’s prior guidance.”
Australian-based Trade Secret was acquired this past October.
“Again this quarter, we saw strong sales at every division,” the ceo said, adding that the company’s “goal is to keep serving consumers and growing our market share around the world. To that end, we continue to balance growth with investments in our future to establish a strong foundation in the U.S. and internationally.”
Although Meyrowitz did not set a time frame, the ceo said she is confident the company can grow annual sales to $40 billion.
Ike Boruchow, senior analyst at Wells Fargo Securities, said the company’s results illustrate “the resiliency of their model despite a difficult backdrop in retail.”
The retailer noted that during the quarter, it added a net 133 stores. “All in, while any meaningful margin expansion/bottom-line growth is being held back by ongoing investments in their business, the spending is driving very strong comps — 5 percent or better comps each quarter in 2015 – and investors should pay a premium for that kind of top-line stability,” Boruchow said.