TJX Takes Off-Price Reatil To The Maxx

10/26/2009


  Recent Price
$39
  Dividend
$0.48
  Yield

1.2%

  P/E Ratio
17
  Shares (millions)
430
  Long-Term Debt as % of Capital
22%
  52-Week Price Range
$39.33 - $17.80

One of few retailers to report positive traffic trends over the past year, TJX ($39; TJX) has grown same-store sales every month since March. The market has rewarded TJX’s performance by pushing the shares up 88% this year versus a 47% gain for the S&P 1500 Retailing Group Index.

During the eight months ended September, a difficult stretch for retailers, TJX increased total sales 4% to $12.2 billion. That growth reflects both the addition of new stores and improving profitability at existing stores, trends that should help sustain TJX’s operating momentum after the recession. TJX is a Long-Term Buy.

Business breakdown

TJX operates nine retail chains with 2,719 stores. American chains T.J. Maxx and Marshalls combined to make up 63% of total stores and generate 66% of sales and 74% of operating profit in the past 12 months. At T.J. Maxx and Marshalls, consumers can find designer-label clothing at prices up to 60% below those charged by other retailers.

The two other U.S. chains are HomeGoods (9% of sales, 5% of profits) and A.J. Wright (4%, 1%). TJX has a smaller presence in Europe (11%, 9%) and Canada (11%, 12%). The company’s best growth prospects lie in deeper penetration of Germany and the United Kingdom. TJX believes it can ultimately operate about 4,000 stores, indicating roughly 50% expansion from its current size.

High quality, low prices

TJX purchases goods as close as possible to the time of need. These off-priced buys — opportunistic purchases made during the selling season rather than in advance — allow TJX to apply higher mark-ups and still underprice rivals. This strategy puts a premium on inventory management, as the timing, quality, and quantity of goods hitting the shelves is unpredictable. But the purchasing strategy also allows TJX to adjust quickly to market trends.

The tough retail environment has apparently given TJX access to more designer clothing. Clothing and footwear account for 62% of sales, with home fashions generating 25% and jewelry and accessories 13%. TJX fosters a treasure-hunt mentality by filling store aisles with an ever-changing mix of affordable merchandise from recognizable brands.

Conclusion

After boosting October-quarter guidance twice in as many weeks, TJX now expects per-share profits of $0.77 to $0.79, implying growth of at least 33%. The company projects profit growth of at least 18% for fiscal 2010 ending January. Wall Street expects revenue will increase 7% and 4% in the October and January quarters, respectively. By comparison, the National Retail Federation predicts a gloomy holiday season, with U.S. retail sales dipping 1%.

Some bargain hunters might be dismayed that the stock doesn’t offer investors much of a mark-down. At 14 times estimated year-ahead earnings, TJX trades roughly in line with its five-year average forward P/E ratio. But while TJX’s operating momentum and growth outlook warrant a premium valuation, the stock trades at a 19% discount to the average apparel retailer. An annual report for The TJX Cos. Inc. is available at 770 Cochituate Road, Framingham, MA, 01701; (508) 390-2323; www.tjx.com.

TJX
Quarter

    Per-Share
     Earnings*

Sales
Change

      Quarterly
      Price Range

P/E Ratio
Range

Jul '09 $0.61 vs. $0.48 + 4% $37.00 -

$26.62

18 - 13
Apr '09 0.49 vs. 0.42 + 1% 29.17 - 19.19 14 - 10
Jan '09 0.55 vs. 0.64 0% 26.87 - 17.80 13 - 8
Oct '08 0.57 vs.

0.54

+ 2% 37.52 - 22.12 18 - 11
           
Year
(Jan.)

Sales
 (Bil.)

Per-Share
Earnings*
Per-Share
Dividend

52-Week Price Range

P/E Ratio
Range

2009 $19.00 $2.01 $0.44 $37.52
-
$17.80 19 - 9
2008 $18.65 $1.92 $0.34 32.46
-
25.49 17 - 13
2007 $17.40 $1.63 $0.28 30.24
-
22.16 19 - 14
2006 $16.06 $1.29 $0.23 25.96
-
19.95 20 - 15
             
————————————————— Quadrix Scores † —————————————————
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Performance
96 90 67 90 79 98 56

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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