The TJX Companies, Inc. TJX has been benefiting from its solid store and e-commerce growth efforts. The leading off-price retailer is undertaking marketing strategies to fuel growth. That being said, The TJX Companies is battling escalated freight costs.
Let’s delve deeper.
What’s Working Well for The TJX Companies?
The TJX Companies has been expanding its footprint fast in the United States, Europe, Canada and Australia. During third-quarter fiscal 2023, the company increased its store count by 57 stores to reach 4,793 stores. It increased square footage by 1% quarter over quarter during this time. The company has been on track with opening new stores, remodeling, relocating and investing in distribution, network as well as infrastructure.
The TJX Companies has been witnessing solid demand for an in-person shopping experience in the last few years. Its flexible buying supply chain and store formats aid the company in opening stores across a wide customer demographic. With the increasing number of consumers resorting to online shopping, The TJX Companies has undertaken several initiatives to boost online sales and strengthen its e-commerce business. Its off-price model, strategic store locations, impressive brands and fashion products and efficient supply-chain management are likely to aid its performance.
Management is optimistic about its capabilities to provide impressive brands and gifts to its stores and online during the holiday season. The company is committed to driving traffic and sales in the fourth quarter of fiscal 2023. The company expects to deliver an impressive assortment of branded gifts during the holiday season to fuel sales. The TJX Companies’ expects to flow fresh products to its stores and online platforms several times a week through the season.
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TJX remains committed toward boosting growth, through effective marketing initiatives and loyalty programs. In its last earnings call, management highlighted that its recently launched holiday marketing campaigns can aid in fueling traffic from new and existing shoppers across all banners. In the United States and Canada, management is leveraging the strengths of retail brand portfolio and multi-banner campaigns to drive efficiencies and build awareness. The company’s treasure hunt shopping experience is gaining traction among shoppers.
High Costs: A Hurdle
The TJX Companies has been grappling with increased freight costs. The company’s merchandise margin was hurt by incremental freight pressure in the third quarter of fiscal 2023 to some extent. The company also witnessed incremental wage costs, which weighed on the pretax profit margin. The TJX Companies saw additional wage costs of 80 basis points (bps). The company’s fiscal third-quarter gross profit margin was 29.1%, down 0.4 percentage points. In its last earnings call, management highlighted that for modeling purposes, it is currently projecting nearly 130 bps of incremental freight expense and 70 bps of additional wage costs for fiscal 2023.
Nevertheless, we believe that the aforementioned upsides will likely help this Zacks Rank #3 (Hold) company stay afloat amid such hurdles.
TJX’s stock has increased 27.6% in the past three months compared with the industry’s 5.7% growth.
3 Hot Retail Bets
Here we have highlighted three top-ranked stocks, namely Ross Stores Inc. ROST, Dillard's, Inc. DDS and Sprouts Farmers SFM.
Ross Stores, an off-price retailer of apparel and home accessories in the United States, currently carries a Zacks Rank of 1 (Strong Buy). ROST has an expected EPS growth rate of 10.5% for three-five years. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ross Stores’ current-year sales and EPS suggests a decline of 1.6% and 11.7%, respectively, from the corresponding year-ago reported figures. ROST has a trailing four-quarter earnings surprise of 10.5%, on average.
Dillard's, a retail department store operator, currently has a Zacks Rank #1. DDS has a trailing four-quarter earnings surprise of almost 144.2%, on average.
The Zacks Consensus Estimate for Dillard's current financial year sales and EPS suggests a growth of 6.6% and 3.4%, respectively, from the year-ago period.
Sprouts Farmers, offers fresh, natural and organic food products. The stock currently carries a Zacks Rank #2 (Buy). SFM has an expected EPS growth rate of 10.4% for three to five years.
The Zacks Consensus Estimate for Sprouts Farmers’ current financial year revenues and EPS suggests an increase of 4.6% and 9.5%, respectively, from the year-ago reported figure. Sprouts Farmers has a trailing four-quarter earnings surprise of roughly 10%, on average.
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