While there’s little doubt that a stronger economy and full employment are increasing the size of paychecks, those consumers aren’t necessarily spending any more of their income on more expensive clothes. Off-price apparel retailer TJX Companies Inc (NYSE:TJX) reported yet another solid quarter on Wednesday morning, pushing TJX Companies stock higher by 7%.
Will the discounted clothing craze ever slow down now that the dreary clouds of the lethargic economic recovery are letting some light through? Probably not. Hooked on bargains and unimpressed by overpriced and overbranded apparel, the all-important millennial crowd is still content with lower-priced goods. That’s a cultural, generational shift that isn’t apt to change anytime soon.
Besides, TJX has an ace up its sleeve.
TJX Earnings Recap
For the quarter ending in January, discount apparel retailer TJX Companies — which owns TJ Maxx, Marshalls and a handful of other retail venues — drove sales of $10.96 billion, topping expectations of 10.76 billion, and leaving the year-ago top line of $9.47 billion in the dust.
Earnings of $1.19 per share missed expectations for a profit of $1.28 per share of TJX Companies stock, but same-store sales growth of 4% was more than enough to make the market forget about the profit shortfall. Sales and profits were up for all of the retailer’s geographic and segment divisions.
CEO Ernie Herrman commented on the fourth quarter numbers “We are very pleased with our strong finish to 2017! In the fourth quarter, our consolidated comp store sales increase of 4% and adjusted earnings per share both meaningfully exceeded our expectations. Once again, customer traffic was up overall and the primary driver of our comp sales increases at each of our four major divisions, as customers responded to our great brands and compelling, eclectic mix of merchandise at excellent values.”
Firing on All Cylinders
Although the so-called retail apocalypse at least partially brought on by the advent of Amazon.com, Inc. (NASDAQ:AMZN) proved problematic for traditional retailers like Macy’s Inc (NYSE:M) and J C Penney Company Inc (NYSE:JCP), discounters and off-price venues like TJ Maxx, Marshalls and rival Ross Stores, Inc. (NASDAQ:ROST) remained surprising success stories.
Indeed, one of the key reasons Macy’s mustered its first decent results in nearly three years last quarter was the addition of 30 more Backstage stores-within-stores… the iconic company’s answer to the likes of Ross Stores and TJ Maxx.
Still, nobody does discount retailing quite as well as TJX Companies, allowing the organization to make investments that will keep it at the proverbial top of the heap. Herrman went on to say “Our business continues to generate tremendous amounts of cash and excellent financial returns. In addition, with the recent changes in U.S. federal tax law, we expect a significant increase in cash flow. A substantial use of this cash is reflected in our plan to increase our regular quarterly dividend and share buyback program while simultaneously reinvesting in the business.”
The dividend increase was a big one too, with the quarterly payout growing 25% to 39 cents per share of TJX Companies stock. The retailer also aims to repurchase between $2.5 billion and $3 billion worth of TJX stock by this time next year.
Employees will benefit too. Not only will workers see improved vacation and parental leave benefits, many of them will be receiving bonuses and/or larger contributions to their retirement plans.
Looking Ahead for TJX Companies Stock
For the quarter currently underway, TJX anticipates per-share profits of between 85 and 87 cents, up from the year-earlier total 82 cents per share of TJX Companies stock, and driven by same-store sales growth of between 1% and 2%.
For the full year, TJX expects the same rate of same-store sales growth to drive an operating profit of between $4.00 and $4.08 per share of TJX Companies stock. The retailer earned $3.85 per share in the recently-completed year.
The company’s outlook arguably underestimates how well TJX will do this year.
Yes, late last year Wells Fargo cautioned that Amazon, which has quietly been in the clothing business for a while, would likely outsell Macy’s and TJX in 2017 after turning up the heat on its apparel business. It’s clear cause for concern. Stores like TJ Maxx and Marshalls have an edge, however, that could and should keep them going strong. That is, the “treasure hunt” experience… the joy of finding a must-have item a shopper wasn’t necessarily expecting to find. Amazon.com simply isn’t built to provide that kind of delight.
In fact, even the retailers wading into discounted merchandise waters don’t do it as well as TJX can, and it’s unlikely that a rebounding economy will alter consumer preferences for bargains.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.