The off-price retailer, parent to the T.J. Maxx, Marshalls, Sierra, Homesense and HomeGoods brands, reported quarterly and full-year earnings Wednesday morning before the market opened, falling short on both top and bottom lines thanks to continued lockdowns and store closures around the globe. The stock closed down 0.73 percent to $69.72 a share Wednesday as a result.
The company, a fan favorite among consumers for its treasure hunt-like in-store experience, estimated the store closures cost it between $950 million and $1.05 billion in lost revenues during the quarter.
Even so, Ernie Herrman, chief executive officer and president, is optimistic about the firm’s long-term potential.
“I am very pleased that our fourth quarter open-only comps were down only 3 percent, exceeding our plans,” Herrman said in a statement. “Our brands, values and exciting fit assortments resonated with customers, and we achieved these results despite numerous COVID-19-related headwinds. Overall open-only comp store sales improved each month of the quarter and were positive in January.
“Further, open-only comp store sales exceeded our plans across each of our divisions, including HomeGoods, which once again delivered a double-digit increase,” he continued. “We also saw continued strength in our home and beauty departments. As we start the new fiscal year, while uncertainty around COVID-19 remains, we feel very good about the strength of our business and our market share opportunities beyond the health crisis. We are convinced that our entertaining, treasure-hunt shopping experience, our differentiated, branded merchandise selections and value proposition will continue to resonate with consumers. We see many opportunities to leverage our flexible business model, gain more customers and continue driving successful growth of TJX for many years ahead.”
Simeon Siegel, managing director and senior retail analyst at BMO Capital Markets, rated the stock “outperform” despite the company’s near-term expected results.
“The reasons for owning TJX were never for the fourth quarter and as stores do open, we continue to expect TJX to become increasingly important to both shoppers and vendors, driving meaningful long-term share opportunity,” Siegel wrote in a note.
Total revenues for the three-month period ending Jan. 30 were $10.9 billion, down from $12.2 billion a year earlier. For the year, sales were more than $32 billion, compared with about $41.7 billion during the same period a year earlier.
The retailer logged profits of $325 million for the most recent quarter, compared with nearly $985 million during 2020’s fourth quarter as a result. For the year, profits were $90.5 million, down from more than $3.2 billion a year ago.
By brand, HomeGoods was the bright spot, with open-only comp store sales up 12 percent for the quarter and 13 percent for the year. The home furnishings store registered more than $2.2 billion in net sales for the quarter, up from $1.9 million the same time last year, as consumers continue to hunker down at home amid the pandemic. Herrman added on Wednesday morning’s conference call with analysts that the home goods category across all of TJX’s brands accounted for nearly 40 percent of the company’s overall sales in 2020, up from 33 percent in 2019.
The retailer plans to increase the HomeGoods store fleet to approximately 1,500 over the long term, up from about 821 currently, and launch homegoods.com later this year.
This is despite the fact that store closures continue to be a major headwind in the era of social distancing. The company, which has 4,572 stores around the globe, estimated stores in Europe were closed more than 60 percent of the recent quarter, while stores in Canada were closed more than 30 percent.
As of Wednesday, the company has about 690 stores temporarily closed in response to the pandemic, the majority of them in Europe. TJX anticipates its store fleet to be closed for about 11 percent of the current quarter.
But the uncertainty around store closures hasn’t deterred the retailer’s plans to open more physical stores in the next few years.
“We’re prepared to take advantage of the terrific real estate availability that we are seeing across each of our geographies and continue our global store growth,” Herrman said on the call. “With the increase in-store closures by some other retailers, we are in an excellent position to open new stores in some of our target markets. Further, we see additional opportunities to relocate existing stores to more desirable locations and to seek out more favorable terms when leases expire.
“Sometimes, we aren’t in the most happening shopping centers,” he continued. “And many times we have found that some of our best uses of capital have been relocations.”
The firm plans to add about 122 net new stores in fiscal year 2022, upping the store fleet to approximately 4,700 stores, or by about 3 percent. That also represents a capital expenditure between $1.2 and $1.4 billion for new store openings, remodels, relocations and investments in the distribution network and infrastructure during the same time period.
“Our convenient off-mall locations in urban, suburban and rural locations is an advantage as this allows us to reach a very wide customer demographic,” Herrman said. “In the U.S., roughly 80 percent of consumers are within 10 miles of one of our stores. This makes it very easy for shoppers to visit our stores. We expect to see incremental traffic increases once consumers return to their workplaces and go out more, as they will be passing by our stores much more frequently.
“Customers tell us that part of the reason they shop with us is for some stress relief, particularly during these times and to get some ‘me time’, [a trend] which we expect to continue into the future,” he added.
Meanwhile, headwinds include continued pressures on supply chain, wages and freight.
The company ended the quarter with $4.3 billion in total inventories, compared with $4.9 billion the same time last year.
“There’s definitely more apparel out there than we would want to use across most every category,” Herrman said. “[But] we’re just feeling really balanced on the way our inventory levels are right now heading into February and into March across every division. The only place that we are not happy is in Europe where we’re closed because, clearly, we have inventory there, and we can’t do anything in terms of selling it.”
The retailer ended the quarter with more than $5.3 billion in long-term debt and $10.4 billion in cash and cash equivalents. TJX is not providing forward-looking guidance, but expects total sales, pretax margins and earnings per share to be negatively impacted during the first quarter of fiscal year 2021. Shares of TJX are up approximately 16.7 percent, year-over-year.
“We lift our 12-month [price] target by $10 to $85, 27 [times] our newly-initiated [full year] 2023 [earnings per share] estimate of $3.15, higher than TJX’s 3-year historic average, reflecting market share gains as manufacturers’ choice of wholesalers dwindles (2020 bankruptcies near 10-year highs), which will likely further solidify TJX’s bargaining power,” Aaron Siegel, vice president at MacMillan, wrote in a note. “While COVID-19 survivors (dept stores) have been forced to drastically cut expenses, ultimately poorly positioning them to capitalize on secular changes in consumer behavior, TJX has had the luxury of playing offense, creating sustainable competitive advantages via investments in store growth and better bridging gap between bricks and clicks.”