Off-price retail company TJX (NYSE:TJX) beat analysts' expectations in Q2 FY2024, with revenue up 7.73% year on year to $12.8 billion. The company also lifted its full-year revenue and EPS guidance. TJX made a GAAP profit of $989 million, improving from its profit of $809.3 million in the same quarter last year.
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TJX (TJX) Q2 FY2024 Highlights:
- Revenue: $12.8 billion vs analyst estimates of $12.4 billion (2.51% beat)
- EPS: $0.85 vs analyst estimates of $0.78 (9.38% beat)
- Free Cash Flow of $882 million, up 237% from the same quarter last year
- Gross Margin (GAAP): 30.2%, up from 27.6% in the same quarter last year
- Same-Store Sales were up 6% year on year
- Store Locations: 4,884 at quarter end, increasing by 148 over the last 12 months
Ernie Herrman, Chief Executive Officer and President of TJX, stated, “Our comparable store sales increase of 6%, pretax profit margin, and earnings per share all significantly exceeded our plans. Our overall comp sales growth was driven by customer traffic, which increased at every division. With our above-plan results, we are raising our full-year outlook for comparable store sales, pretax profit margin, and earnings per share... we are in an outstanding position to continue shipping fresh and compelling merchandise to our stores and online throughout the fall and holiday selling seasons. Going forward, we continue to see excellent opportunities to grow sales and customer traffic, capture market share, and drive the profitability of our company”.
Initially based on a strategy of buying excess inventory from manufacturers or other retailers, TJX (NYSE:TJX) is an off-price retailer that sells brand-name apparel and other goods at prices much lower than department stores.
Off-price retailers, which sell name-brand goods at major discounts because of their unique purchasing and procurement strategies, understand that everyone loves a good deal. Specifically, these companies buy excess inventory and overstocks from manufacturers and other retailers so they can turn around and offer these products at super competitive prices. Despite the unique draw lure of discounts, these off-price retailers must also contend with the secular headwinds of online penetration and stalling retail foot traffic in places like suburban shopping centers.
TJX is a behemoth in the consumer retail sector and benefits from economies of scale, an important advantage giving the business an edge in distribution and more negotiating power with suppliers.
As you can see below, the company's annualized revenue growth rate of 6.37% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre as it opened new stores and grew sales at existing, established stores.
This quarter, TJX reported solid year-on-year revenue growth of 7.73% and its revenue of $12.8 billion outperformed analysts' estimates by 2.51%. Looking ahead, the Wall Street analysts covering the company expect revenue to remain relatively flat over the next 12 months.
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Number of Stores
The number of stores a retailer operates is a major determinant of how much it can sell, and its growth is a critical driver of how quickly company-level sales can grow.
When a retailer like TJX keeps its store footprint steady, it usually means that demand is stable and it's focused on improving its operational efficiency to increase profitability. Since last year, TJX's store count increased by 148 locations, or 3.13%, to 4,884 total retail locations in the most recently reported quarter.
Taking a step back, the company has only opened a few new stores over the last eight quarters, averaging 2.48% annual growth in new locations. Although it's expanded its presence, this sluggish store growth lags other retailers. A flat store base means that revenue growth must come from increased e-commerce sales or higher foot traffic and sales per customer at existing stores.
A company's same-store sales growth shows the year-on-year change in sales for its brick-and-mortar stores that have been open for at least a year, give or take, and e-commerce platform. This is a key performance indicator for retailers because it measures organic growth and demand.
TJX's demand within its existing stores has generally risen over the last two years but lagged behind the broader consumer retail sector. On average, the company's same-store sales have grown by 5% year on year. Given its flat store count over the same period, this performance could stem from increased foot traffic at existing stores or higher e-commerce sales as the company shifts demand from in-store to online.
In the latest quarter, TJX's same-store sales rose 6% year on year. This growth was a well-appreciated turnaround from the 5% year-on-year decline it had posted 12 months ago, showing that the business is regaining momentum.
Key Takeaways from TJX's Q2 Results
Sporting a market capitalization of $98.6 billion, more than $4.55 billion in cash on hand, and positive free cash flow over the last 12 months, we believe that TJX is attractively positioned to invest in growth.
It was good to see TJX beat analysts' revenue and EPS expectations this quarter, driven by strong outperformance in same-store sales. That really stood out as a positive in these results. The company also lifted its full-year revenue and EPS guidance. Overall, this was a favorable quarter for TJX. The stock is up 2.39% after reporting and currently trades at $87.78 per share.
So should you invest in TJX right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.