Current Price: $54 Price Target: $70
Position Size: 3.5% TTM Performance: 3.5%
Key takeaways:
· Revenue missed at $4.41B, -52% YoY. However, consensus number not that meaningful as the range of estimates was incredibly wide w/ some seemingly not updated.
· Prior to the pandemic, SSS trends were strong.
· They have begun re-opening stores (1600 so far) and say most stores could be re-opened by the end of June.
· Strong re-openings. Stores that have opened have seen increased volumes YoY.
· Seeing plentiful off-price buying opportunities
· Committed to resuming dividend payments
· No guidance
Additional Highlights:
· Pre-virus trends: February SSS were +5% driven by higher traffic. All 4 major divisions had a February comp increase of 5% or better. Strong comp trend continued into the first week of March
· Virus response: They closed stores in all nine countries and their online shopping sites as well as their distribution centers, and offices around the world. On April 11 they temporarily furloughed the majority of their hourly store and distribution center associates in the US and Canada and took comparable actions with parts of their workforce in Europe and Australia. They started out w/ a strong balance sheet, but took additional steps to maintain their liquidity and flexibility – they halted their dividend, drew down $1B of their credit facility and raised $4B in debt at the end of March. They don’t expect to issue a dividend in Q2 either, but remain committed to their dividend long-term.
· Rent: they paid most of their rent through April. However, they have worked with many of their landlords and negotiated deferral of some of their April rent and a meaningful portion of their 2Q rent payments, until later dates.
· Re-openings: they have reopened >1600 stores worldwide (of their >4500 stores). Stores in mainland Europe including Germany, Poland, Austria, and the Netherlands are open and stores in Australia are open. In the US, they’ve fully or partially reopened in 25 states.
o “for the 1,100 plus stores that have been open for at least a week, sales overall have been above last year across all states and countries where we are open.”
o “In our early results, we are seeing very strong demand at HomeGoods and in our home categories across all of our banners.”
o “in this environment, we believe more consumers may discover our e-commerce sites, which could also drive additional visits to our stores as historically the vast majority of returns from our online sites have gone to our stores.”
· Inventory: The marketplace is loaded with inventory which is an opportunity for them. They are taking markdowns on seasonal stuff, to clear through some of their own inventory. But they stand to benefit as they can be opportunistic in the current environment for goods that they can flow into stores now and goods that they can packaway. The inventory situation broadly is unprecedented. In fact it’s causing vendors to pack-away some inventory for next year as some inventory in the channel never even made it to stores. This is a new dynamic given how severe the situation is and bodes watching going forward.
· Valuation: The stock has recovered from troughs and is now down ~10% YTD. Valuation reasonable at >4% FCF yield on 2019.
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]