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T.J.Maxx parent TJX beats on earnings, stock pops

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Yahoo Finance Live anchors discuss second-quarter earnings for TJ Maxx.

Video Transcript

[MUSIC PLAYING]

BRIAN SOZZI: Welcome back to "Yahoo Finance Live." Let's take a look at some of the biggest movers in the market this morning ahead of that opening bell on Wall Street. We have to start with TJX Companies here, guys, of course the owner of TJ Maxx and Marshalls. The stock is popping here in the premarket.

Now, that wouldn't be your first initial take, I think, just looking at the results. But why the stock is moving higher-- if you go down to the bottom of the earnings release, guys, they have lifted their full-year operating profit margin outlook, which is interesting to me. Because you go back three months ago, they didn't even share guidance. So it is unclear to me where they are lifting this result from.

But overall, this was another disappointing quarter from the retailer, flat US same-store sales. They also noted too that the second quarter, they're looking for US same-store sales to decline by 1% to 3%. Another way to read that is for TJ Maxx, the second quarter has not started very well. Not surprising given what we heard from Walmart and Target in the apparel category.

And Brad, another company warning about a large inventory bulge. Inventory per store was up 35%. That is a big number, even for TJ Maxx that likes to accumulate inventory, store it away, and then sell it during future periods.

- And you bring up a great point in that I think, particularly when it comes to TJ Maxx and inventory, that is actually one store that we would like to see inventories be better than expected because that means that they actually have enough of the inventory to be able to discount. People expect them to discount, so it's just the rate at which they are discounting and moving some of that inventory through.

I think as well, though, particularly going back to A you brought up a moment ago in what they're looking for in those margins, it's amazing on that capacity because they've actually lowered what their US comp store sales forecast is going to be. They were looking for 3% to 4% at the beginning of the year. They've now lowered that to 1% to 2% on a 17% US open only comp store sales increase basis.

And so all that considered, they've lowered some of the outlook going forward on the comp store sales side. And then additionally, you look at what they also have pulled back on not just the comp sales full-year focus, but also how they're going to actually move through that inventory. I think that is a significant question. But in a time of any type of economic downturn or recessionary or pre-recessionary period, that's when a consumer that's facing higher inflation tends to go toward some of the discounted brands or some of the discount retailers out there. And TJ Maxx could be one of those beneficiaries, perhaps, depending upon what that pricing strategy looks like.

JULIE HYMAN: Well, what we're saying is pretty negative overall on TJX, and yet the shares, as we've been showing, are higher by 8%. So I've been trying to figure out what's going on here. I think part of it has to do with that EPS beat. I'm looking at a note from our friend Simeon Siegel over at BMO Capital Markets. He says the gross margin, even though it fell, even though contracted, was a little bit ahead of the Street. So that also could be a source of relief here in the shares.