Earnings Analysis: TJX Companies

 |  About: TJX Companies Inc. (TJX)
by: CapitalCube

TJX Cos. (NYSE:TJX) reports preliminary financial results for the quarter ended 2012-10-31.

TJX Cos. recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise).

TJX Cos.'s analysis versus peers uses the following peer-set: Target Corp. (NYSE:TGT), Macy's Inc. (NYSE:M), Ross Stores Inc. (NASDAQ:ROST), Truworths International Ltd. (NYSE:TRU), Dillard's Inc. Cl A (NYSE:DDS), Shimamura Co. Ltd. (8227), Ascena Retail Group Inc. (NASDAQ:ASNA) and Marisa Lojas S.A. (AMAR3). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.



Quarterly (USD million) 2012-10-31 2012-07-31 2012-04-30 2012-01-31


Revenues 6,410.9 5,945.6 5,798.1 6,709.8 5,793.1
Revenue Growth % 7.8 2.5 (13.6) 15.8 5.9
Net Income 461.6 421.1 419.2 475.3 406.5
Net Income Growth % 9.6 0.5 (11.8) 16.9 16.7
Net Margin % 7.2 7.1 7.2 7.1 7.0
ROE % (Annualized) 53.9 50.1 51.3 59.5 51.7
ROA % (Annualized) 20.7 19.7 20.0 22.6 19.6
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Valuation Drivers

TJX Cos. currently trades at a higher Price/Book ratio (9.0) than its peer median (2.9). TJX Cos. achieved a better operating performance than the median of its chosen peers (ROE of 53.5% compared to the peer median ROE of 18.9%) and the market still expects faster growth from it than from those peers (PE of 18.1 compared to peer median of 14.4).

The company has a successful operating strategy with above median net profit margins of 7.1% (vs. peer median of 5.5%) and relatively high asset turns of 2.8x (vs. peer median of 1.4x). This suggests that the company has a dominant operating model relative to its peers. TJX Cos.'s net margin is its highest relative to the last five years and compares to a low of 4.1% in 2008.

Economic Moat

Growth in TJX Cos.'s revenues and earnings have been in-line with its chosen peers (annual revenue growth of 5.7% and earnings growth of 11.7% respectively). Its top-line performance seems to imply 'more of the same' for earnings. TJX Cos. is currently converting every 1% of change in revenue into 2.1% change in annual reported earnings.

TJX Cos.'s return on assets is above its peer median both in the current period (20.1% vs. peer median 7.4%) and also over the past five years (16.0% vs. peer median 8.0%). This performance suggests that the company's relatively high operating returns are sustainable.

The company's gross margin of 30.1% is around peer median suggesting that TJX Cos.'s operations do not benefit from any differentiating pricing advantage. However, TJX Cos.'s pre-tax margin is more than the peer median (11.5% compared to 8.3%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

While TJX Cos.'s revenues growth has been around the peer median in recent years (6.9% vs. 6.9% respectively for the past three years), the market gives its shares a higher than peer median PE ratio of 18.1. The market seems to see faster growth ahead.

TJX Cos.'s annualized rate of change in capital of 11.1% over the past three years is around the same as its peer median of 11.1%. This investment has generated a better than peer median return on capital of 36.7% averaged over the same three years. The greater than peer median rate of return suggest that the company may be under investing in growth.

Earnings Quality

TJX Cos. has reported relatively strong net income margin for the last twelve months (7.1% vs. peer median of 5.5%). This margin performance combined with relatively high accruals (5.6% vs. peer median of 3.7%) suggests possible conservative accounting and an understatement of its reported net income.

TJX Cos.'s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median -- which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts


Company Profile

The TJX Cos., Inc. operates as an off-price apparel and home fashions retailer in the United States and worldwide. Its stores offer a rapidly changing assortment of quality, fashionable, brand-name and designer merchandise at prices generally 20% to 60% below department and specialty store regular prices. TJX operates its business through the following segments: T.J. Maxx, Marshalls, and HomeGoods in the United States; Winners, HomeSense, and Marshalls in Canada; and T.K. Maxx and HomeSense in Europe. The company was founded by Stanley Harris Feldberg and Sumner L. Feldberg in 1956 and is headquartered in Framingham, MA.



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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.