Having withstood the worst impacts of recent slowdowns in consumer spending, The TJX Cos. Inc. sees opportunity as fast-fashion retailers and new contender Primark continue their aggressive pursuit of American consumer spending.
In response to an analyst’s question during a Tuesday morning conference call, Carol Meyrowitz, chief executive officer of the nation’s largest off-pricer of apparel and home goods, characterized the new entrants as being an aid in TJX’s own quest for traffic.
“We love being next to Primark and fast-fashion stores because it really just drives the traffic, along with the other off-pricers,” she said. “So it just creates a mecca for us.
“I don’t worry about who we’re near. I’m happy for anybody who brings traffic,” she added.
Traffic played the biggest role in TJX’s first-quarter results, which rose above analysts’ consensus estimates for both profits and sales as the Framingham, Mass., firm raised full-year guidance.
“It was great to see that, similar to last quarter, comp sales were almost entirely driven by customer traffic and we had a significant increase in units sold,” said Meyrowitz. “At the same time, we also saw a strong increase in our merchandise margins.”
Same-store sales rose 5 percent overall in the quarter ended May 1, with the Marmaxx division, consisting of T.J. Maxx and Marshalls, up 3 percent.
Overall in the quarter, TJX’s net income grew 4.5 percent to $474.6 million, or 69 cents a diluted share, from $454.3 million, or 64 cents, in the year-ago quarter. The consensus estimate among analysts was for EPS of 67 cents.
Revenues were up 5.8 percent to $6.87 billion from $6.49 billion, above the $6.8 billion expected, on average, by analysts. Gross margin improved to 28.3 percent of sales from 27.9 percent in the 2014 period.
The Marmaxx division saw net sales increase 6.2 percent, to $4.5 billion. HomeGoods sales rose 16.3 percent to $880.2 million with comps up 9 percent.
TJX Canada’s sales picked up 1.9 percent to $620.2 million and TJX Europe declined 2.4 percent to $869.8 million. Comps in Canada rose 11 percent and those in Europe were up 3 percent. TJX measures comps outside the U.S. in local currency, eliminating the effect of currency fluctuation, while net sales in Canada and Europe reflect currency swings, which led to a stronger dollar against local currencies in the period.
On the basis of its first-quarter results, TJX raised projections for full-year profits to a range of $3.21 to $3.27 a share and its expectations for comps to an increase of between 2 and 3 percent. At the close of the last fiscal year, EPS was expected to range from $3.17 to $3.25 and comps to rise between 1 and 2 percent.
TJX continued to benefit from wide availability of merchandise, as it has continued to do in the second quarter. Ernie Herman, president of the company, noted, “The availability of goods in the market has been significant. Some of that could be a ramification of business around the environment not being as strong. I would say, secondly, we just have gone with the playbook, like Carol said we normally do. We’ve had good liquidity, good open to buy and we have a lot of availability.”
Shares of TJX rose 2.9 percent to $69.19, in New York Stock Exchange trading Tuesday.
Sterne Agee analyst Ike Burochow maintained his “neutral” rating and $66 price target on the stock, noting that valuation is near its high and EPS growth is “becoming more moderate.”
“We believe that despite the company’s strong fundamentals on the top line, that valuation appears fair given the lower-growth profile of the business as it continues to reinvest in margins in an effort to continue taking share.”