Current Price: $52 Price Target: $60
Position Size: 3.6% TTM Performance: 19%
TJX reported Q1 EPS and same store sales (SSS= sales at stores open >1yr.) that were better than expected. EPS was $0.57 vs consensus $0.55 and EPS guidance was raised. SSS were +5% vs consensus +3.6%. Full yr. SSS guidance of +2-3% was maintained. They plan to buyback 2.5-4% of their market cap this fiscal year. It has again been a very mixed quarter of results so far for retailers. KSS, JWN have stood out with weak results. TJX, along with other off-price retailers, continue to take market share.
Key takeaways:
· Traffic was again the biggest driver of SSS (SSS numbers do not include e-commerce).
· Core Marmaxx division (60% of revenue) delivered SSS growth of +6%. Remarkable performance given Marmaxx’s average age of their store base is 20 years old!
· International comp sales grew an impressive 8%. Despite the challenging retail landscape in Europe they continue to take share.
· Merchandise margin was down, but would have been positive ex-freight.
· Just launched e-commerce for Marshall’s.
· When asked on the call about the impact of tariffs they said they incorporated a minor impact in their guidance. “Historically, disruptions in the marketplace have created off price buying opportunities for us.”
· Chart below demonstrates TJX’s resistance to e-commerce and economic cycles. Despite the ramp in e-commerce share of retail over the last several years, of the companies listed below TJX is nearly half of aggregate incremental spend. The companies listed below represent ~$200B of the $275B in US apparel retail sales. Additionally, in the ’08 to ’09 period they were one of few retailers that continued to grow and post positive SSS.
Valuation:
· Balance sheet is strong. They have no net debt.
· Store openings will bolster top line growth. In 2020 they plan to add 230 net new stores, representing 5% store growth.
· They have been steadily FCF positive, even through the financial crisis they posted 3% FCF margins. LT FCF margins are ~7%.
· They plan to buyback 2.5-4% of their market cap this year (fiscal 2020).
· Valuation is reasonable at over a 4% forward yield.
· Increased dividend 18%… 23rd consecutive year of dividend increase. Dividend yield is 1.8%.
The Thesis on TJX:
· Market leader: opportunity to benefit from a lasting paradigm shift in consumer frugality. Treasure hunters – TJX has strong brands that attract cost conscious consumers– evident through consistently strong customer traffic.
· Strong bargaining power with suppliers due to size.
· Quality: Solid and consistent execution and top line growth driving strong margins through cost cutting/inventory control.
· Shareholder returns: Strong returns (ROE +50%) balance sheet and cash flows being used for share buyback program, dividend, and store expansion.
$TJX.US
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Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109
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