TJX Companies - Buy This Long-Term, Value Creating Company On Dips

| About: TJX Companies (TJX)

Shares of TJX Companies (TJX) have been off to a good start in the new year. Shares of the off-price apparel and home fashion retailer known for Marshalls and HomeGoods have risen 5.0% so far this year. On Thursday, the company reported strong sales results for December, prompting the company to raise its full year outlook for the fiscal year of 2013.

Strong End To 2012

TJX reported strong December sales results. Sales for the five weeks ending on December 29, came in at $3.6 billion, up 10% on the year before. Sales were driven by a 6% increase in comparable sales. Analysts expected same store sales growth to come in at just 2.3% for the month.

For the 48 weeks ending at the same date, sales rose a similar 10% to $23.9 billion. For the same period, same store sales growth came in at 7%.

CEO Carol Meyrowitz commented on the performance, "I am delighted to see that once again, consumers responded extremely well to our exciting selection of branded, giftable merchandise at excellent values, leading to our expectations and was achieved over an 8% increase last year. Our December sales underscores that value remains top of mind for consumers and that our ability to offer extreme values during a promotional holiday selling season continues to be one of our key strength."

TJX attributes the strong performance due to an increase in traffic at all its business divisions.

As a result of the strong performance the company is raising the outlook for fourth quarter earnings. TJX now expects fourth quarter earnings per share to come in between $0.77 and $0.78 per share, up 24-26% compared to its fiscal 2012. The earnings outlook comes in line with analysts expectations of $0.77 per share.

Looking into the calendar year of 2013, TJX is confident in the ability to drive growth in the brick-and-mortar business and the company is excited about the possibilities of e-commerce following the acquisition of Sierra Trading Post.


TJX Companies ended its third quarter with $1.85 billion in cash, equivalents and short term investments. The company operates with $775 million in long term debt, for a net cash position of almost $1.1 billion.

For the first nine months of its 2013, TJX generated revenues of $18.2 billion. The company net earned $1.3 billion for the period, or $1.73 per diluted share. At this rate, the company is on track to generate annual revenues of almost $26 billion. The company could earn roughly $1.9 billion, or $2.50 per diluted share.

The market currently values TJX at roughly $32.5 billion, which values operating assets at $31.4 billion. This values the firm at approximately 1.2 times annual revenues and 16-17 times annual earnings.

TJX pays a quarterly dividend of $0.115 per share, for an annual dividend yield of 1.0%.

Some Historical Perspective

Shares of TJX have had a good run over the past year. Shares of the company rose from $32 in January of 2012 to peak at highs of $47 in late summer. Shares corrected slightly, currently exchanging hands at $44 per share.

On a longer term, shareholders have seen even greater returns. Shares rallied from $10 at the start of 2009 to steadily rose to all time highs set over the past summer. The results are driven by a steady improvement in operating performance. Annual revenues rose from $19 billion in its fiscal 2009 to an expected $26 billion in its fiscal 2013. At the same time earnings more than doubled to $1.9 billion, while earnings per share rose by almost 150% as a result of sizable share repurchase programs.

Investment Thesis

Investors applaud TJX performance as it seems that the retailer ended its calendar year of 2012 on a strong note. Consequently, the company boosted its annual earnings per share target to $2.50-$2.51.

The company's brick-and-mortar operations continue to perform well. At the same time TJX is expanding in the e-commerce field. Two weeks ago, TJX acquired Sierra Trading Post. The company paid approximately $200 million for the off-price internet retailer. TJX expects that the deal will be slightly accretive to its fiscal 2014 earnings, but it will not be material. Sierra Trading currently employs 700 workers which generate over $200 million in annual revenues.

Over the past years, TJX has gained a lot of respect from the investment community, accompanied by a higher valuation of the firm's shares. The company has created a lot of value by increasing revenues, expanding margins, while continuously repurchasing its own shares. Despite the expansion and sizable share repurchase programs, the company still operates with a rock-solid balance sheet.

Yet I am a bit wary to step in at these levels. The share price appreciation has outpaced earnings growth in recent years, which resulted in a higher price-earnings ratio. This is a dangerous cocktail if profit growth stagnates. At 16-17 times earnings I remain on the sidelines. I keep the stock on my watchlist with a possible entry point around $40 per share.

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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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