3 Reasons why this 'treasure hunt' merchant wins in 2014

Jeff Macke

After the performance of the market as a whole last year investors, need a strong list of reasons to be buyers this year. After the debacle of a holiday season, that probably goes double for any retailer reliant on store traffic. Thankfully for viewers of Lauren Lyster’s attached interview, Haverford’s Hank Smith has not one, not two, but three solid reasons for making TJX Companies (TJX) his favorite pick going into 2014.

1.  Great Management

Reliable, consistent management is key, particularly for a company specializing in discount goods.  There’s a fine line between offering great marked down goods, and an outlet store or flea market.  TJX has an experienced team that delivers. 

If you didn’t know anything about their bios, this is one of the most obvious of metrics to see on a store visit. How? Walk into a TJ Maxx a Saturday afternoon. If you leave disgusted, the store has the wrong mix. If you leave with a car full of stuff you had no intent to purchase when you headed in, the store is a well managed.

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2.  Same-Store Sales Growth Persistence

TJX reported same-store sales growth of 5.7% in the third quarter of last year. For comparison’s sake Walmart didn’t grow at all. The company grew adjusted EPS by 21% year-over-year.

Wall Street loves nothing more than a predictable earnings stream.

3.  “All Season Appeal”

This is the most important point. As Lyster astutely observes, brick and mortar retail has seen a big slide in the fight against online shopping and the economy looks like it may moving away from the TJX sweet spot. Smith isn’t sweating it.

“Whether we’re in a recessionary environment or an expansionary environment, shoppers like to go to TJ Maxx for that treasure hunt experience.”

That means if the recovery gives up recent gains, TJX will be ok, but if the economy picks up TJ Maxx will win huge.

There isn’t much margin for error.  Shares of TJX are up 43% for the last year and have nearly doubled over the last two years.

Disclaimer: Merrill Lynch is not responsible for the editorial content of this program.

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