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Why Is TJX (TJX) Down 4% Since Last Earnings Report?

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It has been about a month since the last earnings report for TJX (TJX - Free Report) . Shares have lost about 4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is TJX due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

The TJX Companies' Q1 Earnings Beat Estimates, Sales Up

The TJX Companies reported first-quarter fiscal 2022 numbers, with the top and the bottom line beating the Zacks Consensus Estimate. Moreover, earnings and sales increased year over year. The company witnessed solid performance in its home businesses across all divisions. Also, it saw encouraging open-only comp store sales in overall apparel category as consumers are starting to return to normal activities. Further, the company’s U.S. divisions saw double-digit open-only comp store sales growth. Also, sales in the international divisions were solid when stores were open in these markets.

Q1 in Details

The company reported first-quarter earnings of 44 cents per share. The TJX Companies' bottom line came in at a loss of 74 cents per share in the year-ago quarter. Moreover, earnings surpassed the Zacks Consensus Estimate of 31 cents per share.

Net sales came in at $10,086.7 million, significantly higher than $4,408.9 million reported in the year-ago quarter. Notably, the company highlighted that pandemic-led store closures were undertaken for nearly 50% during the same quarter last year. Further, net sales in the quarter increased 9% when compared with the first quarter of fiscal 2020. Moreover, the metric beat the Zacks Consensus Estimate of $8,742.8 million.

Management stated that owing to temporary store closures amid the pandemic, the comp store sales definition was not applicable in the quarter under review. To offer a performance indicator for the stores as they reopen, The TJX Companies has come up with a temporary new sales measure — open-only comp store sales. This includes stores that were initially classified as comp stores (in the beginning of fiscal 2021). This metric reports rise or decline in sales of stores for the days they were operational in the first quarter of fiscal 2022 compared with the same days in fiscal 2020 before the pandemic.

Markedly, open-only comp store sales for the company surged 16% when compared with the first quarter of fiscal 2020. The metric increased 12%, 40%, 9% and 11% for Marmaxx (U.S.), HomeGoods (U.S.), TJX Canada and TJX International (Europe & Australia), respectively.

The company’s consolidated pretax profit margin came in at 7.2%. Notably, merchandise margin improved slightly when compared with the first quarter of fiscal 2020 on the back of solid markon and reduced markdowns. These were somewhat countered by higher freight costs.

Other Financial Updates

The company ended the quarter with cash and cash equivalents of $8,775.5 million, long-term debt of $5,334.9 million and shareholders’ equity of $6,139.2 million.

For thirteen weeks ended May 1, 2021, the company used operating cash flow of $432.7 million. The company expects to declare a quarterly dividend in the second quarter of fiscal 2022.

Total inventories as of May 1, 2021, were $5.1 billion, down from $4.9 billion in the year-ago period. Further, the company is optimistic about its capabilities to provide fresh assortment of products in its stores and online websites during the summer season.

Store & More Updates

This company’s performance in fiscal first quarter was affected by temporary store closures thanks to the coronavirus outbreak. Although its stores in the United States were open, stores in Europe and Canada were shut for nearly 76% and 25%, respectively, of the quarter. Overall, the company witnessed store closures for nearly 14% of the quarter. Management projects that the store closures in Europe and Canada are likely to have resulted in $1.1 billion to $1.2 billion worth of loss in sales during the first quarter of fiscal 2022. Incidentally, fiscal first-quarter EPS were adversely impacted in the band of 21-24 cents.

Currently, the company has almost 300 stores that are temporarily shut thanks to government mandates amid the pandemic. Such stores are situated across Canada and Europe. At present, management anticipates its stores in Canada and Europe to be temporarily shut for 17% and 7% of the second quarter of fiscal 2022, respectively. Overall, the company expects stores to be closed for nearly 3% of the fiscal second quarter, based on the current restrictions. Nevertheless, its online business continues to be operational.

Outlook

At the beginning of the second quarter of fiscal 2022, the company is currently witnessing overall open-only comp store sales trends that were prevalent in the first quarter. In the fiscal second quarter, management expects total sales, pretax margin and EPS to be adversely affected by store closures.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, TJX has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, TJX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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