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Hold On To TJX Companies

Siddharth profile picture


  • TJX proves critics wrong this quarter.
  • Margin contraction argument has some heft but also has some offsetting factors.
  • Continue to prefer TJX over Ross Stores.

A few months ago, I had valued TJX (NYSE:TJX) at $90 while arguing that it was a bargain relative to Ross Stores (ROST). So far the market hasn't agreed with this assertion, but I think we are getting there. TJX was up 7% yesterday after an impressive earnings result that included a consensus-beating guidance. Comps were up 4% in the fourth quarter, proving that flat comps in the previous one was just an aberration and customers are still totally into the "buy now or cry later" treasure hunt atmosphere.

TJX 4Q Earnings Analysis

Net sales in the quarter surged 16% to $11 billion, but there's the effect of an additional week built into that rise. A 4% comp (which excludes the effect of an additional week) is still exceptional when one considers the intensifying off-price competition and the base at which TJX is operating. Ross Stores generates only about 37% of TJX's revenues. Therefore, anything less than a 4% comp in its upcoming earnings could mean that the firm could have lost share in percentage terms.

Segment margins contracted ~80 basis points to 12%. TJX attributed the margin contraction to unanticipated freight costs resulting from driver shortages. The freight problem was widely reported in January so I initially did not see this as anything out of the ordinary.

But after reading the transcript, I feel there is definite concern about TJX's margins especially when you look at some of the downgrades this year. The rationale is that attempts by departmental stores to scale their off-price operations should crimp margins at companies like Ross Stores and TJX. Scale, after all, is crucial for success in this business. Ross Stores as the single largest brand has the highest margins, followed by TJ Maxx and Marshalls which are both owned by TJX. This establishes the scale vs. margin correlation.

This article was written by

Siddharth profile picture
My record can be checked the tipranks profile page - https://www.tipranks.com/bloggers/siddharth I have a Master’s degree in Physics and in my dissertation I worked on the utility of fractals in understanding chaos theory. The presence of a physicist is not without precedent in the financial world. I guess the considerable mathematical background gives us a decent advantage on Wall Street. As an individual, I have always been a hobbyist. So a lot of my free time these days revolves around building a predictive betting model. I find betting on sports (as an area of study) quite exhilarating from an academic point of view. It combines the best bits of math, finance, and sports into one super interesting field.

Analyst’s Disclosure: I/we 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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Comments (3)

My wife loves TJMaxx and I'm looking for an entry point but I worry that TJ's suppliers will find a way to be more efficient in their buying and in time limit what is available for TJ buyers.
Trevor Courtney profile picture
Holding on...to both TJX and ROST.
GDPPP profile picture
Good call Trevor. A dividend yield of 1 to 2%, share buyback of 4-5% and a conservative organic earnings growth of 10-11% shall lead to a CAGR of 15-18% on both these names. That's the way I look at it.

It's also nice that both these retail stalwarts have been increasing their dividend payments annually by 20-25% which is a nice icing on the cake..
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