Shares of TJX Companies jumped 7% at today’s open after the company made an exciting announcement about its first-quarter operating results. Let’s see what the fuss is all about and whether this off-price retailer is truly a bargain for investors.

Company Overview

A common misconception among U.S. shoppers is that off-price retailers T.J. Maxx and Marshalls are direct competitors. In actuality, both companies, as well as furnishing chain HomeGoods, are owned by parent TJX (NYSE:TJX), which is the largest international apparel off-price department chain in the country.

In addition, this company operates several chains in Canada and across Europe, most notably in the U.K., Ireland and Germany. At one point, the company also operated BJ’s Wholesale Club, but has since spun that business off. TJX Companies employs 168,000 worldwide and brought in $23.2 billion in Fiscal Year 2012.

Earnings Buzz

Before the opening bell today, TJX Companies announced strong top- and bottom-line growth for the first quarter. Compared with the same quarter last year, net sales climbed 11% to $5.8 billion; analysts predicted $5.75 billion in net sales, so the company posted a modest sales surprise.

Over the same period, net income jumped 58% to $419.2 million. Adjusted earnings weighed in at 55 cents per share, which topped the 54 cents per share consensus earnings estimate by 2%. Management, pleased with the growth in customer traffic, has raised its earnings guidance for FY 2013. The company currently expects adjusted earnings in the range of $2.27 to $2.37 per share, up from the prior guidance of $2.25 to $3.35 per share.

Industry Breakdown

There are currently 35 companies in the Department Stores Industry; of these, TJX Companies ranks eighth in terms of market cap. This company also stands out in terms of return on equity, which is the second highest in the industry, as well as its 1.1% annual dividend yield, which is fifth highest.

Additionally, TJX Companies’ long-term growth rate and Price/Earnings to Growth ratio both come in at no. 7. This company scores right in the middle in terms of sales and earnings growth. TJX Companies’ main competitors are Kohl’s (NYSE:KSS), Macy’s (NYSE:M), and Target (NYSE:TGT); of these four companies, TJX Companies has the lowest gross margin but the second highest operating margin.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. This time last year, TJX was a C-rated hold. However, starting last summer, buying pressure for TJX rose, sending this stock into buy territory, where it has remained for the past nine months.

Although buying pressure is this stock’s strongest suit, TJX has potential in terms of its fundamentals. The company has top-of-the-line earnings growth and return on equity, and is also strong in terms of its track record of analyst earnings revisions. However, there is definitely room for improvement in terms of sales growth, operating margin growth, cash flow, as well as its track record of topping earnings estimates.

So, this stock receives a B in terms of overall fundamentals and an A in terms of buying pressure, but it’s quite possible that today’s strong earnings report will improve the company’s Fundamental Grade.

Bottom Line: I consider this a fundamentally sound stock that has plenty of profit potential; this is an A-rated buy.

Recommendation: A-rated Buy

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