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TJX Companies: Get In For The Long Haul

Detroit Bear profile picture
Detroit Bear
2.43K Followers

Summary

  • TJX posted an excellent Q4 buoyed by a major increase in returns of capital to shareholders.
  • The company continues to source inventory from diverse places, including e-commerce.
  • I'm increasing my fair value to $92, but I can see further upside if TJX's guidance proves to be conservative.

TJX Companies (NYSE:TJX) reported another fantastic quarter late last week with revenue and earnings surging higher. With the company feeling the benefits of tax reform leading to higher free cash flow, a stronger dividend and even more share repurchases, I am increasing my fair value to $92 per share. I believe the company looks like an excellent opportunity, even after its recent increase. Let's take a look at quarterly financials, why e-commerce is good for TJX and the new increases in shareholder returns.

Q4 - A Strong Comp Recovery

Skeptics were starting to say that the long reign that TJX had growing comps was coming to an end. Q3 comps were basically flat, including a decline of 1% at the flagship Marmaxx and up just 3% at Homegoods. TJX recovered nicely, as overall comps were up 4% y/y on top of a 3% increase in Q4 of 2017. Strength was broad-based, with Marmaxx, Homegoods and International all up 3% y/y, while Canada grew a robust 7% y/y.

All told, FY18 sales were up 8%y/y to $35.9 billion, which drove adjusted EPS of $3.85 per share, an increase of 9% y/y.

TJX experienced a number of one-time expenses, including paying out bonuses to associates, funding charitable contributions, extra retirement contributions and impairment to Sierra Trading Post. If we exclude all of these one-time events as well as the extra selling week, which makes sense given the one-time tax windfall and the odd calendar occurrence, operating margin was about 0.1% lower y/y at 11.5% of sales.

Adjusted SG&A was actually down 0.3 percentage points due to comp leverage, so the margin decline actually came from a rare decline in gross margin, which fell 0.4 percentage points y/y to 27.9% of sales. Management attributed this decline to some issues with freight at Homegoods that created late holiday

This article was written by

Detroit Bear profile picture
2.43K Followers
A bear out in the woods.

Analyst’s Disclosure: I am/we are long TJX, ROST, FL. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (2)

Random Logic profile picture
TJX is an LT hold for me. A strong indicator for retail business's model is its asset turnover ratio and TJX excels here (as does ROST). They're both recession and Amazon resistant. I view TJX as being especially undervalued. Nice to see a piece recognizing this.
J
I added shares to my wife’s IRA and she had a big smile when I told her about the buy. She said she might as well pay herself on all those shopping trips to TJ Max & Home Goods.

Was amazed when tjx put a blurb in their letter saying they will have paid a dividend for 23 years now and the avg yearly increase has been 23% . . . . . . Wowza!
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