Leading off-brand retailer TJX reported second quarter earnings Tuesday before the market open. The earnings have shares heading higher and approaching all time highs on the success of the company's United States, Canada, and European segments. Profit margins continued to improve during the second quarter. Gross profit improved to 28.1% and profit margins were 11.5%.
Net sales increased 9% to $5.9 billion in the second quarter. Net income for TJX rose to $421 million. Reported earnings per share were $0.56, 24% increase from last year's reported $0.45.
Sales by segment (previous year):
· Marmaxx (Marshalls and TJ Maxx United States: $4.0 billion ($3.7 billion)
· HomeGoods United States: $598 million ($515 million)
· TJX Canada: $661 million ($638 million)
· TJX Europe: $711 million ($662 million)
Same store sales by segment:
· Marmaxx (Marshalls and TJ Maxx United States): +7%
· HomeGoods United States: +9%
· TJX Canada: +5%
· TJX Europe: +10%
Same store sales have been a great source of growth for the company. In the last three months, TJX posted increases in May (+8%), June (+7%), and July (+7%). The company has reported that it is seeing increased traffic in all stores as well. When you combine increased traffic, increased sales per store, and increased store count, it leads to a positive experience for shareholders.
The positive same store sales increase in Europe is a very good sign. While other retailers are struggling in several countries in the European region, TJX is actually seeing increased sales and an increased store count.
Here is a look at the store counts, in parenthesis is the company's potential based on an investor handout in June of 2012. :
· TJ Maxx US: 1005 (2300-2400 between TJ Maxx and Marshalls US)
· Marshalls US: 891
· HomeGoods US: 393 (750)
· Winners Canada: 220 (240)
· HomeSense Canada: 87 (90)
· Marshalls Canada: 12 (90-100)
· T.K Maxx Europe: 338 (650-725)
· HomeSense Europe: 24 (100-150)
With retailers facing difficulties of luring in customers to buy clothing, TJX is fully capitalizing on discount spending. The company's TJ Maxx and Marshall's stores sell discounted name brand items in clothing and home furnishings. The stores have items that people "want" rather than need. The big difference between the "wants" at TJX stores, is their affordability. Similar to the success seen by dollar stores in the grocery and personal goods segment, TJX is seeing growth as customers "shop down" in price in clothing and home furnishings.
In the second quarter, TJX repurchased 7.1 million shares for $300 million. This represents an average price paid of $42.25. In the first half of the year, TJX has now bought 13.6 million shares for $550 million. The company expects to buy back $1.2 to $1.3 billion worth of its shares this fiscal year. TJX raised its dividend this year, which marked the 16th consecutive year of raises. The shares now yield just over 1% with a quarterly dividend of $0.115.
For the third quarter, TJX is forecasting earnings per share of $0.56 to $0.59. TJX sees full year earnings per share increasing 20-23% to $2.39-$2.45. Analysts on Yahoo Finance are forecasting earnings per share of $0.51 in the third quarter and $2.42 for the full fiscal year. The following year, analysts see earnings per share of $2.70.
Shares of TJX are trading at $44.96 at the time of writing, placing them less than 1% away from their fifty two week and all time high of $45.50. Shares are up 39% on the calendar year and continue to be a top pick in the retail segment. Jim Cramer recently recommended buying shares and called the company the "equivalent of a dollar store in Europe". The retailer also is the seventh largest holding in the Market Vectors Retail ETF (NYSEARCA:RTH), representing 5% of the fund.
I am starting to get bullish on TJX and think that despite the company hitting new highs, shares can head higher. I see a price of $52 by the end of 2012, representing a 16% possible gain. The company is expanding store counts and sees positive same store sales increases across all regions. If you're looking for a retailer, perhaps it's time to ditch the teen retailers or big mall anchor stores, and get behind discounter TJX.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.