The TJX Companies, Inc. (TJX): Is This Retailer Still Good Value?

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The TJX Companies (TJX) Clamors for Its Part of Ecommerce PieThe retail sector has been one of the hardest to call in recent years. The bifurcation in prospects between the haves and have-nots in the U.S. has created an atypical situation within the sector. Whereas in previous recoveries, the general drift is upwards across the board, this recovery has seen a strengthening at the high end and a general movement towards ‘trading down’ in the mid range. Within these shifting sands, one island of retail has offered strong prospects.

Specifically, the off-price retailers have demonstrated continued strength and The TJX Companies, Inc. (NYSE:TJX) latest results are confirming this trend.

TJX Companies reports sales growth at the high end

Earlier in May The TJX Companies, Inc. (NYSE:TJX) had reported same-store sales growth of 2% in the quarter and declared that its same-store sales in April came in at the high end of guidance at 8%. This positive trend appears to be in place as the company declared that its May sales were off to a ‘strong start.’

As ever with The TJX Companies, Inc. (NYSE:TJX), it is worth noting that its guidance tends to be conservative. I discussed this issue at more length in an article linked here. In rote like fashion, its management tends to guide towards 0%-2% in same-store sales growth. However, they came in at 2% for this quarter and the guidance was 2%-3% for Q2. All of this makes it rather surprising that it kept its full year guidance at 1%-2%. Upside to come?

I’ve broken out the revenue trends within its segments.

And in order to see how TJX makes its money, here is a breakdown of its segmental profit for the quarter.

Clearly, it is still largely a story of Marmaxx (T.J. Maxx and Marshalls) and its prospects are largely guided by the retail movement towards trading down. TJX is not alone in this. Indeed, Ross Stores has benefited from exactly the same trends. Furthermore a retailer like Nordstrom, Inc. (NYSE:JWN) is expanding its lower priced Rack stores in order to react to the new retail reality. I’ll come back to these companies in a moment, but for now I want to look at some of the interesting other growth drivers that TJX has going for it.

TJX Companies’ other growth prospects

While the reliance on Marmaxx is well understood, The TJX Companies, Inc. (NYSE:TJX) has some interesting growth drivers going forward

Europe presents significant growth prospects. The competition in the off-price market is a lot less and Europe’s economic difficulties are creating growth opportunities. The U.K. has long been a strong market for TJX, but Germany was cited as doing ‘very well’ with the potential to expand to 350 stores from 50 at present.

Home goods in the U.S. have the potential to grow in line with the recovery in the housing market. Its segmental margins increased 120 bps in the quarter and the opportunity to cross sell home goods to its clothing customers is significant. It is the right category at the right time.

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