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TJX (NYSE:TJX) Posts Q1 Sales In Line With Estimates


Full Report / May 22, 2024

Off-price retail company TJX (NYSE:TJX) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 5.9% year on year to $12.48 billion. It made a GAAP profit of $0.93 per share, improving from its profit of $0.76 per share in the same quarter last year.

TJX (TJX) Q1 CY2024 Highlights:

  • Revenue: $12.48 billion vs analyst estimates of $12.47 billion (small beat)
  • EPS: $0.93 vs analyst estimates of $0.88 (6.1% beat)
  • Gross Margin (GAAP): 30%, up from 28.9% in the same quarter last year
  • Free Cash Flow of $318 million, down 17.2% from the same quarter last year
  • Same-Store Sales were up 3% year on year
  • Store Locations: 4,972 at quarter end, increasing by 107 over the last 12 months
  • Market Capitalization: $110.6 billion

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.

For example, if department store Macy’s is left with a huge supply of winter coats because of an unusually warm winter, Macy’s may sell those in bulk to TJX at pennies on the dollar rather than discount the items and try to sell them individually. This is often done to clear floor space for a new season.

Because of TJX’s unique buying approach, shopping there is often a treasure hunt–what the consumer loses in reliable selection is made up for with low prices. TJX prices can be up to 50% lower than those of department stores. While the company was built on buying excessive or defective inventory, TJX is now large enough to buy directly from manufacturers. This had led to more consistent selection from brands such as Polo, KitchenAid, and Estee Lauder to name a few.

TJX operates under the brand names of T.J. Maxx, Marshalls, HomeGoods, Homesense, and Winners. The core customer is the value-conscious shopper who enjoys the thrill of the hunt. This is typically a middle-aged, middle-income woman willing to sift through racks in person to find deals because while TJX has an online presence, it is limited.

Discount Retailer

Discount retailers understand that many shoppers love a good deal, and they focus on providing excellent value to shoppers by selling general merchandise at major discounts. They can do this because of unique purchasing, procurement, and pricing strategies that involve scouring the market for trendy goods or buying excess inventory from manufacturers and other retailers. They then turn around and sell these snacks, paper towels, toys, clothes, and myriad other products at highly enticing prices. Despite the unique draw and lure of discounts, these discount retailers must also contend with the secular headwinds of online shopping and challenged retail foot traffic in places like suburban strip malls.

Off-price and discount retail competitors include Ross Stores (NASDAQ:ROST), Burlington Stores (NYSE:BURL), and Ollie’s Bargain Outlet (NASDAQ:OLLI)

Sales Growth

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 6.8% over the last five years was weak , but to its credit, it opened new stores and grew sales at existing, established stores.

TJX Total Revenue

This quarter, TJX grew its revenue by 5.9% year on year, and its $12.48 billion in revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 3.8% over the next 12 months, a deceleration from this quarter.

Same-Store Sales

Same-store sales growth is an important metric that tracks demand for a retailer's established brick-and-mortar stores and e-commerce platform.

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 2.5% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, TJX is reaching more customers and growing sales.

TJX Year On Year Same Store Sales Growth

In the latest quarter, TJX's same-store sales rose 3% year on year. This performance was more or less in line with the same quarter last year.

Number of Stores

The number of stores a retailer operates is a major factor of how much it can sell and its growth is a critical driver of how quickly its sales can grow.

When a retailer like TJX is opening new stores, it usually means it's investing for growth because demand is greater than supply. TJX's store count increased by 107 locations, or 2.2%, over the last 12 months to 4,972 total retail locations in the most recently reported quarter.

TJX Operating Retail Locations

Taking a step back, the company has generally opened new stores over the last eight quarters, averaging 2.6% annual growth in its physical footprint. This is decent store growth and in line with other retailers. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.

Gross Margin & Pricing Power

We prefer higher gross margins because they not only make it easier to generate more operating profits but also indicate product differentiation, negotiating leverage, and pricing power.

