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Why Is TJX (TJX) Up 4.7% 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 added about 4.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is TJX due for a pullback? 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.

TJX Companies Q1 Earnings Beat Estimates, View Raised

TJX Companies posted better-then-expected first-quarter fiscal 2020 results. The company’s adjusted earnings came in at 57 cents per share, a penny lower than the year-ago quarter’s figure. Further, the metric surpassed the Zacks Consensus Estimate of 55 cents. The bottom line also exceeded management’s expectations, backed by upbeat performance in all segments.

Net sales advanced about 7% year over year to $9,277.6 million, beating the Zacks Consensus Estimate of $9,195 million. However, net sales growth included a 1% adverse impact from currency movements.

Sales were backed by solid comparable store sales (comps), which gained strength from robust customer traffic across all segments. TJX Companies' consolidated comps grew 5% year over year. The company’s apparel and home businesses remained strong in the quarter.

Comps rose 1%, 8% and 6% in HomeGoods, TJX International and Marmaxx segments, respectively, while the metric at TJX Canada remained flat.

Gross margin fell 0.4 percentage point (pp) to 28.5% owing to elevated freight costs and supply-chain expenses.

Selling, general and administrative costs as percentage of sales rose 0.5 pp to 18.3% owing to higher store wages, increased IT investments and other factors.

Other Financial Updates

The company ended the quarter with cash and cash equivalents of $2,235.1 million, long-term debt of $2,234.4 million and total shareholders’ equity of $5,131.9 million. Cash provided by operating activities for the 13-week period ended May 4, 2019, was $149.3 million.

Consolidated inventories on a per-store basis (including distribution centers and excluding e-commerce and inventory in transit) increased 6% (up 7% on a constant-currency basis) year over year. The company is well positioned to take advantage of solid opportunities in the market for branded merchandise, given its impressive inventory position.

During the reported quarter, TJX Companies returned $589 million to its stockholders via dividends and share buybacks. In the first quarter, the company repurchased 6.7 million shares for $350 million. Also, the company still intends to buy back shares worth $1.75-$2.25 billion in fiscal 2020.

Concurrently, management announced a dividend hike of 18% in the first quarter. This will mark TJX Companies’ 23rd successive year of dividend increase.

During first-quarter fiscal 2019, the company added 75 stores, taking the total store count to 4,381 as of May 4, 2019.

Fiscal 2020 Guidance

Management lifted its bottom-line guidance for fiscal 2020. TJX Companies projects earnings per share of $2.56-$2.61, indicating year-over-year growth of 5-7% (including last year’s pension settlement charges) and 4-7% (excluding last year’s pension settlement charges). The Zacks Consensus Estimate is currently pegged at $2.61.

Wage increases and higher freight costs are expected to negatively impact earnings per share by 3-4%.  Further, consolidated comps are expected to grow 2-3%, and comps at Marmaxx are also expected to increase in the same range.

Q2 View

The company expects consolidated comps growth of 2-3% for the second quarter. Comps at Marmaxx are expected to grow in the same range. The company expects adjusted earnings of 61-62 cents per share, up 5-7% from 58 cents reported in the year-ago quarter.

The consensus mark for second-quarter earnings is pegged at 62 cents. Wage increases and higher freight costs are expected to negatively impact earnings per share by 2-3%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, TJX has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 downward for the stock, and the magnitude of these revisions looks promising. Notably, TJX has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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