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TJX Companies Inc. (TJX - Analyst Report) reported adjusted earnings of 62 cents per share for the fourth quarter ended January 28, 2012. Although earnings were in line with the Zacks Consensus Estimate, they shot up 17% from the year-ago level. The growth was fueled by newer assortments of apparels that increased customer traffic in its stores.

Earnings for the 52-week fiscal year 2012 were $1.99 per share. Although earnings were in line with the Zacks Consensus Estimate, they shot up 14% from the year-ago level. The earnings also exceeded the estimates of $1.19 - $1.23 provided by the management provided.

Although foreign currency movement did not have any effect on fourth quarter fiscal earnings, it contributed 1% to the earnings of the fiscal 2012.

Based on the quarterly earnings, the company updated its outlook for fiscal 2013 to a range of $2.21 to $2.31 per share, which represents an 11% to 16% increase over the prior year’s adjusted earnings per share from continuing operations of $1.99. As per Zacks Consensus estimate, the fiscal 2013 earnings are expected to be $2.27.

For the first quarter 2013, the company expects diluted earnings per share on a GAAP basis to be in the range of 45 cents to 47 cents, a 15% to 21% increase over 39 cents per share last year. As per Zacks Consensus estimate, the fiscal 2013 earnings are expected to be 47 cents.

Quarterly Details

Total net sales during the quarter grew 6.0% year-over-year to $6.7 billion, which were in line with the Zacks Consensus Estimate. Total net sales for the fiscal year 2012 grew 6.0% year-over-year to $23.2 billion, which were in line with the Zacks Consensus Estimate.

TJX's consolidated same-store sales increased 4.0% in the quarter driven by same-store sales growth at Marmaxx (+5.0%) and Home Goods (+6.0%) and TJX Europe (+2.0%), partially offset by a decline of 1.0% in TJX Canada. Sales in Canada and Europe were impacted by unfavorable foreign currency exchange rates.

TJX's gross margin expanded 30 basis points from the prior year quarter to 27.4%. The margin expansion was mostly due driven by buying and occupancy leverage. However, this was partially offset by flattish merchandise margins.

Selling, general and administrative costs as a percent of sales increased 20 basis points from the prior year to 15.8% in the fourth quarter.

Cash Flow, Balance Sheet and Share Repurchase

TJX exited the quarter with cash and cash equivalents of $1,507.1 million, compared to $1,741.8 million in the year-ago period. Quarter-end long-term debt was flat at $774.5 million with shareholders equity of $3,209.3 million. The company generated $1,915.9 million of cash from operations.

During the reported quarter, the company repurchased shares worth $12.5 million (adjusted for the two-for-one stock split) of its common stock at a cost of $402 million. For the full year, the company repurchased 49.7 million shares (adjusted for the two-for-one stock split) of its common stock at a cost of $1.4 billion.

Our Take

We are encouraged by the company’s flexible off-price business model is flexible, allowing it to react to market trends. TJX has a low cost structure compared to many other traditional retailers. It focuses aggressively on expenses throughout its business.

However, the highly competitive nature of the business is a matter of concern. Stiff competition from Kohl’s Corporation (KSS - Analyst Report) and Target Corporation (TGT - Analyst Report) coupled with slow recovery of the U.S. economy are matters of concern.

Currently TJX holds a Zacks #2 Rank, implying a short-term Buy recommendation. On a long-term basis, we maintain a Neutral rating.

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