TJX Companies’ (TJX) stores – in the U.S., mostly T.J. Maxx and Marshalls outlets – couldn’t be much plainer, and that pretty much matches the corporate strategy: sell a lot of clothing and household goods rapidly and at a cheap price. And keep getting just a little bit better at doing those things.
Incremental improvement isn’t very sexy, but beyond the tech sector it is what makes companies great.
But by keeping costs low, keeping inventories tight and turning the merchandise rapidly – every retailer says they’re doing this stuff, but few consistently pull it off — TJX has been generating impressive sales growth.
Per-store inventory (including merchandise sitting at its warehouses) was 10% lower in the fiscal year ended Jan. 30, 2010 than the prior year, even as same store sales at the combined T.J. Maxx and Marshalls rose 7%. The company says it buys inventory closer to the time it’s needed to stock its stores, picking up some bargains in the process and also husbanding its cash. The average value of a retail transaction was actually lower last year than the prior year, but TJX managed to bring lots more customers through the doors.
The market isn’t exactly paying a huge premium for this performance.
So, our proprietary valuation model sees TJX as undervalued. TJX also leads the competition in earnings yield.
Yes, the stores are a little dreary – one giant room, really, stuffed with goods. Less excitement means less seasonality.
But TJX gets by with lower capital expenditures.
TJX expects to spend $750 million during the fiscal year ending Jan. 30, 2011 to build new stores, including 53 new outlets in the combined T.J. Maxx and Marshalls chain, to fix up existing stores and to expand and refurbish warehouses and offices. That’s up from $429.3 million last year.
If the stores aren’t sopping up all the money – net income of $1.2 billion, or 2.84 a share, on revenue of $20.3 billion last year – where’s it going? Lots of it goes to share buybacks – 27 million shares last year, for $950 million, and a similar amount planned for this fiscal year.
That means the balance sheet looks less robust than it might.
But as of May 1, TJX had $1.96 billion in cash and under $800 million in long-term debt. The flagship chains’ same store sales were up 10%. Not bad in a crummy economy.
Originally posted June 29, 2010