The TJX Companies, Inc. ( TJX Quick Quote TJX - Free Report) has been benefiting from its efforts to grow its store and e-commerce operations. The company’s marketing strategy and loyalty programs are also working well. The TJX Companies has been witnessing growth in its pre-tax profit margin for a while now. Management raised its guidance for the fiscal 2023 pre-tax profit margin on its last earnings call. However, it lowered its adjusted earnings per share (EPS) guidance for the fiscal. For fiscal 2023, management envisions the adjusted EPS in the range of $3.05-3.13, lower than the earlier guidance range of $3.13-$3.20. We note that The TJX Companies has been battling elevated cost headwinds, which are likely to persist. Let’s take a closer look at all aspects. Upsides
The TJX Companies has been benefiting from its solid store and e-commerce growth efforts. In the second quarter of fiscal 2023, the company increased its store count by 21 to reach 4,736 stores. It increased the square footage by 0.5% quarter over quarter during this time.
Earlier, management highlighted that it expects to incur capital expenditure in the range of $1.7-$1.9 billion for fiscal 2023. This will be spent on opening new stores, remodels, relocations and investments in distribution, network as well as infrastructure. The TJX Companies is optimistic about growing its global store base by at least another 1,500 stores in the current locations. Image Source: Zacks Investment Research
The TJX Companies has been witnessing solid demand for an in-person shopping experience in the last few years. Further, with an increasing number of consumers resorting to online shopping, The TJX Companies has undertaken several initiatives to boost online sales and strengthen its e-commerce business.
We believe that The TJX Companies’ off-price model, along with its strategic store locations, impressive brands and fashion products, and efficient supply-chain management are likely to aid its performance. The TJX Companies’ aggressive marketing and advertising campaigns through multiple mediums have been adding growth. Management is sharpening marketing messages in outlets to emphasize value leadership to consumers. Further, the company is strategically targeting pockets of opportunity in specific geographies to boost messaging. The off-price retailer is on track to attract new shoppers of every age, including many Gen Z and millennial shoppers, to fuel growth. The TJX Companies’ second-quarter fiscal 2023 pre-tax profit margin came in at 9.2%, up from the 8.7% reported in the year-ago quarter. The merchandise margin gained from the solid mark on and pricing initiative but was hurt by incremental freight pressure. The company now expects a fiscal 2023 pre-tax profit margin of 9.3-9.5% and an adjusted pre-tax profit margin of 9.7-9.9%. Earlier, management projected a pre-tax profit margin in the range of 9.2-9.4% and an adjusted pre-tax profit margin in the band of 9.6-9.8%. Downsides
The TJX Companies’ merchandise margin was hurt by incremental freight pressure in the second quarter of fiscal 2023. The company also witnessed incremental wage costs, which weighed on the pretax profit margin. The TJX Companies saw additional wage costs of 80 basis points (bps).
The gross profit margin was 27.6% in the second quarter, down 1.8 percentage points. For fiscal 2023, management projects 140 bps of incremental freight expenses and higher wage costs of 70 bps. For the third quarter, management projects 100 bps of incremental freight expenses and higher wage costs of nearly 80 bps. However, we believe that the abovementioned upsides keep this Zacks Rank #3 (Hold) company well-placed for growth. Shares of The TJX Companies have rallied 7.6% in the past three months compared with the industry’s decline of 4.1%. Strong Retail Bets
Some better-ranked retail stocks include
Tractor Supply ( TSCO Quick Quote TSCO - Free Report) , Kroger ( KR Quick Quote KR - Free Report) and DICK'S Sporting Goods, Inc. ( DKS Quick Quote DKS - Free Report) . Tractor Supply, which operates as a rural lifestyle retailer, carries a Zacks Rank #2 (Buy). Tractor Supply has a trailing four-quarter earnings surprise of 10.2%, on average. TSCO has an expected EPS growth rate of 10.2% for three to five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. The Zacks Consensus Estimate for Tractor Supply’s current financial-year sales suggests growth of 10.7% from the year-ago reported number. Kroger, a renowned grocery retailer, currently carries a Zacks Rank #2. KR has an expected EPS growth rate of 11.7% for three to five years. The Zacks Consensus Estimate for Kroger’s current financial-year revenues and EPS suggests growth of 7.8% and 10.3%, respectively, from the year-ago reported figure. KR has a trailing four-quarter earnings surprise of 15.7%, on average. DICK'S Sporting, which operates as a sporting goods retailer, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of nearly 21.4%, on average. The Zacks Consensus Estimate for DICK'S Sporting’s current financial-year EPS has risen from $10.77 to $11.42 in the past 30 days. DKS has an expected EPS growth rate of 5% for three to five years.