Can Strategies Improve TJX Companies Performance in 2018?
The TJX Companies, Inc. TJX has been underperforming the industry for a while. The company’s shares have gained 10.3% in the past six months compared with its industry’s rally of 24.3%. TJX Companies’ performance has been sidelined due to dismal comps and persistent struggle against higher wages.
We note that higher wages dented the company’s bottom-line growth by 1% during third-quarter fiscal 2018, with its pre-tax margin declining 10 basis points. Wage hikes are expected to negatively impact earnings growth by 2% in fiscal 2018. Further, during the third quarter, the company reported flat comps against 5% growth recorded in the year-ago quarter. In fact, this also broke the company’s long trend of delivering positive comps growth. Management stated that adverse weather conditions combined with soft demand for apparel at the Marmaxx division, were largely responsible for weak store sales.
Nevertheless, this Zacks Rank #3 (Hold) company has been undertaking several initiatives to boost sales and offset ongoing hurdles.
Strategies to Boost Brick-and-Mortar and Online Sales
With an effort to revive comps, TJX Companies has been resorting to aggressive store openings. During the third quarter, the company opened 139 stores, taking the total count to 4,052 stores as of Oct 28, 2017. Also, management is encouraged by the initial response to the recently opened 3 HomeSense outlets in the United States and its first TK Maxx outlet in Australia. Notably, the company plans to take the store count to 5,600 in the long term along with approximately 260 stores scheduled for opening in fiscal 2018. In North America, TJX Companies plans to add more than 1,400 stores in the long term, with plans to double Marmaxx’s U.S. count. The company is focused on expanding HomeGoods chain to at least 1,000 stores.
Alongside inducing growth in the brick-and-mortar front, TJX Companies has also been undertaking measures to improve performance in the e-commerce arena. The company plans to add more categories to the online shopping site and invest categorically to differentiate it from brick-and-mortar stores. The company has also been recruiting experienced internet management team to encourage greater efficiency and boost online sales.
Other Noteworthy Initiatives
TJX Companies’ dedicated marketing and advertising campaigns through multiple mediums are also encouraging and are expected to boost sales. Further, its gift-giving initiatives, which is unique among off-price retailers, and loyalty card program are expected to improve customer engagement. The company’s sales enhancing initiatives also include introducing products through innovation.
TJX Companies’ inventory management initiatives are quite noteworthy. In fact, the company’s off-price business model derives much retail strength from disciplined inventory management. Driven by these efforts, consolidated inventories per store were down 4% on a currency-neutral basis, at the end of the third quarter. Further, management stated that it began the fourth quarter on a strong note, with solid inventory position and other sales-driving.
All said, we expect that investors will show greater optimism in the stock in the upcoming periods, which will aid a revival in stock price in 2018.
Do Retail Stocks Interest You? Check These
Investors may consider stocks from the same sector such as Burlington Stores Inc. BURL, Ross Stores Inc ROST and Dollar Tree Inc. DLTR. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
Burlington Stores delivered an average positive earnings surprise of 15.2% in the last four quarters. It has a long-term earnings growth rate of 17.5%.
Ross Stores delivered an average positive earnings surprise of 5.5% in the trailing four quarters. It has a long-term earnings growth rate of 10%.
Dollar Tree delivered an average positive earnings surprise of 7.4% in the trailing four quarters. It has a long-term earnings growth rate of 13.1%.
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