Current Price: $73 Price Target: $83
Position Size: 3.7% TTM Performance: 30%
Key takeaways:
- Very positive call; seeing robust demand – Better than expected SSS drove revenue and EPS beat. Sales up 20% and profits up 23% vs the same period pre-pandemic. “Open-only” SSS were +14%. These open-only comp store sales compare FY22 sales (this fiscal yr.) to FY20 sales (calendar 2019). Strong trends are continuing into the current quarter with QTD SSS trending up mid-teens.
- They have an inventory advantage in the current retail environment – unlike other retailers, they have plenty of product that they are continuously flowing to their stores (immense buying, planning, logistics teams, strong vendor relationships and flexible/high inv. turn model all aid this) and positioned to take advantage of inventory opportunities (i.e. packaway) that may arise from the disruption in the supply chain.
- Positive margin commentary – Freight and wage pressure is being more than offset by operating leverage on higher sales and higher merchandise margin (driven by multiple factors including taking price in select categories). When freight pressures abate, margins will expand.
- Home category continues to be “off the charts” and launched HomeGoods e-commerce site in September
- Seeing extremely plentiful inventory buying opportunities – “we can’t emphasize this enough, availability of quality branded merchandise is excellent, and we’re confident that we have plenty of inventory in our stores and online for the holiday season.”
Additional Highlights:
Quotes from the call…
- Gaining share:
- “Our flexible model has been a tremendous advantage in this environment. We’ve been able to expand and contract categories and merchandise in our stores, so that customers have full racks and shelves to shop when they visit”…”most of the inventory we need for the holiday season has already been delivered to us or is scheduled to arrive in stores and online in time for the holidays.”
- “one of the things that’s happened in COVID is TJX, I believe, when you look at all the branded vendors in the market, we are probably more important today than we’ve ever been. We’re probably more important to the market place than we were pre-COVID. When you look at the amount of volume that we’re doing.”
- Inflation:
- “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.”
- “ We believe our top line initiatives can lead to outsized sales which is our best opportunity to offset some of the persistent cost pressures we face.”
- On inventory opportunity in current environment:
- “as we come out of holiday we could see a tremendous amount of packaways based on the supply chain challenges the whole markets going to run into. And if they end up with some late deliveries that don’t make it in for Christmas, which is very possible… if they didn’t plan their cadence correctly, then I think that is going to spill off a great opportunity for us to have increased packaways for next year — for next fall that we would be buying this January-February and I’m anticipating that could be a huge benefit to us.”
- On their business model & current environment: “we’re close out-driven…we, in-season, hand-to-mouth, by a bulk of what we do. We buy very opportunistically that way…[] Retail is pretty strong out there obviously… []…and for a lot of the public company brands that are wholesalers, it allows them — they want to keep chasing that business with their more regular price accounts – it allows them to get bullish knowing that we’re always there on the backside for the excess inventory…..We always like it when everyone’s business is good in this environment. As we go to next year, I think you’re going to see a lot of wholesalers, now stepping out to be a little more bullish on their upfront orders for those retailers knowing that they have TJX later for the cleanup, so to speak. So, I think that whole piece, which is probably one of the biggest pieces of our business is looking forward to a tremendous opportunity as we move forward because of that dynamic.”
- Sales are tracking ahead of pre-pandemic levels…
- Overall sales were $12.5B, over $2 billion more than the same quarter pre-pandemic.
- Open-only comp sales vs pre-pandemic (fiscal 2020 but calendar 2019)
- Overall: +14%
- Marmaxx U.S. +11% – Home category similar to HomeGoods segment; apparel up mid-single digits (footwear & apparel are ~50%)
- HomeGoods U.S. +34%
- Canada +8%
- International +10%
- Higher merchandise margins continue to mitigate covid costs, higher wages and higher freight– Despite 160 basis points of incremental freight expense, higher merch margin led to a 30bps pre-tax margin increase vs fiscal ’20. They paid an appreciation bonus to store associates which should recede but expect freight to likely persist for the remainder of the year. HomeGoods margin is disproportionately impacted by freight increases due to its product mix.
- 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. Their immense buying, planning and allocation, logistics teams are helping them navigate the current environment. 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…and becoming even more important. 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, they’ve returned to their capital allocation program w/ dividend and buybacks and 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]