TJX Cos. is Friday's IBD Stock Of The Day, thanks to the off-price clothing and home goods retailer's business model that capitalizes on other stores' struggles. TJX stock is flashing an early entry point.
The Framingham, Mass., retailer operates 3,500 stores in the U.S., including nearly 2,500 T.J. Maxx and Marshalls outlets and 894 HomeGoods stores. It also has an international division with about 1,300 stores in Canada, Europe and Australia.
TJX Feeds On Retail Lemons
In general, this is a tricky time for retailers, as consumers show a touch of caution heading into a potential recession. Households also continue to shift their spending to services, like travel, dining out and live entertainment, having binged on retail goods during the pandemic. That's especially true for home goods, which fare well when existing home sales are running hot. In March, existing home sales fell 22% from a year ago amid higher mortgage rates.
Despite all that, the current environment suits TJX just fine. That's, in part, because lots of other online and bricks-and-mortar merchants have too much brand-name inventory to sell. That's created plenty of deals for TJX to seize on. "Availability of quality branded merchandise is phenomenal," CEO Ernie Harman said on the fiscal Q4 earnings call on Feb. 22. "We are in a great position to take advantage."
Harman credited store closures and the e-commerce slowdown for creating "an influx of inventory and better brands than we've seen."
That's not to say times are perfect for TJX. In Q4, its Marmaxx division, which includes T.J. Maxx and Marshalls, saw U.S. sales rise 8% from a year ago. However, HomeGoods sales fell 4%. Yet that balance still gives TJX that ability to ride through tough cycles in fine shape.
On March 28, TJX announced a 13% hike in its quarterly dividend, the 26th increase in 27 years. The retailer added that it plans to buy back $2 billion to $2.5 billion in TJX stock this fiscal year.
Offline 'Treasure Hunt'
TJX has positioned itself as offering "a treasure-hunt shopping experience," with an array of brands that span "good, better and best" price points. That formula means TJX customers are more of the middle-class variety than shoppers of other off-price retailers. That's good news at a time when low-income households may be cutting back on discretionary purchases.
The formula seems to be working. On the Q4 call, Herrman endorsed JPMorgan analyst Mathew Boss' view that customer traffic is "at an inflection point," turning positive for the first time in more than a year. "For this generation, you're a cool place to shop," said Retail Tracker analyst Marni Shapiro, sharing her impression from TikTok mentions.
TJX Stock
On Friday, TJX stock dipped 0.8% to 78.43. That followed Thursday's 1.4% rise, which saw TJX stock move solidly above its 50-day line. Thursday's move also broke a downtrend in place since late January, offering an early entry opportunity.
Since April 4, TJX stock has been etching out a handle on the end of its recent consolidation. The midpoint of the handle is fractionally below the midpoint of the base, so it's not a proper buy point. But 79.49 offers another solid early entry. That "handle" is a three-weeks-tight on a weekly chart.
Revenue growth turned positive in Q4 after a couple of down quarters, while earnings growth accelerated to 14%.
TJX is targeting a 10.6% pretax profit margin by 2025, up from 9.3% in the most recent 2023 fiscal year. Analysts see 13% EPS growth in fiscal 2024 and 11% in 2025.
Some other discount retail stocks, including club retailers, have seen constructive action lately. That group includes Walmart, BJ's Wholesale Club and Ollie's Bargain Outlet.
If there's a soft spot in the case for TJX stock, it's a relative strength line that has trended lower since the start of the year, meaning many other stocks performed better than TJX during that time.
