Over the course of the past several months, Jim Cramer has discussed The TJX Companies, Inc. (NYSE:TJX) on several occasions. Most of the time, the CNBC TV host has compared the firm with other retailers such as Ross Stores and remarked that the latter’s performance was just too good. In his morning appearance on September 3rd, Cramer once again remarked that Ross was impacting The TJX Companies, Inc. (NYSE:TJX):
“TJX has been, I bet you it’s down again. . .now we own TJX, we own Costco, TJX. A heat seeking missile’s going to take that price up, believe me. It already hit a low, 131. TJX is a very good company, something went wrong, they admitted it, it was a horrible conference call. . .where they basically just said listen we totally screwed up. The good news is that they didn’t screw up on the home goods. The bad news is the flagship, the one we have right over here was 2% when, I mean Ross ran circles around them. They have to make a comeback. They have to make a comeback. . .TJ, I found it unbelievable, the stock seems to be falling all because of on the conference call, they said look, we didn’t have the merchandise. It seemed like frankly they had gotten cocky. And I wonder whether Costco and TJ are cocky. Because that is the kiss of death in retail. Because the moment that you think you know what you’re doing, are you kidding me.”
Being a retailer, The TJX Companies, Inc.’s comparable sales are a narrative driving metric. In its second quarter earnings, reported on August 19th, the retailer posted 4% growth in overall comparable same store sales. The growth was driven by its HomeGoods business through a 6% comparable growth while Marmaxx’s 1% growth proved to be a laggard. Given that Marmaxx accounts for roughly 60% of The TJX Companies, Inc.’s revenue, the lagging comparable same store sales drive the debate about whether the strong HomeGoods performance is sufficient to offset the business’ slowdown.
Additionally, profitability didn’t make any major improvements, with the adjusted profit margin of 11.9% marking a modest 50 basis point annual growth. With profitability remaining slow, The TJX Companies, Inc.’s management also outlined that it aimed to expand its operational footprint by 4% annually starting in 2028. This marked a 1% jump but came at a time when expense ratios were tight. During the third quarter, The TJX Companies, Inc.’s selling, general and administrative expense ratio was 19.7% and marked a 20 basis point jump due to a legally mandated increase in wages. As a result, costs are a key watchout point even as management claimed in Q2 that a 70 point gross margin expansion helped counter the higher costs.
Looking at hedge fund sentiment, 80 out of the 1,006 funds tracked by Insider Monkey in Q2 had held a stake in The TJX Companies, Inc. which was a slight dip over the 83 out of 1,022 in Q1. Notable exits included Two Sigma Advisors and Maverick Capital. The firm’s forward P/E ratio of 24.39 is lower than Costco’s 40.32, Walmart’s 36 and Ross’ 27 which suggests that the bearish sentiment is baked into the stock. Yet, short interest as a percentage of float is lower than Ross, which indicates that the latter’s comparable sales growth might be generating unease.
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