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TJX Companies (TJX) Continues to Impress: Time to Buy?

Zacks Equity Research

While most of the retailers are losing their market share to the online buying craze, discount retailer The TJX Companies Inc. TJX is one of the few retailers which have managed to stay afloat amid troubled waters of the retail sector. Although the shares of TJX Companies have declined 0.5% in the past three months, underperforming the Zacks categorized Retail Wholesale sector which has witnessed a gain of 3% in the same time frame, we expect the trend to reverse in the near future driven by the company’s solid fundamentals and strategic initiatives.

Solid Earnings Trend

The company has shown an uptrend even in terms of earnings, as evident from its earnings beat in the trailing four quarters with an average earnings surprise of 5.9%. Further earnings are anticipated to grow by 11% in the next five years.

In the recently concluded fourth-quarter fiscal 2017, net sales, comparable store sales (comps) and earnings exceeded expectations. Earnings of $1.03 per share surpassed the Zacks Consensus Estimate and year-ago results by 4%, driven by higher sales. Further, earnings exceeded management’s guidance of 96–98 cents per share.

Net sales increased 6% year over year to $9.5 billion on the back of higher comps in almost all the segments.

Analysts are also optimistic about the company’s performance as evident from the fact that estimates have been rising for the past seven days. While estimates for the first quarter fiscal 2018 went up 1% to 92 cents that of fiscal 2018 went up 3.2% to $3.90 per share..

Optimistic Guidance

For fiscal 2018, TJX Companies projects adjusted earnings per share in the range of $3.80–$3.89, up 5–7% from fiscal 2017 results. The earnings guidance assumes a sales growth of 6–7% during fiscal 2018 and comps are also expected to grow 1–2% during the upcoming year.

Initiatives to Boost Sales

The TJX Companies has reported positive comparable store sales (comps) growth in the past 30 quarters. Further, its several initiatives to boost sales along with an aggressive store opening strategy in the pipeline holds it in good stead.

TJX Companies plans to grow more than 50% to 5,600 stores over the next few years which includes addition of over 1,400 stores in North America, doubling Marmaxx to 3,000 stores in the U.S. and also plans to expand HomeGoods chain to at least 1,000 stores, almost twice its existing base. Moreover, the company plans to build about 500 stores over the long term in Canada, and nearly double its current base in Europe by expanding to 975 outlets.

Further, the company has undertaken several initiatives to augment online sales by recruiting an experienced internet management team. Additionally, it intends to add more categories to the online shopping site, tjxmaxx.com and invest categorically in it to differentiate it from its brick-and-mortar stores.

The TJX Companies is also taking steps to rejuvenate its loyalty program for 2017. The program has been a huge success with approximately 8 million members enrolled already. Moreover, the company has added special rewards for key segments of the program. Notably, the loyalty program is unique among off-price retailers.

However, TJX Companies has been struggling with lower margins in the past few quarters, mainly due to wages increments announced in 2016. Furthermore, the off-price nature of the company prevents it from raising prices in order to maintain margins.

Although it is facing headwinds, these difficulties are transitory and TJX Companies might offset lower margins in 2017, if the above mentioned initiatives are effective. Taking the pros and cons into regard, we feel it will be a prudent decision to buy the stock for now.

Stocks to Consider

TJX Companies carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the retail sector are Zumiez, Inc. ZUMZ, Dollar Tree Inc. DLTR and Genesco Inc. GCO. All these stocks carry a Zacks Rank #2 (Buy). While Zumiez has an expected long-term earnings growth of 15.0%, Genesco and Dollar Tree has an expected earnings growth of 9.5% and 16.7%, respectively, for the next three to five years.

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