Times are tough for retail stocks these days. Whether a company is doing well or not depends very much on the company itself, and things can turn in a heartbeat. That’s one of the reasons why I avoid clothing retailers. However, TJX Companies Inc (NYSE:TJX) has been holding its own recently. Let’s look at its third-quarter earnings and parse the numbers — and see if we can figure out what separates TJX stock from its peers.
What Is TJX Stock All About?
First, what exactly makes up TJX stock, or TJX Companies, in the aggregate? There are four segments:
- TJX Canada
- TJX International
As a whole, the company covers all aspects of home life: family apparel, footwear, accessories, home basics, accent furniture, lamps, rugs, wall decor and jewelry. The Marmaxx segment includes the T.J. Maxx and Marshalls stores. Its other brands include HomeGoods, Winners, HomeSense, T.K. Maxx and Sierra Trading. TJX stock is a global company with over 3,800 stores in 9 countries.
In Q3, revenues increased 6% to $8.8 billion, leading to net income of $641 million. This translated to diluted earnings per share (EPS) of $1.00 on a GAAP basis, up 20%. On an adjusted basis, that’s a 10% increase over last year’s 91 cents. That’s a more accurate number, because last year’s results included an 8-cent charge for one-time events.
This trend was better than what we’ve seen from TJX stock over the first nine months of the year. Revenues came in at $25 billion, up 5%, leading to net income of $1.7 billion. Diluted EPS was $2.67, a 6% increase over the adjusted number from last year of $2.51.
What Do the ‘Comps’ Tell Us?
As you know, when it comes to retail, the single most important metric is comparable store sales. That tells us if more people went into stores and/or if a company has pricing power and/or if people are buying higher-ticket baskets.
The comps picture is, as a whole, not encouraging. Comps were flat compared to last year’s 5% increase for the quarter. For the first nine months, comps were up 1% compared to 5% last year.
Now, if we break the quarterly comps out, we find something interesting. First, the Marmaxx segment, with comps down 1% for the quarter, tells us what much of the retail world is telling us — clothing is not doing well, with limited exceptions. Negative comps is never a good sign. It means people are moving elsewhere to purchase clothes.
However, the HomeGoods segment saw a very nice 3% increase in comps. That’s a fine number for retail, and you’ll note that this is because of the different products being sold — home goods as opposed to clothes. This likely explains the 4% increase at TJX Canada and 1% increase in international comps.
Bottom Line on TJX Stock
So, where does TJX stock stand in the grand picture? While I’m not excited about 5-6% increases in net income, the better TJX news is that the company is aiming for $3.81 per share in diluted earnings, an 8% increase over last year.
However, unlike many other retailers suffering under heavy debt, TJX stock is in very impressive shape. While TJX carries $2.23 billion in debt, it is very cheap debt that costs only about 1.5% to carry. And, amazingly, TJX stock has a fantastic cash position: $2.875 billion in cash and investments. Operating cash flow is almost $2 billion, so there is no worry at all of a liquidity crunch.
This leaves TJX stock trading at 19 times earnings. The problem, as is usually the case in this market, is that I’m not going to pay a PEG (price/earnings to growth) ratio of 2.37 for a company growing at 8%.
TJX is in very solid shape for a retail company, but I won’t overpay just because of that.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance, and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years’ experience in the stock market and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.