Why TJX will remain a top pick in the retail space: Analyst
Shares of TJX Companies (TJX) are slightly positive Wednesday morning as the company posted its fourth-quarter report, showing same-store sales rose 5% year over year. In addition, the company plans to raise its dividend by 13% in fiscal year 2025.
Jefferies Analyst Corey Tarlowe joins Yahoo Finance to give insight into consumer trends within the retail space and what investors should keep in mind when eyeing the sector.
Tarlowe: "It's one of our top picks within large cap alongside Walmart (WMT) and Costco (COST), the stocks perform very nicely. We do see continued out performance here and the fundamentals that we've continued to observe all throughout 2023 and into 2024 so far have been very, very strong according to the data that we track with traffic, again driving the majority of the top sales gain. We really are very encouraged with what we are seeing alongside the strong sales trends."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino
Video Transcript
SEANA SMITH: TJX reporting same store sales rising 5% from a year ago in its fourth quarter results. And also saying that it plans to raise its dividend by 13% in fiscal 2025. The better than expected results here, the reason why we're seeing that stock move slightly to the upside ahead of the open is because many of those consumers are trading down to those off price retailer.
So let's talk about that landscape with Corey Tarlowe. He's an analyst with Jefferies Corey. It's great to see you here. I'm curious to get your reaction to the numbers that we're getting out here from TJX this morning. And what that tells us about the larger trend that we're seeing play out right now within the retail space.
COREY TARLOWE: Sure. Thank you for having me on and good morning. So what I would say is that, number one, the consumer has been largely much more resilient than I think we had expected. There's been relatively low unemployment. There's been relatively strong, spend in categories and channels like off price retail. Specifically in apparel. And the company has seen really great momentum in traffic.
So you pointed out what was a 5% same store sales gain. That's predominantly, if not entirely driven by an increase in foot traffic. So at a time when inflation has been up call it 3% to 4%, the sales gains have entirely been driven by new people coming into the store and existing shoppers going to TJ Maxx more often. That's a really great sign for the fundamentals of this business.
And the guide was very strong. The company talked about gift being being a highlight in the fourth quarter. And as you mentioned, they also raised the dividend and talked about, I think a 2 to $2.5 billion buyback. So this company generates a lot of revenue. A lot of margin. And a lot of cash flow that they can then return to shareholders.
BRAD SMITH: Does that make them then the prime portfolio play for a value conscious consumer or value hacking environment that consumers are currently in right now?
COREY TARLOWE: We certainly think so. It's one of our top picks within large cap, alongside Walmart and Costco. And the stock's perform very nicely. So we do see continued outperformance here and the fundamentals that we've continued to observe all throughout 2023 and into 2024 so far. Have been very strong according to the data that we track with traffic again, driving the majority of the Comp sales gains.
So we really are very encouraged by what we're seeing alongside the strong sales trends. You've now seen a return to growth and home goods now for the last few quarters. That's helped to unlock a little bit better margin, they've had lower freight expense. Also cited lower shrink and lower promotions. So everything seems to be trending in the right direction for this business at present.
BRAD SMITH: Corey, more broadly, when we think about the resilience of the consumer and that narrative that has continued on, how resilient is the consumer, especially if we're looking across the prices that are actually being realized or where there are deep discounts that consumers still continue to look for right now?
COREY TARLOWE: Sure. I think that this is really emblematic. If you take a look at the TJ Maxx results today or if you look at the Walmart results from last week. I think that you continue to see value oriented retailers with attractive price points. That sell not only things that you need. But also things that you want are really trending quite well right now from a sales and a traffic perspective.
And you're seeing also some upward margin trajectory too. So that in and of itself tends to be conducive to upward earnings revisions which is a really great reason to buy stocks in retail. So that I think based on the underlying trends that we've seen thus far in the fourth quarter and quarter to date are really emblematic of again a continued upside for Walmart and also TJ Maxx.
SEANA SMITH: Corey when it comes to some of those broader trends that we're seeing in terms of where people are spending money. Yes, they are trading down but one of the categories that has remained relatively resilient is the beauty category, is cosmetics, is that something that you think is going to buck that downward trend and remain strong here for the remainder of 2024.
COREY TARLOWE: It's a great question and it's certainly a category that TJ Maxx has talked about being quite strong. And in fact, if you go into some of their newer stores-- the newer remodeled stores. What you'll see is a brighter section with new fixtures. You might even see some greater square footage allocated toward the category. And you'll see some new brands as well.
So I think that what TJ Maxx and other companies like target with its partnership with Ulta have recognized is that there's a lot of opportunity in this category. It helps to drive trip frequency because it's a consumable type product but it has a non consumable type margin. So it actually helps to benefit profitability.
