Technology

Why Is TJX (TJX) Up 3.5% Since Last Earnings Report?

A month has gone by since the last earnings report for TJX (TJX). Shares have added about 3.5% 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 catalysts.

TJX Companies Q4 Earnings, Sales Gain on High Traffic

TJX Companies posted fourth-quarter fiscal 2019 results, wherein earnings and sales benefitted from continued improvement in customer traffic.

The company’s earnings came in at 68 cents per share, a penny lower than the year-ago quarter’s figure. Excluding a benefit from 2017 Tax Cuts and Jobs Act, and a pension settlement charge, adjusted earnings came in at 59 cents per share, in line with the year-ago period’s figure. The Zacks Consensus Estimate was pegged at 68 cents.

The bottom line exceeded management’s expectations, and was backed by upbeat performance in all segments. However, currency headwinds hit earnings per share by nearly 1 cent in the quarter.

Net sales advanced about 2% year over year to $11,127.3 million compared with the Zacks Consensus Estimate of $11,026 million. Sales were backed by solid comparable store sales (comps), which continued to gain strength from robust customer traffic across all segments. Also, net sales growth included a 1% adverse impact from currency movements.

TJX Companies' consolidated comps grew 6% year over year. Comps primarily benefited from increased customer traffic at all segments. The company’s apparel and home businesses remained strong in the quarter.

Segment wise, comps rose 5%, 4%, 5% and 7% in HomeGoods, TJX Canada, TJX International and Marmaxx segments, respectively.

Gross margin fell 0.6 percentage point (pp) to 27.8%, while the same contracted 0.1 pp excluding last year’s additional week. Merchandise margin rose considerably in the fourth quarter of fiscal 2019.

Selling, general and administrative costs as a percentage of sales fell 0.1 pp to 17.2%. Excluding certain costs associated with last year’s tax-related actions, SG&A costs increased 0.8 pp, owing to higher store wages and incentive compensation accruals.

Other Financial Updates

The company ended the quarter with cash and cash equivalents of $3,030.2 million, long-term debt of $2,233.6 million and total shareholders’ equity of $5,048.6 million. Cash flow from operations for the 52-week period ended Feb 2, 2019, was $4,088.5 million.

Consolidated inventories on a per-store basis (including distribution centers and excluding e-commerce and inventory in transit) increased 1% (up 3% 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 fiscal 2019, TJX Companies returned $3.4 billion to its stockholders via dividends and share buybacks. In the fourth quarter, the company repurchased 17.8 million shares for $855 million.

Concurrently, management revealed plans to announce a dividend hike in April 2019. The new dividend of 23 cents a share is likely to be paid in June 2019. Notably, this will mark TJX Companies’ 23rd straight year of dividend increase.

Also, the company announced intentions to buy back shares worth nearly $1.75-$2.25 billion by Feb 1, 2020. To this end, management announced a new buyback plan of up to an incremental $1.5 million of the company’s shares. This marks management’s 20th consecutive approved program.

During fiscal 2019, the company added 236 stores, taking the total store count to 4,306 as of Feb 2, 2019.

Fiscal 2020 Guidance

Management is impressed with its solid earnings and comps performance, driven by robust customer traffic and successful implementation of the company’s off-price fundamentals. Markedly, the company’s apparel and home business performed exceptionally well.

Consumers’ favorable response to TJX Companies’ impressive brand portfolio and consistent rise in customer traffic keep management encouraged about witnessing continued growth. Also, management’s new share buyback plan and dividend hike plans reflect the company’s solid financial status.

All said, management provided guidance for 2020. Consolidated comps are expected to grow 2-3%, and comps at Marmaxx are also expected to grow in the same range.

For fiscal 2020, TJX Companies projects earnings per share of $2.55-$2.60, reflecting year-over-year growth of 5-7% (including last year’s pension settlement charges) and 4-6% (excluding last year’s pension settlement charges).

Wage increases and higher freight costs are expected to negatively impact earnings per share growth by 4%.    

Q1 View

The company expects consolidated comps growth of 2-3% in the first quarter. Comps at Marmaxx are expected to jump 3-4%. The company expects adjusted earnings of 53-54 cents per share, lower than 56 cents reported in the year-ago quarter and the current consensus mark of 58 cents. Wage increases, higher freight costs and currency woes are expected to negatively impact earnings per share growth by 7%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.14% due to these changes.

VGM Scores

At this time, TJX has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 indicates a downward shift. Notably, TJX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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