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TJX Companies Cheers on Impressive Comps, Rising Costs a Woe

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As most retailers are struggling against the growing dominance of e-commerce, off-price retailers such as The TJX Companies, Inc. (TJX - Free Report) have been thriving well. In fact, the company has been delivering solid comparable store sales (comps) for almost 15 straight quarters, courtesy of its impressive merchandise assortments. Moreover, in an effort to sustain comps growth, it relentlessly expands stores and online operations. However, rising wage costs has been denting its performance for a while. That said, let’s take a closer look at these factors impacting the company’s performance.

Initiatives to Drive Comps Bode Well

TJX Companies’ comps have been gaining from consumers’ favorable response to the company’s brands and impressive collections, available at reasonable prices. In fact, during the first quarter of fiscal 2019, TJX Companies’ consolidated comps grew 3% year over year, fueled by greater customer traffic in all major segments. Segment wise, comps rose 2%, 3%, 1% and 4%, respectively, in HomeGoods, TJX Canada, TJX International and Marmaxx segments, respectively. Management is particularly impressed with the performance of Marmaxx as well as the home and apparel categories.

Further, the company’s comps have been gaining from effective merchandising policies. We note that consolidated inventories on a per-store basis increased 7% (up 6% on a constant-currency basis) year over year during the first quarter. Additionally, TJX Companies’ aggressive marketing and advertising campaigns through multiple mediums have been boosting traffic in its stores. Its gift-giving initiatives, unique among off-price retailers and loyalty card program also help to improve customer engagement.

An aggressive store-opening strategy has been driving the company’s performance. It is opening stores regularly and is expanding rapidly in the United States, Europe and Canada. While many retailers are resorting to store closures, TJX Companies added around 71 stores in the first quarter. With almost 4,141 stores across nine countries, the company plans to continue expanding its store base, with a long-term target of 6,100 stores. Further, with increasing number of consumers resorting to online shopping, TJX Companies has undertaken several initiatives to boost online sales and strengthen e-commerce business.

Additionally, the company intends to take advantage of solid opportunities in the market for branded merchandise. Undoubtedly, such well-chalked sales boosting initiatives keep management encouraged about delivering a sturdy performance in fiscal 2019. That said, management projects comps to grow 1-2% in fiscal 2019.


 

Backed by such endeavors and expanding brand popularity, which has been fueling overall performance, this Zacks Rank #3 (Hold) company’s shares have rallied 25.1% in the past three months, comfortably surpassing the industry’s rise of 16%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Markedly, TJX Companies is not the only company gaining from comps growth. Other discount retailers such as Burlington Stores, Inc (BURL - Free Report) and Ross Stores (ROST - Free Report) have benefited from growing store traffic, courtesy of effective merchandising initiatives. Well, such aspects have been aiding these discount stores to fend-off and survive the dominance of online giant — Amazon (AMZN - Free Report) .

Few Hurdles in the Way

Higher wages have been an aspect of worry for TJX Companies for a while. During the first quarter of fiscal 2018, wage rise dented earnings growth by approximately 2%. Going ahead, higher wages are expected to negatively impact second-quarter and fiscal 2019 earnings by nearly 2%. Apart from this, management expects increased freight costs to weigh on results.

Nevertheless, TJX Companies has many reasons to cheer and stay positive on the journey ahead, courtesy of effective strategies to drive store traffic and sales. That said, we expect the company’s strategic initiatives to continue aiding growth and maintain its position in investors’ good books.

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