Earnings Analysis: TJX Cos. (NYSE:TJX)

Published on November 19, 2012 at 10:20 am by Capital Cube in Stock Analysis

The TJX Companies, Inc. (NYSE:TJX) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

TJX Cos.’s analysis versus peers uses the following peer-set: Target Corporation (NYSE:TGT), Macy’s, Inc. (NYSE:M), Ross Stores, Inc. (NASDAQ:ROST), TRUWORTHS INTL LTD (PINK:TRWKF), Dillard’s, Inc. (NYSE:DDS), SHIMAMURA Co., Ltd. (TYO:8227), Ascena Retail Group Inc (NASDAQ:ASNA) and Marisa Lojas S.A. (AMAR3). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million)	2012-10-31	2012-07-31	2012-04-30	2012-01-31	2011-10-31
Revenues	6,410.9	5,945.6	5,798.1	6,709.8	5,793.1
Revenue Growth %	7.8	2.5	(13.6)	15.8	5.9
Net Income	461.6	421.1	419.2	475.3	406.5
Net Income Growth %	9.6	0.5	(11.8)	16.9	16.7
Net Margin %	7.2	7.1	7.2	7.1	7.0
ROE % (Annualized)	53.9	50.1	51.3	59.5	51.7
ROA % (Annualized)	20.7	19.7	20.0	22.6	19.6

Valuation Drivers

TJX Cos. currently trades at a higher Price/Book ratio (9.0) than its peer median (2.9). TJX-US achieved a better operating performance than the median of its chosen peers (ROE of 53.5% compared to the peer median ROE of 18.9%) and the market still expects faster growth from it than from those peers (PE of 18.1 compared to peer median of 14.4).

The company has a successful operating strategy with above median net profit margins of 7.1% (vs. peer median of 5.5%) and relatively high asset turns of 2.8x (vs. peer median of 1.4x). This suggests that the company has a dominant operating model relative to its peers. TJX-US’s net margin is its highest relative to the last five years and compares to a low of 4.1% in 2008.

Economic Moat

Growth in TJX-US’s revenues and earnings have been in-line with its chosen peers (annual revenue growth of 5.7% and earnings growth of 11.7% respectively). Its top-line performance seems to imply ‘more of the same’ for earnings. TJX-US is currently converting every 1% of change in revenue into 2.1% change in annual reported earnings.

TJX-US’s return on assets is above its peer median both in the current period (20.1% vs. peer median 7.4%) and also over the past five years (16.0% vs. peer median 8.0%). This performance suggests that the company’s relatively high operating returns are sustainable.

The company’s gross margin of 30.1% is around peer median suggesting that TJX-US’s operations do not benefit from any differentiating pricing advantage. However, TJX-US’s pre-tax margin is more than the peer median (11.5% compared to 8.3%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

While TJX-US’s revenues growth has been around the peer median in recent years (6.9% vs. 6.9% respectively for the past three years), the market gives its shares a higher than peer median PE ratio of 18.1. The market seems to see faster growth ahead.

TJX-US’s annualized rate of change in capital of 11.1% over the past three years is around the same as its peer median of 11.1%. This investment has generated a better than peer median return on capital of 36.7% averaged over the same three years. The greater than peer median rate of return suggest that the company may be under investing in growth.

Earnings Quality

TJX-US has reported relatively strong net income margin for the last twelve months (7.1% vs. peer median of 5.5%). This margin performance combined with relatively high accruals (5.6% vs. peer median of 3.7%) suggests possible conservative accounting and an understatement of its reported net income.

TJX-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median — which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Graph of Revenues Trend for TJX Cos. (NYSE:TJX)

Graph of Net Margin Trend for TJX Cos. (NYSE:TJX)

Graph of Accruals Trend (% revenues, Quarterly) for TJX Cos. (NYSE:TJX)

Graph of Accruals Trend (% revenues, Annual or TTM) for TJX Cos. (NYSE:TJX)

Company Profile

The TJX Cos., Inc. operates as an off-price apparel and home fashions retailer in the United States and worldwide. Its stores offer a rapidly changing assortment of quality, fashionable, brand-name and designer merchandise at prices generally 20% to 60% below department and specialty store regular prices. TJX operates its business through the following segments: T.J. Maxx, Marshalls, and HomeGoods in the United States; Winners, HomeSense, and Marshalls in Canada; and T.K. Maxx and HomeSense in Europe. The T.J. Maxx segment offers an ever-fresh array of fashionable, brand-name family apparel, home fashions and other merchandise such as beauty products. The Marshalls segment offers an ever-changing assortment of fashionable, brand-name family apparel, home fashions and other merchandise such as toys. The HomeGoods segment offers a broad array of home basics, giftware, accent furniture, lamps, rugs, wall decor, decorative accessories, children’s furniture, seasonal and other merchandise. The Winners segment offers great values, fashions and brands in family apparel, such as women’s, family footwear, fine jewelry, children’s apparel, lingerie, accessories and menswear, home fashions, and other merchandise, including beauty. The Marshalls segment operates an expanded footwear department and a juniors’ department called The Cube, differentiating it from the Winners chain. The HomeSense segment offers customers a wide and rapidly changing selection of off-price home fashions, including giftware, home basics, accent furniture, lamps, accessories, and wall decor, as well as items for the kitchen, dining room and bedroom. The T.K. Maxx segment offers great values and styles in brand-name and designer family apparel, including women’s footwear, lingerie, and accessories, home fashions and other merchandise such as luggage and toys. The HomeSense segment offers a wide, ever-fresh selection of top-quality branded home fashions at great values to its U.K. customers. The company was founded by Stanley Harris Feldberg and Sumner L. Feldberg in 1956 and is headquartered in Framingham, MA.

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This article was originally written by abha.dawesar, and posted on CapitalCube.