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TJX (TJX) Up 5.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for TJX (TJX). Shares have added about 5.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is TJX due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

TJX Companies Q2 Earnings In Line, Sales Lag Estimates

TJX Companies posted second-quarter fiscal 2020 results. The company’s earnings came in at 62 cents per share, which grew 7% year over year. Further, the bottom line came in line with the Zacks Consensus Estimate and met the upper end of management’s guidance.

Net sales advanced about 5% year over year to $9,781.6 million but fell short of the Zacks Consensus Estimate of $9,883 million. Net sales growth included a 1% adverse impact from currency movements.

Sales were backed by solid comparable store sales (comps), which gained from robust customer traffic across all segments. TJX Companies' consolidated comps grew 2% year over year.

Comps rose 1%, 6% and 2% in TJX Canada, TJX International and Marmaxx segments, respectively, while it remained flat at the HomeGoods segment.

Gross margin fell 0.7 percentage point (pp) to 28.5%, owing to elevated supply-chain expenses and lower merchandise margins.

Selling, general and administrative costs as a percentage of sales declined 0.5 pp year over year to 17.7%, mainly due to lower IT restructuring costs.

Other Financial Updates

The company ended the quarter with cash and cash equivalents of $2,186.4 million, long-term debt of $2,235.1 million and total shareholders’ equity of $5,302.6 million. Cash provided by operating activities for 26 weeks ended Aug 3, 2019, was $899.2 million.

Consolidated inventories on a per-store basis (including distribution centers and excluding e-commerce, inventory in transit and Sierra stores) increased 6% (up 7% on a constant-currency basis) year over year. Given its impressive inventory position, the company is well poised to take advantage of solid opportunities in the market for branded merchandise.

During the reported quarter, TJX Companies returned $579 million to its stockholders via dividend payouts and share buybacks. In the second quarter, the company repurchased 5.6 million shares for $300 million and paid out dividend worth $279 million. In the first half of fiscal 2020, management paid out dividends worth $517 million and repurchased 12.3 million shares for $650 million. TJX Companies intends to buy back shares worth nearly $1.75 billion in fiscal 2020.

TJX Companies opened 31 stores during the second quarter, taking the total count to 4,412.

Fiscal 2020 Guidance

The company is impressed with its quarterly performance and also began the third quarter on a strong note. Management is encouraged about its strategic initiatives and constant efforts to boost customer traffic and sales.

Management reiterated its bottom-line guidance for fiscal 2020. TJX Companies projects earnings per share of $2.56-$2.61, indicating year-over-year growth of 5-7% (including last year’s pension settlement charges) and 4-7% (excluding last year’s pension settlement charges). The Zacks Consensus Estimate is currently pegged at $2.63.

Further, consolidated comps are expected to grow 2-3% and comps at Marmaxx are also expected to increase in the same range.

Q3 View

The company expects consolidated comps growth of 1-2% for the quarter. Comps at Marmaxx are expected to grow in the same range. The company expects earnings of 63-65 cents per share compared with adjusted earnings of 63 cents reported in the year-ago quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, TJX has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, TJX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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