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TJX Companies Hits 52-Week Low: What's Hurting the Stock?

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The TJX Companies, Inc. (TJX - Free Report) hit a 52-week low of $66.66 on Jul 24, closing at $66.90. Declining pre-tax margins, lack of exposure in the emerging markets and currency headwinds have been creating challenges for the company of late. The impact of such factors is visible on the company’s share price performance. Shares of TJX Companies have declined 15.2% in the last three months compared with the broader Retail-Wholesale sector’s gain of 3.5%.

Let’s now take a closer look at some of the challenges that TJX Companies has been dealing with.

Wage Hike and Higher Costs

TJX Companies announced a wage hike for all full and part-time hourly U.S. store associates. The hike led to a rise in selling, general and administrative costs during the first quarter of 2018. Higher wages are expected to keep pre-tax margins under pressure for the next few quarters. In fact, it is expected to affect fiscal 2018 earnings by 2%. Further, the company expects incremental investments, additional supply chain costs and pension costs to pressurize margins in the coming quarters.

Moreover, being an off-price retailer, TJX Companies cannot increase the price of its products despite rising product cost. This consequently leads to lower margins.

Other Headwinds

TJX remains exposed to unfavorable foreign currency translations owing to a considerable international presence. Currency headwinds dented sales by two percentage points during the first quarter of 2018. Unfavorable currency translations are expected to hurt results in the near term.

Although the company is well placed internationally, it does not have any presence in developing markets which deprives the company of benefits from high growth opportunities in developing nations.

Bottom-Line

We are optimistic about TJX Companies business expansion initiatives which include aggressive store opening strategies and plans to add more categories to the online shopping site. Its brand enhancing plans in the form of product innovation and marketing campaigns are also appealing. While these efforts are expected to boost store traffic, we are cautious about the challenges which may dent the company’s performance in the near term.

Given the mixed pros and cons, TJX Companies currently carries a Zacks Rank #3 (Hold).

Looking for Better Stocks in the Retail Space? Check these

Investors may consider better-ranked stocks such as Best Buy Co., Inc. (BBY - Free Report) , sporting a Zacks Rank #1 (Strong Buy), Burlington Stores, Inc. (BURL - Free Report) and Big Lots, Inc. (BIG - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy has an average positive earnings surprise of 33.8% in the trailing four quarters and a long-term earnings growth rate of 11.8%.

Burlington Stores delivered an average positive earnings surprise of 22.6% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

Big Lots delivered an average positive earnings surprise of 83.1% in the trailing four quarters and has a long-term earnings growth rate of 13.5%.

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