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TJX Companies Battles Soft Comps & High Costs Amid Coronavirus

Zacks Equity Research
·5 min read

The TJX Companies, Inc. TJX has been reeling under several concerns associated with the novel coronavirus. While the company has reopened more than 4,500 stores worldwide, temporary closures due to the pandemic weighed on its performance in the second quarter of fiscal 2021. Also, the company is witnessing escalated costs associated with COVID-19.

Due to these downsides, TJX Companies posted yet another quarter of drab results when it reported second-quarter numbers. Both top and bottom lines deteriorated year over year and lagged the Zacks Consensus Estimate. Further, open-only comp store sales declined and are likely to remain soft in the third quarter. Cost woes are also expected to persist.

Incidentally, the Zacks Consensus Estimate for the third quarter and fiscal 2020 have plummeted significantly from 61 cents to 40 cents and from 60 cents to 20 cents, respectively, over the past 30 days. Moreover, shares of this Zacks Rank #4 (Sell) company have dropped 11.1% in the past six months against the industry’s growth of 10.1%. Also, the company has underperformed the Zacks Retail-Wholesale sector and the S&P 500’s respective increases of 42% and 9.1% in the same time frame.

Weak Open-Only Comp Store Sales

In its second-quarter earnings, management stated that due to temporary store closures amid the pandemic, the comp store sales definition was not applicable in the quarter under review. Thus, to offer a performance indicator for the stores as they reopen, TJX Companies came up with a temporary new sales measure — open-only comp store sales. This includes stores that were initially classified as comp stores (at the beginning of fiscal 2021), with sales reporting done for the number of days these were opened in the quarter under review. During the second quarter, open-only comp store sales for the company fell 3% year over year. The metric declined 6%, 18% and 1% at the Marmaxx (U.S.), TJX Canada and TJX International divisions, respectively.

In the third quarter, management expects to see overall open-only comp store sales decline of 10-20%. This goes in tandem with the sales trends witnessed since mid-July through August (to date). The outlook also reflects the uncertainty surrounding consumer behavior, traffic and demand amid the pandemic, including a sluggish back-to-school selling season.

The TJX Companies, Inc. Price, Consensus and EPS Surprise

The TJX Companies, Inc. Price, Consensus and EPS Surprise
The TJX Companies, Inc. Price, Consensus and EPS Surprise

The TJX Companies, Inc. price-consensus-eps-surprise-chart | The TJX Companies, Inc. Quote

Cost Concerns

TJX Companies saw several additional costs related to COVID-19 in the second quarter. These included higher payroll investments in stores for better cleaning, payroll for store workers, additional expenses related to the appreciation bonus paid in the quarter and PPE for employees. These costs weighed on the company’s bottom line, which was otherwise cushioned by its robust saving efforts undertaken in the first quarter due to the pandemic. Management expects to incur additional COVID-19 net costs of about 250 basis points each in the third and fourth quarters of fiscal 2021, excluding elevated interest expenses. Apart from this, management now envisions incremental freight costs and expenses associated with increased third-party providers, which will enable TJX Companies’ North American distribution centers to process goods.

Wrapping Up

While these factors make us apprehensive about TJX Companies’ near-term performance, store reopening and online operations should offer some cushion. Markedly, the company has reopened more than 4,500 stores worldwide along with each of its online shopping sites. In fact, the company, which shares space with Ross Stores ROST, saw robust initial sales in all its retail banners and countries when it reopened stores. However, after an initial demand spike, sales and traffic moderated as the second quarter progressed and also in the third quarter. Nonetheless, the company expects to gain market share again when more customers restart shopping in stores.

Until then, investors can count on better-ranked stocks that are poised to keep their impressive show on. 

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