The TJX Cos. Inc. has never been sexy, but it sure seems safe — and right now that’s all Wall Street appears to want.
Retail investors have seen their already low expectations dashed after a dismal start to the year, sending depressed stocks even lower. When TJX reports its first-quarter results today, investors are expecting modest growth — a 2 percent gain in profits to $518 million and a 4.5 percent rise in sales to $7.9 billion — but mostly they’re looking for no surprises.
The proof is in the off-price giant’s market capitalization: $49.6 billion.
While that might seem to be almost a rounding error in Apple Inc.’s valuation of $812 billion or Amazon Inc.’s valuation of $458 billion, it puts TJX in rare company among its peers. In the retail world of 2017, the company, parent to T.J. Maxx and Marshalls, is worth more than twice all of the major department stores combined.
By comparison, the value of the all the shares of Macy’s Inc. ($7.1 billion), Nordstrom Inc., ($6.9 billion), Kohl’s Corp. ($6.4 billion), Dillard’s Inc. ($1.5 billion), J.C. Penney Co. Inc. ($1.3 billion) and Sears Holding Corp. ($890 million), adds up to just $24.1 billion.
TJX used to make do buying in-season goods that weren’t selling from other retailers, cutting price and moving inventory quickly through jumbled stores that gave shoppers both a sense of deep value and a treasure hunt vibe. Now more vendors rely on sales directly to the company’s 3,812 doors worldwide and it is no longer at the fringes, but driving the conversation — if not on the style front than in retail, where its mix of experience and value is one of the few recipes that’s working in the Millennial age.
And TJX isn’t the only retailer benefiting from Wall Street’s love affair with the off-price sector: Rival Ross Stores Inc. has a market capitalization of $24.4 billion and Burlington Stores Inc.’s valuation stands at $6.9 billion. Meanwhile, department stores Saks Fifth Avenue, Nordstrom and Macy’s have all gotten into the game.
Although TJX stands more on its own than it did in the past, there’s still a symbiotic relationship between department and other full price retailers and the off-price channel. Department stores still clear goods through off-pricers and the traditional retailers offer shoppers a point of comparison that make the T.J. Maxx prices all the more attractive.
“As long as there’s some version of a full-price channel, we can rely on the fact that retailers will always over order,” said Simeon Siegel, an analyst at Nomura Instinet. “When trends come, there will be excess product.”
Full-price retailers lose stature if they jam too much into their stores or cut prices too much, that opens the door to off-pricers such as TJX.
“Off-pricers operate in this beautiful world where the customer is not allowed to have expectations [besides getting a] great value,” Siegel said. “They’re not allowed to have expectations of what they’re going in for.”
The success of TJX is proof positive that consumers do indeed like retail despite the massive growth of online shopping.
“The off-price channel wins because they don’t have e-commerce, not in spite of it,” Siegel said. (TJX does have an e-commerce business, but it’s not the overriding initiative that it is at so many other chains).
While TJX’s success with investors has given it a big market cap advantage, its lead on the top line isn’t quite as commanding.
The off-pricer’s sales are expected to rise to $35.6 billion this year from $33.2 billion in 2016 — an impressive top line, but not an overwhelming one. Macy’s has just 14 percent of TJX’s market cap, but with sales of $25.8 billion, the department store’s top-line take equals 78 percent of the off-pricer’s revenues.
On Wall Street, Siegel said “consistency is the new growth” and investors are paying up for a steady performance the way they used to focus on growth.
The company has proven resilient so far. While the rest of the retail sector struggled last year, the off-pricer’s chief executive officer Ernie Herrman crowed that TJX’s comparable-store sales were up 5 percent, driven primarily by increased customer traffic.
So while the first quarter has been tough for retailers from Macy’s to Nordstrom, investors expect TJX to stay steady.
“As many mall anchors and specialty retailers continue to close stores in 2017, we believe TJX has the potential to capture sales exiting the traditional mall environment,” said Credit Suisse analyst Christian Buss, who will be looking at the retailer’s first-quarter results to see if it can continue to outperform and protect its lead.
All of that is not to say TJX has a perfect story — it, too, is feeling the pressures of changing consumer shopping patterns and to maintain its growth. Still, it’s the best thing going.
“Although outperformance versus industry peers is likely, we remain cautious due to continued [selling, general and administrative] spending and more limited opportunities for market share capture with consumers shifting spending to e-commerce and fast fashion,” Buss said.
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