TJX's unit economics are higher than the typical retailer, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see below, it's averaged a decent 35.5% gross margin over the last eight quarters. This means the company makes $0.36 for every $1 in revenue before accounting for its operating expenses.

TJX Gross Margin (GAAP)

TJX's gross profit margin came in at 30% this quarter, marking a 1 percentage point increase from 28.9% in the same quarter last year. This margin expansion is a good sign in the near term. If this trend continues, it could signal a less competitive environment where the company has better pricing power, less pressure to discount products, and more stable input costs (such as distribution expenses to move goods).

Operating Margin

Operating margin is a key profitability metric for retailers because it accounts for all expenses keeping the lights on, including wages, rent, advertising, and other administrative costs.

This quarter, TJX generated an operating profit margin of 10.7%, in line with the same quarter last year. This indicates the company's costs have been relatively stable.

TJX Operating Margin (GAAP)

Zooming out, TJX has done a decent job managing its expenses over the last eight quarters. It's produced an average operating margin of 10.4%, higher than the broader consumer retail sector. On top of that, its margin has improved by 1 percentage points year on year (on average), an extremely encouraging sign for shareholders.

EPS

These days, some companies issue new shares like there's no tomorrow. That's why we like to track earnings per share (EPS) because it accounts for shareholder dilution and share buybacks.

In Q1, TJX reported EPS at $0.93, up from $0.76 in the same quarter a year ago. This print beat Wall Street's estimates by 6.1%.

TJX EPS (GAAP)

Wall Street expects the company to continue growing earnings over the next 12 months, with analysts projecting an average 7.1% year-on-year increase in EPS.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe in the end, cash is king, and you can't use accounting profits to pay the bills.

TJX's free cash flow came in at $318 million in Q1, down 17.2% year on year. This result represents a 2.5% margin.

TJX Free Cash Flow Margin

Over the last two years, TJX has shown strong cash profitability, giving it an edge over its competitors and the option to reinvest or return capital to investors while keeping cash on hand for emergencies. The company's free cash flow margin has averaged 7.8%, quite impressive for a consumer retail business. Furthermore, its margin has been flat, showing that the company's cash flows are relatively stable.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit a company makes compared to how much money the business raised (debt and equity).

TJX's five-year average ROIC was 22.9%, beating other retailers by a wide margin. Just as you’d like your investment dollars to generate returns, TJX's invested capital has produced robust profits.

TJX Return On Invested Capital

The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last few years, TJX's ROIC averaged 12.7 percentage point increases. The company has historically shown the ability to generate good returns, and its rising ROIC is a great sign. It could suggest its competitive advantage or profitable business opportunities are expanding.

Balance Sheet Risk

Debt is a tool that can boost company returns but presents risks if used irresponsibly.

TJX reported $5.06 billion of cash and $12.64 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company's debt level isn't too high and 2) that its interest payments are not excessively burdening the business.

With $6.96 billion of EBITDA over the last 12 months, we view TJX's 1.1x net-debt-to-EBITDA ratio as safe. We also see its $83 million of annual interest expenses as appropriate. The company's profits give it plenty of breathing room, allowing it to continue investing in new initiatives.

Key Takeaways from TJX's Q1 Results

It was good to see TJX beat analysts' revenue and EPS expectations this quarter. It also raised its full-year earnings guidance, but the company's projections slightly missed Wall Street's estimates. Overall, the results were decent. The stock is up 1.7% after reporting and currently trades at $99.37 per share.

Is Now The Time?

TJX may have had an okay quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We think TJX is a solid business. Although its revenue growth has been a little slower over the last five years with analysts expecting growth to slow from here, its coveted brand awareness makes it a household name consumers consistently turn to. And while its poor same-store sales performance has been a headwind, its strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cash cushion.

TJX's price-to-earnings ratio based on the next 12 months is 23.3x. There are definitely things to like about TJX, and looking at the consumer landscape right now, it seems to be trading at a reasonable price.

Wall Street analysts covering the company had a one-year price target of $111.41 per share right before these results (compared to the current share price of $99.37), implying they saw upside in buying TJX in the short term.

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