Discount retailer TJX Companies (TJX, Financial) reported better-than-expected results for the second quarter as its same-store sales grew in most of its regions driven by improved performance of its apparel business. The stock has risen almost 8.65% due to excellent performance of both the top and bottom lines that topped the analyst’s estimates and an improved outlook for the third quarter 2015.
A detailed look
The discount retailer reported revenue of $6.92 billion, an increase of 7.45% as compared to $6.44 billion in the second quarter last year, exceeding the analysts’ estimates of $6.8 billion in revenue for the quarter. Its net income on the other side grew about 8% to $517.6 million or earnings of $0.75 per share, compared to $479.6 million or earnings of $0.66 per share in the same quarter a year earlier. The consensus was estimating earnings of $0.73 per share for the second quarter 2015.
Looking ahead, TJX is off to a good start for the third quarter and it is practicing various strategic initiatives to maximize the opportunity that lies in the second half of the year, said Carol Meyrowitz, Chief Executive Officer of The TJX Companies. The company is looking forward to continue its gift-giving initiatives in the remaining quarters with improved services and is increasing slabs on its marketing campaign this year that will certainly drive customer traffics and increase its margins in the second half. The CEO also said, “We are very confident in our ability to deliver another strong year, on top of many, as we continue on the path to being a $40 billion-plus company.”
TJX has raised the outlook for the third quarter; it now expects its earnings in the range of $0.81 to $0.85 per share, while the analysts are estimating earnings of $0.85 per share for the third quarter 2015. The company also expects its same store sales to increase between 1-2% in the third quarter. TJX has also accelerated its full year outlook on EPS to range between $3.10-3.18, while the Wall Street analysts’ calls for full-year EPS of $3.14.
Four strategies to power growth
TJX looks strong with its four strategic pillars that are driving growth for the company this year, such as driving comp sales, brick-and-mortar growth, e-commerce developments and modernization. The company expects tremendous opportunity that can potentially lead to a rise in the U.S. and International market share.Â
TJX is investing heavily in its global marketing abilities, especially in its Marmaxx division that includes brands such as T.J. Maxx and Marshalls. The company plans to increase the frequency of its commercials on TV. Further, the company is keenly engaged in executing its dual and tri-branding marketing campaign for these brands in the United States with in-depth concentration on the social media that will certainly drive growth for its brands.
TJX launched its HomeGoods app called The Goods in July, which should bring more transparency in the process removing the complication at the physical store. Moreover, the company is implementing its loyalty programs that will attract new customers to its stores across the country. These loyalty programs consist of various soft paybacks like early shopping hours and a non-credit card choice. These strategic moves will certainly help the company to attract more traffic in stores.
In addition, the company is working to remodel approximately 250 stores this year. Also, the brick-and-mortar stores are now considered a newfound potential as the company now sees a long-term opportunity to expand to almost 5,150 stores. It plans to open about 1,400 new stores in North America alone. Currently, TJX has about 3,200 stores.
On the International front, the company expects to open more than 450 stores in Europe, which is double the size of its existing store base. Further, the company is also diversifying its operation into other European countries as it plans to open its first stores in Austria in the first half of 2015. It is also planning to double the number of stores in Germany this year.
Meanwhile, the company is engaged in accelerating platforms for its e-commerce expansion as it sees remarkable opportunity online that could drive growth for its business in the future. It has recently acquired Sierra Trading, an e-commerce business. The company is considering online as a great opportunity, therefore it is planning to build an e-commerce platform for its retail brands. Besides, TJX is also engaged continuously in the innovation and modernization of its stores worldwide and it wants to ensure that it has the right categories, newness, current fashion, and exciting new brands.
Wrapping it up
TJX is currently trading at the forward P/E multiple of 16.50 against trailing P/E multiple of 19.76 that indicate reasonable growth for the stock going forward. Also, its PEG ratio for the next five years is estimated to be at 1.65 that compliments the growth for the stock in the coming years. The company is also fairly evaluated at the performance as well as wealth matrixes. TJX’s profit and operating profit margin for the trailing 12 months are 7.72% and 12.10% respectively. It has robust ROE yield of 53.16% for the last 12 months. Besides, the analysts have estimated a CAGR of 11.08% for the next five years that signifies tremendous growth potential for the stock in the future, and investors looking for long term stocks can consider picking up the stock as it has a lot of room to grow in the future.
