PRUDENCE PAYS DIVIDENDS FOR TJX

Byline: Vicki M. Young

NEW YORK — The TJX Cos. Inc. on Tuesday said its board approved a 14 percent increase in the firm’s common- stock dividend — to 16 cents per share annually — reflecting management’s “confidence” in the company’s future earnings potential.
The hike raises the dividend to 4 cents per share per quarter from 3.5 cents per share per quarter, or 14 cents annually. The newly increased rate is payable on June 1 for shareholders of record as of May 11.
Bernard Cammarata, chairman and chief executive officer, said in a statement, “Fiscal 2000 was a year of record sales and earnings for The TJX Companies. We are pleased to announce this dividend increase, which reflects our confidence in the company’s ability to continue our strong performance and to grow earnings in the years ahead.”
In 1999, TJX earned $521.6 million, or $1.64 per share, against $423.8 million, or $1.27 per share, in 1998. Sales rose 11 percent to $8.8 billion.
As previously reported, Cammarata, who launched T.J. Maxx in 1976 and built it into the biggest and most successful off-price operation in the country, is stepping down as ceo on April 17. Edmond English, a close associate, will be taking over the reins. The 46-year-old English will also continue as president and a board member, directing the ongoing growth and day-to-day operations. The 60-year-old Cammarata will continue as chairman and will remain active in the company by concentrating on strategic directions.
The off-pricer sells apparel and home fashions in the U.S. and abroad. The retailer operates 634 T.J. Maxx, 508 Marshalls, 52 HomeGoods and 15 A.J. Wright stores in the U.S. It operates 101 Winners sites in Canada and 55 T.K. Maxx stores in Europe. Although the firm mainly targets the middle-income consumer, its A.J. Wright concept focuses on moderately priced merchandise for a lower-income clientele.
Last month, TJX’s board also authorized a stock repurchase program of up to an additional $1 billion of its common stock under a multiyear program. At current prices, this would represent approximately 16 percent of the company’s outstanding common shares. In addition, an earlier $750 million stock repurchase program, begun in October 1998, has been completed. A total of 30.4 million common shares were purchased under this program.
At the time that the second stock repurchase was announced, Cammarata said that another large share repurchase program was warranted, given the firm’s “strong cash position, capital structure and earnings growth.”
Several investment firms also seem to agree on the growth prospects for the off-pricer.
A research report issued last week by analysts at Robertson Stephens concluded that TJX has “significant opportunities for future store growth in not only its smaller divisions but also in its core T.J. Maxx and Marshalls divisions.” The firm said that store growth should aid in further leveraging the company’s operating infrastructure, yielding ongoing earnings growth of at least “20 percent if not better.”
“The company’s recently announced stock buyback plan is also encouraging, enabling management to repurchase shares should it be appropriate,” the report continued, reiterating a previously issued “buy” rating.
TJX’s recent report of 1 percent same-store sales growth in March appears largely due to sales being impacted by the Easter calendar shift, Robertson Stephens said. The investment firm added, “Weakness in dresses, men’s and women’s career offset the strengths in non-apparel and casual wear…. We believe inventories are in excellent shape, as levels are even with last year with the Easter holiday still in front of us. The company has a very fluid open-to-buy position that should help them in sourcing the right merchandise to stores at the right time at value prices.”
Based on company guidance, analysts at Robertson Stephens are expecting a comp-store increase of 7 percent in April to offset March’s shortfall.
Marcia Aaron of Deutsche Banc Alex. Brown is also predicting double-digit earnings growth of 15 to 20 percent annually over the next three to five years. Growth in 2000 will be driven by a 10 percent increase in the store base, modest same-store sales growth and continued improvement in operational efficiency. Last month, she upped her earnings per share estimate for 2000 to $1.92 from $1.90 based on the stronger growth outlook and increased share-repurchase activity.
Richard Jaffe at PaineWebber wrote in a research report last month, “We believe that TJX can grow earnings at 18 percent, fueled by both the near-term benefits of the company’s leadership role in the consolidating industry and the compelling growth opportunities for the new businesses long term…. Our 12-month target price is $40.”
Jaffe added, “We are encouraged by the recent promotion of Carol Meyrowitz to executive vice president [of] merchandising of the Marmaxx group. We anticipate that it will be repositioned to include more attractive moderate offerings, building on her expertise.” Meyrowitz had been a merchandiser at Chadwick’s of Boston.
However, Jaffe cautioned that among the risks for TJX is the possibility that department stores might become more promotional because of slower-than-planned sales. Such a scenario would create a more competitive environment for TJX.
In a report issued last month on specialty retailers, analysts at Bear, Stearns & Co. also pointed to the same possibility:
“We look for TJX to counteract the threat posed by department stores by leveraging the power of its merchandising and buying organization. In our view, TJX’s growing merchandise needs will lead to greater purchasing efficiencies…. We regard TJX’s ability to maintain clean inventories as a key competitive advantage.”
The Bear, Stearns’ analysts expect TJX to remain a dominant player in the $20 billion to $25 billion off-price family apparel industry. “We expect TJX to continue growing its core [Marmaxx] division, while also benefiting from economies of scale as it expands its smaller Winners, HomeGoods, T.K. Maxx and A.J. Wright concepts,” the report said.

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