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The TJX Companies Idea Proposal (TJX)

Aug 30 2021 Idea Proposals, Retail
The TJX Companies Idea Proposal (TJX)
 

Is TJX in position to accelerate top-line growth while also reversing a trend of declining margins?

Report Available: October 21, 2021

 

Blueshift’s initial research found TJX delivering an unexpectedly strong Q2 on both the top and bottom lines as sales surged compared to pre-pandemic results. Company executives have laid out lofty goals for the retailer’s long-term revenue outlook and suggested TJX is in position to reverse years of margin erosion, despite rising wage and transportation costs. Pricing will be a key area to watch as the current retail environment could offer an opportunity to raise prices in certain categories. Many of TJX’s retail peers have also reported strong results recently, but some, like ROST, are being more cautious in their outlook and pricing plans.

 

Observations

  1. Off-price retail leader TJX surprised investors with a strong fiscal Q2 ending July 31. Total revenues soared to $12.1 billion, up 81% over a year ago, when many of its stores were closed due the pandemic. Perhaps more importantly, sales were up 20% on an apples-to-apples comparison of open stores from two years ago. Those open-only results included 18% sales growth at the company’s TJ Maxx and Marshall’s stores, and a 36% bump in its HomeGoods segment. Average ticket sizes were down slightly from two years ago but improved significantly compared to Q1, while customer traffic was up mid-single digits in the United States – where stores were open the entire quarter with minimal COVID-related restrictions. “TJX is on its way to becoming a $60 billion-plus revenue company,” CEO Ernie Herrman said.
  2. The retailer’s profit numbers also blew past Wall Street estimates. Its earnings per share of 79 cents was up 27% from the same period two years ago. TJX delivered the healthy bottom-line performance despite a number of headwinds, including wage pressure at both the store level and in its distribution centers, as well as skyrocketing freight costs – ocean freight costs were up as much as 200% in some cases. In a key measure to watch, TJX’s pre-tax profit margin – which has been eroding for several years – improved sequentially over Q1 to 8.7%. Company executives outlined a belief that they can get back to double-digit margins through continued increases in sales and market share, the eventual end of the pandemic, moderation in wage and freight cost pressure next year, and strong merchandise margins.
  3. Another key opportunity for TJX’s margin growth is in pricing. Company executives said they see an opportunity to “surgically” increase prices in certain categories – the home segment, in particular – without hurting the perception of their store brands as destinations for bargain hunters. “We’re seeing a less promotional environment and rising inflation, as well as stronger sales in our apparel categories. … We see all of these factors as opportunities for higher retails,” Herrman said. One of TJX’s key competitors, ROST, said it looks at the current environment as a chance to expand its price gap with traditional retailers rather than an opportunity to boost its own prices. “We won’t be the leader in terms of raising prices,” CEO Barbara Rentler said. ROST also delivered a strong Q2 performance with a 15% increase in comparable store sales compared to two years ago. However, ROST executives offered lukewarm guidance for the current quarter, suggesting same-store sales will grow only 5% to 7% from two years ago and telling investors they expect severe margin pressure.
  4. TJX will be trying to hit its sales and margin targets within an uncertain economic landscape. There are some signs that the rapid spread of the Delta variant of the coronavirus is starting to hurt the overall economy, including a slowing housing market and reduced forecasts for GDP growth. But retailers have mostly been reporting excellent results: WMT’s earnings beat expectations, TGT reported a blowout quarter, while M raised its full-year guidance and reinstated its dividend. Some analysts are expecting a record back-to-school shopping season, partly because so many students are returning to in-person classes for the first time in 18 months. On the competitive front, AMZN – long a thorn in the sides of brick-and-mortar retailers – could be on the verge of shaking up the landscape even further. The ecommerce giant reportedly plans to open several large physical retail locations in the U.S. that will operate akin to department stores.

 

Can TJX deliver on its margin expansion goals? How big is TJX’s opportunity for store expansion in the U.S.? How much room does TJX have to raise prices? How does that compare to competitors like ROST and BURL? Can TJX continue its sales growth momentum? How far is TJX along in reaching scale to help mitigate wage pressure? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Retail executives, Product buyers, Product suppliers, and Industry specialists. 

 

Companies: The TJX Companies Inc. (TJX), Amazon.com Inc. (AMZN), Burlington Stores Inc. (BURL), Macy’s Inc. (M), Ross Stores Inc. (ROST), Target Corp. (TGT), Walmart Inc. (WMT)

 

Research Begins: October 4, 2021

 

To see other ideas Blueshift Research is currently working on, please click here.

 

Blueshift Research’s sister company, Intro-act, has launched the Intro-act Scorecard, the C-suite’s standard, ongoing measure of corporate investor engagement.

 

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