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TJX Companies Gains 19% in 3 Months: Will Momentum Sustain?

Zacks Equity Research

The TJX Companies, Inc. TJX is gaining momentum on the back of strong merchandising and brand strategies combined with effective marketing efforts. These factors continued to boost customer traffic and helped the company to retain its solid comparable store sales (comps) trend in fourth-quarter fiscal 2019. Also, the company’s off-price model, strategic store locations and impressive brands have been bolstering its store and online performance.

In the past three months, shares of this Framingham, MA-based company have rallied approximately 19% compared with the industry’s and S&P 500 index’s growth of 15.3% and 12.9%, respectively.

Let’s introspect.

Factors Behind TJX Companies’ Bullish Run

TJX Companies boasts an impressive comp run. The solid trend continued in fourth-quarter fiscal 2019, wherein consolidated comps grew 6% year over year fueled by increased customer traffic at all its segments. The company’s apparel and home businesses remained strong in the quarter. Notably, the fourth quarter marked the 18th straight period of higher customer traffic at both Marmaxx and the entire company.

In fact, all its segments reported higher comps, courtesy of consumers’ favorable response to the company’s brands and impressive merchandise assortments at reasonable prices. Comps rose 5%, 4%, 5% and 7%, respectively, at the HomeGoods, TJX Canada, TJX International and Marmaxx segments. That said, management now expects comps growth of 2-3% for the company. Comps at Marmaxx are also expected to grow in the same range for fiscal 2020.

Markedly, this Zacks Rank #3 (Hold) company regularly opens stores and expands across the United States, Europe and Canada. During fiscal 2019, TJX Companies added around 236 stores. It intends to continue expanding store base with plans to operate about 6,100 stores in the long term.

Further, with an increasing number of consumers resorting to online shopping, the company has undertaken several initiatives to increase online sales and strengthen its e-commerce business. Also, the company remains committed toward boosting comps growth through effective marketing initiatives and loyalty programs. Incidentally, TJX Companies’ aggressive marketing and advertising campaigns through multiple mediums have been improving traffic at its stores.

Wrapping Up

We note that TJX Companies is grappling with high wage and freight costs as well as adverse currency fluctuations. In the fourth quarter of fiscal 2019, freight costs hurt gross margin and bottom-line growth. Further, wage increases and higher freight costs are expected to negatively impact earnings per share growth by 4% in fiscal 2020.

In the first quarter of fiscal 2020, bottom-line growth is expected to be hurt by 7% due to wage increases, higher freight costs and currency woes.

Nonetheless, we expect the company’s strategic initiatives and solid comps to offset cost woes and help TJX Companies sustain the solid momentum ahead.

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