Why Is TJX (TJX) Up 3.4% Since Last Earnings Report?

It has been about a month since the last earnings report for TJX (TJX). Shares have added about 3.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is TJX due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Robust Traffic Aids TJX Companies Q2 Earnings, View Raised

TJX Companies raised its guidance for fiscal 2019, after posting solid results for the second quarter. The company’s earnings came in at $1.17 per share compared with 85 cents recorded in the year-ago period. Excluding a benefit from 2017 Tax Cuts and Jobs Act, earnings came in at 99 cents per share. The Zacks Consensus Estimate was pegged at $1.05. 

Net sales advanced about 12% year over year to $9,331.1 million, which beat the Zacks Consensus Estimate of $9,030 million. Sales were backed by solid comparable store sales (comps), which continued to gain strength from solid customer traffic across all segments. Also, net sales growth included a 1% positive impact from favorable currency movements.

TJX Companies' consolidated comps grew 6% year over year, up from 3% growth recorded last year. Comps primarily benefited from increased customer traffic at all segments. Management remains particularly impressed with the performance of its largest division — Marmaxx. Notably, the second quarter marked the 16th straight period of higher customer traffic for both Marmaxx as well as the company as a whole.

Segment-wise, comps rose 3%, 6%, 4% and 7, respectively, in HomeGoods, TJX Canada, TJX International and Marmaxx segments.

Gross margin rose 0.4 percentage point (pp) to 28.9%. The upside was backed by favorable year-over-year comparison associated with TJX Companies’ inventory hedges.

Selling, general and administrative costs as a percentage of sales increased 0.4 pp to 18.2%, accountable to IT restructuring expenses and anticipated rise in wage costs.

Other Financial Updates

The company ended the quarter with cash and cash equivalents of $2,872.7 million, long-term debt of $2,232.1 million and total shareholders’ equity of $5,227.1 million. Cash flow from operations for the first half of fiscal 2019 was $1,560.7 million.

Consolidated inventories on a per-store basis (including distribution centers and excluding e-commerce and inventory in transit) increased 5% (up 6% on a constant currency basis) year over year. The company remains well placed to take advantage of solid opportunities in the market for branded merchandise, given its impressive inventory and liquidity position.

During the quarter, the company returned approximately $844 million to shareholders. As part of this, TJX Companies repurchased 6.4 million shares for $600 million and paid dividends worth $244 million. In first-half fiscal 2019, TJX Companies repurchased 11.3 million shares for $1.0 billion, while it paid dividends worth nearly $441 million.

For fiscal 2019, the company expects to repurchase shares worth approximately $2.5-$3.0 billion.

During the quarter, the company added 53 stores, taking its total store count to 4,194 stores as of Aug 4, 2018.

Fiscal 2019 Guidance

Management remains impressed with its solid earnings and comps performance, which continued to be driven by robust customer traffic and successful implementation of the company’s off-price fundamentals. Markedly, the company’s apparel business performed exceptionally well. Well, consumers’ favorable response to TJX Companies’ impressive brand portfolio and consistent rise in customer traffic keep management encouraged about witnessing continued market share gains.

The company further stated that it commenced the third quarter on a strong note, which along with a stellar second-quarter show led to raised comps and full-year earnings guidance.

Consolidated comps are now expected to grow 3-4% in fiscal 2019, up from 1-2% projected earlier. Management also expects Marmaxx to witness comps growth of 3-4%.

For fiscal 2019, TJX Companies now projects adjusted earnings per share in the range of $4.10-$4.14, representing 6-8% increase from the year-ago period. Earlier, management expected the bottom line to be in the range of $4.04-$4.10, representing 5-6% increase from the year-ago period.

Including benefits from tax-reforms, earnings are anticipated to grow 20-21% to $4.83-$4.88 per share. Prior to this, management anticipated earnings to rise 18-20% to $4.75-$4.83 per share.

However, wage increases are still expected to negatively impact earnings growth by 2%.

Q3 View

The company expects consolidated comps growth of 2-3% in the third quarter. Marmaxx division is expected to post comps growth of 3-4%.

For third-quarter fiscal 2019, the company expects adjusted earnings in the range of $1.00-$1.02 per share compared with $1.00 recorded in the year-ago period. Including benefits from tax reforms, earnings are expected to come in the range of $1.18-$1.20 per share. Currency movements are likely to hurt bottom-line growth by roughly 4%, while wage increases are expected to hurt the same by an additional 2%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, TJX has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, TJX has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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