Stock Story -
Off-price retail company TJX (NYSE:TJX) reported Q3 CY2024 results topping the market’s revenue expectations, with sales up 6% year on year to $14.06 billion. Its GAAP profit of $1.14 per share was 4% above analysts’ consensus estimates.
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TJX (TJX) Q3 CY2024 Highlights:
- Revenue: $14.06 billion vs analyst estimates of $13.95 billion (6% year-on-year growth, 0.8% beat)
- Adjusted EPS: $1.14 vs analyst estimates of $1.10 (4% beat)
- EPS (GAAP) guidance for Q4 is $1.13 at the midpoint, missing analysts' expectations
- EPS (GAAP) guidance for the full year is $4.16 at the midpoint, roughly in line with what analysts were expecting
- Operating Margin: 12%, in line with the same quarter last year
- Free Cash Flow Margin: 4.4%, similar to the same quarter last year
- Locations: 5,057 at quarter end, up from 4,934 in the same quarter last year
- Same-Store Sales rose 3% year on year (6% in the same quarter last year)
- Market Capitalization: $134.8 billion
Company OverviewInitially based on a strategy of buying excess inventory from manufacturers or other retailers, TJX (NYSE:TJX) is an off-price retailer that sells brand-name apparel and other goods at prices much lower than department stores.
Discount Retailer
Discount retailers understand that many shoppers love a good deal, and they focus on providing excellent value to shoppers by selling general merchandise at major discounts. They can do this because of unique purchasing, procurement, and pricing strategies that involve scouring the market for trendy goods or buying excess inventory from manufacturers and other retailers. They then turn around and sell these snacks, paper towels, toys, clothes, and myriad other products at highly enticing prices. Despite the unique draw and lure of discounts, these discount retailers must also contend with the secular headwinds of online shopping and challenged retail foot traffic in places like suburban strip malls.Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one sustains growth for years.TJX is a behemoth in the consumer retail sector and benefits from economies of scale, giving it an edge in distribution and the flexibility to offer lower prices. However, its scale is a double-edged sword because there are only a finite number of places to build new stores, making it harder to find incremental growth.
As you can see below, TJX’s 6.8% annualized revenue growth over the last five years (we compare to 2019 to normalize for COVID-19 impacts) was tepid, but to its credit, it opened new stores and increased sales at existing, established locations.
This quarter, TJX reported year-on-year revenue growth of 6%, and its $14.06 billion of revenue exceeded Wall Street’s estimates by 0.8%.
Looking ahead, sell-side analysts expect revenue to grow 3.9% over the next 12 months, a slight deceleration versus the last five years. We still think its growth trajectory is satisfactory and implies the market is baking in success for its products. Some tapering/deceleration is natural given the magnitude of its revenue base.
Store Performance
Number of StoresA retailer’s store count often determines how much revenue it can generate.TJX sported 5,057 locations in the latest quarter. Over the last two years, it has opened new stores quickly, averaging 2.7% annual growth. This was faster than the broader consumer retail sector.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
Same-Store SalesThe change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.
TJX’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 4.3% per year. This performance suggests its rollout of new stores is beneficial for shareholders. We like this backdrop because it gives TJX multiple ways to win: revenue growth can come from new stores, e-commerce, or increased foot traffic and higher sales per customer at existing locations.
In the latest quarter, TJX’s same-store sales rose 3% year on year. This growth was a deceleration from its historical levels, showing the business is still performing well but losing a bit of steam.