Although the apparel retail segment is not expected to outperform the market, some companies have survived and even benefited from the last economic crisis and now stand in considerably strong positions to benefit from various expansion opportunities. In this article I will look at The TJX Companies, Inc. (NYSE:TJX), Ross Stores, Inc. (NASDAQ:ROST) and L Brands Inc (NYSE:LTD), three firms in the industry that offer compelling and sustainable growth prospects for years to come.
TJX Companies: Takes advantage of economic crisis
The TJX Companies, Inc. (NYSE:TJX) is the leader in the U.S. low-price apparel retail segment and runs over 3,000 stores worldwide. One of its main competitive advantages stems from its partnerships with manufacturers such as Ralph Lauren Corp (NYSE:RL), allowing it to purchase excess inventory at a fraction of the original price. With central economies hit by the economic crisis and a slow recovery following, consumer trends shifting to lower priced products largely benefited TJX. This trend is expected to continue in the upcoming years; consensus estimates project an 11% annual earnings-per-share growth rate for the next five years. Although not poised to outperform the market, the company does deserve a closer look due to its established position in the market and its scale, which provides a considerable moat and keeps competitors lagging.
One of the main growth drivers for the company in the long-term is its expansion initiatives. While results are already outstanding in the U.S. and Europe, store base expansion should heavily contribute to revenue and earnings increases. The company targets a 5% growth in its store count by the end of 2014. The incursion into the e-commerce sector, boosted by the Sierra Trading Post acquisition last December, is also expected to deliver positive results and boost earnings by the end of the next fiscal year.
None of its close competitors seem capable of matching TJX’s operations or revenue (which is almost triple that of Ross Stores). Meanwhile, its prospects look promising and its margins are pretty shielded since when prices rise elsewhere, The TJX Companies, Inc. (NYSE:TJX) can do so as well without losing the competitive advantage provided by its offering of discount prices. Consequently, the company’s margins have reflected this pricing and margin generation power, reaching 12% for the operational margin and 7.4% for the net margin, which are considerably above the industry averages of 9.3% and 5.5%, respectively. Returns on capital and equity should also be highlighted as they comfortably double the industry means. With such compelling financials and profitability figures and a balanced debt/equity ratio while trading slightly below average valuations at 20 times its earnings, I would recommend buying this stock.