The TJX Cos. Inc.’s “brands for less” strategy continued to pay dividends in the second quarter, lifting profits above expectations and the off-pricer’s shares more than 7 percent.
The strong forward motion Tuesday had some analysts wondering if its wide-ranging investments in e-commerce and globalization — combined with difficult performance comparisons in the future — might make future stock appreciation difficult.
But there were no signs of bearishness on Tuesday. Shares ended the day up $5.17, or 7.2 percent, at $76.78 after hitting a 52-week high of $76.93 in afternoon trading.
In the three months ended Aug. 1, the Framingham, Mass.-based retailer’s profits were up 6.1 percent to $549.3 million, or 80 cents a diluted share, from $517.6 million, or 73 cents, in the prior-year period. The consensus estimate was for earnings per share of 76 cents.
Revenues were up 6.5 percent to $7.36 billion from $6.92 billion in the year-ago period as comparable-store sales rose 6 percent company-wide and were up 4 percent at the Marmaxx division, which houses T.J. Maxx and Marshalls and 9 percent at HomeGoods.
The consensus estimate for revenue was $7.25 billion.
Carol Meyrowitz, chairman and chief executive officer, said that both EPS and comps exceeded internal expectations.
“It was great to see that comp sales were entirely driven by customer traffic, our fifth consecutive quarter of sequential traffic improvement, and that we had strong sales across all divisions,” she said.
Gross margin rose 50 basis points from a year ago to 29.1 percent of sales.
The company lifted its full-year forecast to a range of $3.24 to $3.28 a diluted share while lowering third-quarter forecasts to between 80 and 82 cents based on foreign exchange concerns.
Stifel Nicolaus analyst Richard Jaffe attributed the reduction in the third-quarter estimates to “foreign currency, investments in employees (higher wages, incremental investments to support growth and pension costs).” The pressure on currency is expected to be more severe due to the continued decline in the Canadian dollar. TJX operates Winners, HomeSense and Marshalls in Canada.
The earlier consensus estimate for third-quarter EPS among analysts was for 89 cents a share.
While impressed enough to describe TJX as “best in show” in the rapidly expanding off-price arena, Jefferies analyst Randal Konik maintained his “hold” rating on the stock, saying there was “limited near-term upside to earnings” as the company focuses on building its e-commerce platform, adjusting to pricing and mix shifts, growing its store base and expanding internationally.
He did raise his price target for the stock to $80 from $68, barely enough to include the upward movement in price Tuesday.
Commenting on the recent move to acquire Trade Secrets, he said there could be “additional strategic acquisitions to accelerate growth overseas” given its strong cash position and ability to integrate acquisition.”
Still, he believes those possibilities are already built into the price of the stock.
“We believe [Wall] Street will look beyond Q3 guidance and the stock will likely trade up on Q2’s strong results, similar to what the Street did in the last two quarters when management established below-consensus guidance,” Jaffe said as he reiterated Stifel’s “buy” rating on the stock.
TJX agreed to acquire Trade Secrets, a 35-unit Australian off-pricer, from Gazal Corp. Ltd. for 80 million Australian dollars, or about $58.7 million, in July.
On a morning conference call with analysts, Ernie Herrman, president of TJX, noted that it is the only off-price retailer in Australia and has consumer demographics similar to those of Canada. “We see the potential to grow in Australia in a similar way to acquiring Winners as a five-store chain in 1990 and growing it into a leading retailer in Canada,” he said.
Winners now operates 240 stores.
Comps for TJX’s Canadian operations advanced 12 percent in the second quarter, although reported sales of $699 million were squeezed by the Canadian dollar’s fall.
Herrman added that TJX has had a buying office in Australia for the past five years and a knowledge of both the market’s customers and vendor base. He indicated that TJX would selectively remodel “some” of the existing stores.
“As you can imagine, I think culturally, it’s a pretty seamless entry for us,” he said.
In the year’s first half, net income rose 5.3 percent to $1.02 billion, or $1.49 cents a diluted share, from $971.9 million, or $1.37. Revenues picked up 6.1 percent to $14.23 billion from $13.41 billion.