Shoppers Dig Up Treasures At TJX

5/3/2010


  Recent Price
$47
  Dividend
$0.60
  Yield

1.3%

  P/E Ratio
17
  Shares (millions)
419
  Long-Term Debt as % of Capital
21%
  52-Week Price Range
$48.50 - $26.62

TJX ($47; TJX) has converted higher store traffic into 11% growth in same-store sales over the past three months. The recent performance extends a long-term trend: TJX reported an annual decline in same-store sales only once in the last 28 years.

The consumer recovery still has a long way to go, and TJX’s off-price products should remain appealing to shoppers. The retailer’s rapidly changing merchandise selection provides a mixture of excitement and unpredictability for consumers seeking brand names at steep discounts. This treasure-hunt mentality also applies to TJX’s purchasing strategy. By acquiring its inventory later in the season, TJX scores its own good deals. Reflecting TJX’s rising earnings estimates, exceptional Quadrix® scores, and business model with staying power, the stock earns Buy and Long-Term Buy ratings.

Business breakdown

TJX generates 78% of its revenue in the U.S. The principal U.S. business, Marmaxx (65% of sales in fiscal 2010 ended January), grew more than 7% last year, slightly faster than the company’s total revenue growth. Under the Marmaxx umbrella fall two chains: T.J. Maxx, founded in 1976; and Marshalls, acquired in 1995. Both sell family apparel and home fashions, though TJX maintains separate identities for each chain by differentiating the product assortment.

HomeGoods (9%) sells accent furniture and lamps, rugs, and seasonal home accessories. A.J. Wright (4%) offers deeper discounts for lower-income customers.

The rest of TJX’s stores are located in Canada (11%) and Europe (11%). TJX has operated in the United Kingdom for 15 years and has become the country’s seventh-largest fashion retailer. TJX pushed into Germany in 2007 and Poland in 2009.

Rosy outlook

During the difficult retail environment in recent quarters, TJX loaded up on high-quality brands, taking advantage of canceled orders and inventory overruns. TJX purchases from more than 10,000 vendors in more than 60 countries, limiting exposure to any one vendor or brand.

Based solely on TJX’s existing retail chains in their current markets, management believes the company can grow to roughly 4,200 stores, representing more than 50% growth. Britain, Ireland, Germany, and Poland offer the best growth potential. Within the U.S., TJX believes A.J. Wright enjoys the most promising growth outlook. This year, TJX is ramping up its expansion, increasing its annual square-footage growth target to 5% from 3% last year.

Conclusion

The stock has surged 29% this year, outpacing gains of 18% for S&P 1500 Retailing Group Index and 9% for the broader S&P 1500. Trading at 16 times trailing earnings, about even with the five-year average P/E ratio, TJX shares are no longer the bargain they were last fall. But the stock trades in line with the average discounter despite its superior market position and growth potential. 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

Jan '10 $0.94 vs. $0.46 + 10% $39.75 -

$35.75

17 - 15
Oct '09 0.81 vs. 0.57 + 10% 40.64 - 33.80 19 - 16
Jul '09 0.61 vs. 0.48 + 4% 37.00 - 26.62 19 - 3
Apr '09 0.49 vs.

0.42

+ 1% 29.17 - 19.19 15 - 10
           
Year
(Jan.)

Sales
 (Bil.)

Per-Share
Earnings*
Per-Share
Dividend

52-Week Price Range

P/E Ratio
Range

2010 $20.29 $2.85 $0.48 $40.64
-
$19.19 14 - 7
2009 $19.00 $1.93 $0.44 37.52
-
17.80 19 - 9
2008 $18.65 $1.92 $0.36 32.46
-
25.49 17 - 13
2007 $17.40 $1.63 $0.28 30.24
-
22.16 19 - 14
             
————————————————— Quadrix Scores † —————————————————
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Performance
99 91 82 95 80 97 71

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


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