A couple of week ago, the leading off-price apparel and home fashions retailer joined other brick-and-mortar retailers to report earnings and income that beat analyst expectations. In addition, store sales rose at an annual rate of 20%. This author is bullish on the stock. (See TJX stock charts on TipRanks)
TJX’s Strong Performance Does Not Impress Wall Street
TJX’s Q2 solid financial performance followed a strong showing in Q1 when the company reported earnings and revenues that also beat analyst expectations.
Still, TJX’s string of solid performances has failed to impress Wall Street. Its shares have gained 7.83% YTD, compared to 19 percent earned by the SP&500.
Nonetheless, Ernie Herrman, Chief Executive Officer and President of TJX, cheered Q2 financial performance, pointing to the improvement in the company’s margins.
“I am extremely pleased with our overall open-only comp-store sales increase of 20% over Fiscal 2020 and strong bottom-line results, both of which were well above our plans for the second quarter,” he said in a statement following the release of Q2 results. “I am especially pleased with the sequential improvement to our pretax margin compared to the first quarter. The performance of our home businesses across all of our divisions continued to be phenomenal, and apparel continued to trend higher, with open-only comp sales increasing low-teens for the quarter.”
Herrman is also upbeat about the company’s future, in spite of the spread of Delta variant that may keep shoppers away from brick-and-mortar stores. He sees TJX turning into a $60 billion retailer.
“While the environment remains uncertain, particularly with the Delta variant, we are convinced that TJX is in a position of strength. We see numerous opportunities to continue to gain market share and improve our profitability in the medium to longer-term,” he added. “We are confident in our ability to reach our long-term strategic vision of TJX becoming a $60 billion company.”
Wall Street Weighs In
The 15 analysts following TJX are on the same side as its CEO. They rate the company’s shares a Strong Buy and have an average price target $86.57, with a high forecast of $101.00 and a low forecast of $81.00. The average analyst TJX Co. price target represents a 21.8% change from the last price of $71.07.
However, the TipRanks stock analysis system doesn’t completely support the enthusiasm of the TJX CEO and the analyst community. Instead, it assigns a Smart Score of 6 to the company, citing negative Investor sentiment, decreased Hedge Fund activity, and Insider selling.
A Simple Business Model
TJX has a simple business model that differentiates it from other conventional retailers. Its value proposition includes brand name and designer fashions merchandise that sell at prices that range 20%-60% below department and specialty store regular prices.
Then there’s the way TJX operates, running under several store names — Marshalls, HomeGoods, Winners, HomeSense, T.K. Maxx and Sierra Trading Post—rather than a single store name.
Combining a portfolio of brand name products selling at a deep discount with multistore names has allowed the company to reach a broad demographic clientele and avoid the pitfalls of other retailers, like JCPenney, which ended in bankruptcy.
Summary and Conclusions
TJX continues to survive and thrive in an environment where others fail. That’s thanks to a flexible business model that has allowed the company to reach a broad range of customers.
Disclosure: At the time of publication, Panos Mourdoukoutas did not have a position in any of the securities mentioned in this article.
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