TJX is able to provide extraordinary value to customers because it turns over inventory at a high rate, has a relatively inexpensive real estate footprint, and thereby minimizes selling costs. Whereas SG&A costs reach 25% to 35% of sales at most department stores, SG&A totaled just 16.4% of sales last year for The TJX Companies, Inc. (NYSE:TJX). This allowed the company to achieve a pre-tax margin of 11.9% on gross margin of just 28.4% (well below the 40% level frequently seen at department stores).
TJX’s low overhead business model creates strong returns for investors. The company’s return on assets of 21.5% and return on equity of 54.7% are both well ahead of peers. Moreover, even e-commerce leaders like Amazon.com, Inc. (NASDAQ:AMZN) cannot beat TJX’s prices due to the latter’s low overhead.
The TJX Companies, Inc. (NYSE:TJX) already has over 3,000 stores worldwide, but CEO Carol Meyrowitz is confident that additional opportunities abound. She sees the potential to grow the store base by at least 50%, while also creating an e-commerce offering. Meanwhile, the company has been able to return plenty of cash to shareholders through dividends and share buybacks. In light of its strong growth profile, TJX seems like a great investment opportunity at its recent price of 19 times trailing earnings.
Foolish bottom line
While e-commerce will continue to gain share from brick-and-mortar retail over time, there are still some solid investment opportunities available among traditional retailers. Nordstrom, Inc. (NYSE:JWN) and TJX each offer great value to consumers in their own way: through service leadership at Nordstrom and through price leadership at The TJX Companies, Inc. (NYSE:TJX). They each have plenty of growth opportunities available and trade at very reasonable valuations. Both of these investment opportunities are likely to pay off for long-term investors.
The article 2 Great Investment Opportunities in Retail Today originally appeared on Fool.com and is written by Adam Levine-Weinberg.
Fool contributor Adam Levine-Weinberg is short shares of Amazon.com. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com.
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