Current Price: $73 Price Target: $83 (raising from $75)
Position Size: 3.7% TTM Performance: 31%
Key takeaways:
- Better than expected SSS drove revenue and EPS beat. “Open-only” SSS were +20%. These open-only comp store sales compare FY22 sales (this fiscal yr.) to FY20 sales (calendar 2019).
- Positive margin commentary – Freight and wage pressure is being more than offset by higher merchandise margin (driven by strong inventory availability, rebounding sales and category mix shift). When freight pressures abate, margins will expand.
- Launching HomeGoods e-commerce site next quarter – overall, Home continues to be their strongest category/segment
- Apparel continues to rebound– this is a strong driver of SSS as apparel & footwear are about half of sales
- Seeing extremely plentiful inventory buying opportunities which bodes well for the future.
- International still weighed down by store closures – Canada, Europe and Australia each faced challenges with temporary store closures and occupancy restrictions
Additional Highlights:
Quotes from the call…
- Gaining share: “This presents an unusual opportunity for us to continue to gain more market share because of our branded content being really second to none.”
- Inflation benefit: “we are convinced that our relentless focus on value is a tremendous advantage. In an inflationary environment we believe even more consumers will be seeking out value. We are confident that our value position will be a very attractive option for consumers looking to stretch their dollars without sacrificing on quality and brands.”
- Strong demand trends: “we continued to see an increase in our average of basket across all divisions, driven by customers putting more items into their carts.”
- On inventory availability: “Our buyers are doing a great job sourcing merchandise and have been able to chase the goods we need to satisfy the current strong consumer demand. To reiterate, the availability of merchandise is excellent.”
- On their moat: “We’ve spent decades establishing relationships with vendors and landlords, and building out our global buying offices, distribution network, systems and infrastructure. Further, we have expansive country-specific knowledge of consumer shopping habits, and have earned customer loyalty. We believe our well established global off-price retail model and level of international expertise is our tremendous advantage and our size and scale would be very difficult to replicate.”
- Sales are tracking ahead of pre-pandemic levels…
- Overall sales were $12.1B, over $2 billion more than the same quarter pre-pandemic. That includes $300-$350 million headwind due to temporary store closures during the quarter.
- Open-only comp sales vs pre-pandemic (fiscal 2020 but calendar 2019)
- Overall: +20%
- Marmaxx U.S. +18%
- HomeGoods U.S. +36%
- Canada +18%
- International +12%
- Higher merchandise margins continue to mitigate covid costs, higher wages and higher freight–They expect freight to likely persist for the remainder of the year. HomeGoods margin is disproportionately impacted by freight increases due to its product mix.
- Real estate and market share opportunity w/ retail store closures – better locations and lower rents. “Our relationships with vendors will grow even stronger as other retailers close stores.”
- Long-term thesis intact – Relative to other brick-and-mortar focused retailers, TJX continues to have a superior and very differentiated model. They acquire their inventory from an enormous (and growing) network of vendors, acting like a clearing mechanism for the retail industry…essentially opportunistically buying leftover/extra product that constantly flows from retailers, branded apparel companies etc. Growth of e-commerce has led to better inventory opportunities/ selection, not worse. They leverage their massive store footprint and centralized buying to merchandise their stores and e-commerce sites w/ current on-trend product. No one else does this at the scale they do. They have very quick inventory turns and can be nimble and re-active w/ their inventory buys and are an important partner to their sources of inventory. It’s a powerful model that continues to take share and, while they have a growing e-commerce business too, their store model has been very resistant to e-commerce encroachment. Moreover, they have a thriving Home business, a growing e-commerce presence, an expanding international store footprint and a track record of steadily positive SSS. Prior to last year, in their 44 year history they only had 1 year of negative SSS (this is unheard of!). So, with steadily positive SSS, a slowly growing store footprint and an emerging e-commerce business, TJX steadily grows their topline w/ consistent margins that are about double that of department stores.
- Valuation: Balance sheet continues to improve (reduced outstanding debt by $2.75B this year and lowered interest expense by >$90m), they’ve returned to their capital allocation program w/ dividend and buybacks. The valuation is reasonable at ~3.5% FCF yield on next yr.
Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109
$TJX.US
[tag TJX]
[category earnings]