We're initiating coverage on the off-price retailer (which targets the middle income demographic through its 2,300+ stores) with a hold rating.
Looking at 2005, TJ Maxx's numbers were certainly nothing to jump up and down about. Same stores sales were up 2%, although merchandising efforts seem to be improving. The firm's ability to scale its niche keeps the name ingrained in the mind of consumers looking for brand name apparel at dirt cheap -- and we mean dirt cheap -- prices. For a rival to beat TJ Maxx, it'd have to kill on the volume end, and we don't see that happening anytime soon.
To make sure it doesn't get lazy, TJ Maxx has been expanding abroad, as is the case with new concept AJ Wright. AJ serves higher-end customers, which is okay with us, as long as TJ doesn't eat away at its core business or jeopardize its entrenched position in the consumer psyche.
TJ Maxx's stock was smacked and spit on last year because margins remained lacklustre --apparel prices fall, suppliers decided they could give TJ Maxx the runaround, and the end result was 5-6% operating margins -- yipee. If margins don't show some life in 2006, we see no reason for investors to serenade the stock.
Neverthless, TJ Maxx's financial health is in okay shape (60% debt/total capitalization) and the firm creates shareholder value (trailing 12 month ROE was close to 40%) through stock repurchases. Although its market is arguably maturing, TJ Maxx remains a leader in its category with little rivalry on the periphery. At a deep discount, we'd look closer at the stock.
TJX 1-yr Chart
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