If there is a word to sum up The TJX Companies, Inc. (NYSE:TJX)’s approach to guidance it would be conservative. This is definitely not one of those companies that over-promises and under-delivers, and that is exactly what you want in a company. With that said, the key question here is whether you believe there is upside to its guidance or not. In summary, I happen to think there is and am happy to hold the stock. Here is why.
TJX’s Metronomic Guidance
To explain what I mean I would refer to a previous article that discussed the last set of results. Back then the guidance was for full year comparable same store sales to come in at 5-6% (a number raised from 4-5% previously), and this implied Q4 same store sales to be up 0-2% (note this number, you will need it later). In the end the numbers came in at 7% and 4% respectively.
Furthermore, if we go back to what they modeled last year it was 0-2% growth. Fast forward to now and the guidance for Q1 is (yes you guessed it) 0-2% comparable same store sales growth; although a frisson of excitement went through the investment community when full year guidance was for 1-2%!
Okay I am being a bit sarcastic, but it is in order to make a few points.
Firstly, the company has upside potential provided you think it can beat this guidance. Second, in an environment where the market is worried about tax increases, fuel price hikes, the Sequester and a generally slow economy it is easy for naysayers to hook onto the 0-2% guidance and conclude that times are tough at The TJX Companies, Inc. (NYSE:TJX). Third, it can model these numbers because its business model means it can bring in extra merchandise at relatively short notice. In other words, if sales are better than expected it won’t necessarily suffer from not having sufficient stock available.
A quick look at how comparable same store sales have moved across its stores:
There are some tough comparables in Q1 & Q2, but if the economy holds up then I think 1-2% overall looks conservative. Furthermore, note how well Europe is doing. A good sign for its expansion plans.
Why I Like TJX’s Prospects
The TJX Companies, Inc. (NYSE:TJX) describes itself as modeling for a $50,000 income customer and as such this places it more in the mass market consumer than say, more up-market retailers like Nordstrom, Inc. (NYSE:JWN) or Coach, Inc. (NYSE:COH). Indeed, looking at Nordstrom it is planning to significantly increase its Rack (discounted price stores) outlets relative to its traditional full price stores. This is a sure sign that a new retail reality is having a lasting effect on consumer behavior. Once consumers get used to a lengthy period of austerity, trading down and general economizing (while everyone around them is also doing this) it seems to become a ‘sticky’ activity. I like the way Nordstrom has adjusted, but it is proving tougher for Coach. Its niche of ‘affordable luxury’ is being challenged by new entrants like Michael Kors, and as the retail landscape shifts downwards in the mass market, companies like Coach will have to adjust.