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Can TJX Companies' Sales Drivers Aid Growth Amid Hurdles?

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The TJX Companies, Inc. (TJX - Free Report) is well positioned for growth, courtesy of its store and e-commerce expansion efforts. These upsides have been driving the company’s comparable store sales (comps) and helping it stay afloat amid hurdles like increased supply-chain expenses.  Let’s delve deeper.

Hurdles in TJX Companies’ Way

TJX Companies’ gross margin has been contracting year over year for quite some time now, due to increased supply-chain expenses, among other factors. The trend continued in second-quarter fiscal 2020, wherein gross margin fell 0.7 percentage points to 28.5% due to elevated supply-chain expenses and lower merchandise margins.

In the first quarter, gross margin fell 0.4 percentage points, thanks to elevated freight costs and supply-chain expenses. Persistence of this trend is a threat to margins. Apart from this, high wage costs have long been a hurdle for the company. Management earlier projected wage increases to dent the bottom line in fiscal 2020.

Strategies Likely to Act as Saviors

The company has an aggressive store-opening strategy. While many retailers are resorting to store closures, TJX Companies added 31 stores during the second quarter of fiscal 2020, taking the total count to 4,412 as of Aug 3. The company intends to continue expanding the store base with plans to operate about 6,100 stores in the long term.

Further, with an increasing number of consumers resorting to online shopping, TJX Companies has undertaken several initiatives to boost online sales and strengthen its e-commerce business. The company’s off-price model along with strategic store locations, impressive brands and fashion products has been driving its performance both in stores and online.

Also, the company is committed toward boosting comps through effective marketing initiatives and loyalty programs. Incidentally, TJX Companies’ aggressive marketing and advertising campaigns through multiple mediums (TV, radio and social media) have been boosting traffic at its stores. Its gift-giving initiatives (unique among off-price retailers) and loyalty card program (offering consumers a non-credit card choice and soft benefits such as early shopping hours) also help improve customer engagement.

Such upsides have been driving the company’s comps, which increased 2% year over year in the second quarter of fiscal 2020, fueled by increased customer traffic at all segments.

Notably, the quarter marked the 20th straight period of higher customer traffic. In fiscal 2020, both consolidated comps and comps at Marmaxx are expected to grow 2-3%.

Such strong efforts along with TJX Companies’ impressive inventory management are likely to help it counter the headwinds and drive the stock further. Markedly, this Zacks Rank #3 (Hold) stock has rallied 25.5% year to date compared with the industry’s growth of 40.3%.

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