20 Nov TJX Cos. Q3 Exceeds Plan On Healthy Traffic, Tariff Mitigation Efforts
Boosted by strong traffic, TJX Cos. reported third-quarter results handily beat expectations, prompting the off-pricer to raise guidance for the year. TJX officials also indicated they’ve been able to mitigate tariff-hits so far with vendors bringing in product earlier but remained highly uncertain about the impact for 2020.
In the quarter ended November 2, net earnings rose 8.7 percent to $828.3 million, or 68 cents a share. Company guidance had called for EPS in the range of 63 to 65 cents a share and Wall Street’s consensus estimate had been 66 cents.
The year-ago period included a pension settlement charge of 2 cents a share.
Consolidated same-store sales grew 4 percent, double guidance calling for an increase in the range of 1 to 2 percent. Wall Street was expecting a gain of 2.4 percent. The improvement was particularly impressive as TJX was facing a tough comparison against a 7 percent comp increase in Q318.
Net sales in the quarter grew 6.4 percent to $10.5 billion.
“We were very pleased that every division delivered a comp increase at or above their second-quarter comp over strong results last year,” said Scott Goldenberg, CFO, on a conference call with analysts. “Further, each division exceeded the profit margin plan. We’re seeing good momentum at all our divisions heading into the holiday season.”
At Marmaxx (U.S.), by far its largest segment, sales grew 4 percent on a same-store basis on top of a 9 percent gain last year. Guidance had called for a gain in the range of 1 to 2 percent. Net sales grew 6.4 percent to $6.35 billion.
The gains were driven by customer traffic. Said Goldenberg, “Once again, both our apparel and home businesses were strong, which points to Marmaxx’s ability to keep raising the bar.”
The Marmaxx segment profit margin increased 10 basis points. The Marmaxx segment includes the U.S. operations of TJ Maxx, Marshalls and Sierra Trading. At the quarter’s close, there were 1,260 TJ Maxx stores, 1,107 Marshalls stores and 39 Sierra locations.
Added Goldenberg about the Marmaxx segment, “As we being the fourth quarter, we are excited about the initiatives we have planned to keep driving sales and traffic during the holiday season and beyond.”
In its other segments, comps at HomeGoods, based in the U.S., were up 1 percent against a 7 percent gain last year. Revenues advanced 8.1 percent to $1.46 billion. TJX Canada’s same-store sales were up 2 percent on top of a 5 percent gain in the 2018 third-quarter. Sales were up 4.3 percent to $1.08 billion. Banners operating in Canada include TJ Maxx, Marshalls and Winners.
TJX International (Europe & Australia) saw comps climb 6 percent against a 3 percent year-ago increase. Total sales were up 4.3 percent to $1.43 billion. Overseas banners include TK Maxx and Homesense.
Gross margins in the quarter were 28.8 percent, down 10 basis points year-over-year. SG&A costs as a percent of sales were 18.0 percent, a 10 basis point increase versus the prior year.
Consolidated pre-tax profit margin was 10.7 percent, flat against year-ago levels. Excluding a negative 0.3 percentage point impact from a pension settlement charge, the pretax profit margin would have been down 30 basis points.
Total inventories as of November 2 were up 14.5 percent. Consolidated inventories on a per-store basis including the distribution centers, but excluding inventory in transit, the company’s e-commerce sites, and Sierra stores, were up 9 percent.
On the call, Ernie Herrman, CEO, said TJX continues to see opportunities to keep driving sales and traffic in the fourth quarter.
“We expect our stores to be as branded as ever across most families of business this holiday season,” said Herrman. “We are seeing fantastic product availability in the marketplace, and our buyers are taking advantage of it throughout numerous categories for a wide range of quality, good, better, and best brands.”
He said fresh merchandise is expected to flow into its stores and online even later this year and multiple times a week throughout the holidays. Said Herrman, “Regardless of the number of shopping days this holiday season, I am confident consumers will get their shopping done and visit us for exciting gifts for everyone on their list.”
Regarding marketing, holiday marketing campaigns that started airing earlier this month position the company’s banners as “The Shopping Destination” and the efforts are being leveraged across digital and social media platforms. Loyalty programs and gift cards will also be emphasized. Said Herrman, “We feel great about our momentum heading into the fourth quarter, which is off to a solid start.”
For the fourth quarter, EPS is expected in the range of 74 to 76 cents a share, up from 68 cents a year ago. The Marmaxx segment is expected to show comparable store sales growth of 2 percent to 3 percent.
The fourth quarter includes the negative impact of tariffs arising from changes in tariff legislation that arrived after its Q2 call. The impact so far has been modest due to improvement in markdowns in the third quarter due to better sales in the third quarter, lower freight costs and better buying in both the third and fourth quarters.
Herrman also said a lot of vendors have been bringing goods earlier this year to help pricing in the third quarter. The CEO added, “The issue, unfortunately, going forward into 2020 is more challenging than that because we don’t have as much visibility as we move forward into next year as to whether or not we can keep mitigating like we have. It remains to be seen what happens with the vendor and competitor pricing.”
He said TJX hasn’t adjusted prices higher to offset the higher tariffs and said TJX remains committed to being “the last retailer to ever do any retail adjustments” to preserve its value proposition. He also said the retailer hasn’t seen competitors raising prices yet while noting the home category is facing particular margin challenges tied to tariffs.
Herrman stressed TJX remains “apprehensive” about predicting whether it will be able to continue to mitigate tariff hits in 2020 because of the current lack of visibility. He added, “Next year, it’s a bit of a wait and see, again, until we start to get a little closer to that time period and see what happens with the vendors.”
For 2019, TJX expects EPS in the range of $2.61 to $2.63, representing a 7 percent to 8 percent increase over the prior year’s $2.43, which included a 2 cents a share negative impact from the pension settlement charge. Excluding the charge, EPS is expected to expand 7 percent. Previous guidance had called for EPS in the range of $2.56 to $2.61.
Comp growth is estimated to be 3 percent on a consolidated basis and 3 percent to 4 percent at Marmaxx. TJX previously expected growth of 2 percent to 3 percent on a consolidated basis and at Marmaxx.