The TJX Companies Inc.’s second-quarter earnings were in line with Street expectations as same-store sales limped ahead 2 percent. But the off-pricer said its core apparel category remains strong and a “loaded” marketplace of opportunistic buys, driven in part by the tariff situation, is expected to support second-half growth.
“We are seeing phenomenal product availability across widespread categories and a range of major brands, some of which we believe is related to tariffs,” said Ernie Herrman, CEO, on a conference call with analysts in addressing what are expected to drive sales and traffic in the back half.
He added, “We are very comfortable with our in-store inventory levels and are in a great position to take advantage of the plentiful supply we are seeing. This gives us enormous confidence in our ability to bring consumers the right fashions at the right values throughout the upcoming fall and holiday selling season.”
Regarding tariffs, Scott Goldenberg, CFO, said that based on current expectations around tariffs, TJX expects a small negative tariff impact in its full-year guidance for the merchandise the company has already committed to. Those negative impacts, however, are expected to be offset primarily through opportunities in the favorable buying environment and expense savings.
Goldenberg cautioned that TJX has not yet committed to most of its merchandise for the fourth quarter and it remains difficult to estimate the impact of tariffs and the offsets from mitigation efforts.
“It remains to be seen what happens with vendor and competitor pricing, consumer demand, potential tariff pass-throughs and the fluctuation of the Chinese currency,” said Goldenberg. “Over the long term, we are convinced that the flexibility of our business that has helped us navigate through both strong and weak times throughout our long history will continue to be a major advantage. Above all, we will always maintain a value gap for our customers.”
In the second quarter ended August 3, earnings rose 2.6 percent to $759.0 million, or 62 cents a share, coming in at the high end of company guidance and in line with analyst’s consensus estimate. Revenues rose 4.8 percent to $9.78 billion.
Consolidated comps increased 2 percent over last year’s strong 6 percent increase and were in line with plan.
Herrman said that once again, customer traffic drove the consolidated comp sales increase and was up at each of its four major divisions. By major concept, same-store sales at Marmaxx (including both the Marshalls and T.J. Maxx chain in the U.S.) were up 2 against a 7 percent jump last year. Among its smaller segments, comps were flat at HomeGoods, up 1 percent at TJX Canada, and ahead 6 percent at TJX International (Europe & Australia).
The quarter marked the 20th consecutive quarter of customer traffic increases at TJX and Marmaxx. Herrman said the company was “particularly pleased” with the comp increase in the Marmaxx apparel business, which was in line with the chain.
“We believe we have been attracting consumers across all age groups, at all of our major divisions and gaining more younger customers,” said Herrman. “In today’s difficult retail environment, we are extremely pleased with our sales and customer traffic increases, the strength of our apparel business and the market share we’ve gained around the world. This underscores the consistency of our business and the enduring appeal of our off-price values and treasure-hunt shopping experience.”
Gross margins for the second quarter were 28.2 percent, a 0.7 percentage point decrease versus the prior year, in line with the company’s guidance. This was primarily due to a decrease in merchandise margin and higher supply chain costs.
SG&A expense as a percent of sales was 17.7 percent, a 0.5 percentage point decrease versus the prior year. This was primarily due to a favorable year-over-year comparison from IT restructuring costs last year and a benefit from insurance claim settlements received this year.
Excluding inventory in transit, the company’s e-commerce sites, and Sierra Trading stores, inventories were up 6 percent on a reported basis (up 7 percent on a constant-currency basis).
In the Q&A session, Herrman said he believed that some of the advantageous buys the retailers are seeing are due to early delivery of tariff-category merchandise. He said the availability is running across categories. He said, it’s not just about good-better-best brands, it’s across all different categories within the store
On the long-term impact of tariffs, Hermann said it’s more uncertain but he believes the retailer “could see a benefit” as the uncertainty around tariffs will likely lead to excess inventories in the marketplace in the future. He said, “our buyers really only need to focus on what is the right retail value. So it kind of self-insulates us from the dynamics of having to figure out what’s going to happen, when it happens on those goods.”
Other drivers of growth in the second half are expected to be an increased emphasis on positioning its stores are a gifting destination, strong marketing campaigns touting its banners’ values and treasure-hunt shopping experience, and the success of the company’s loyalty program that’s driving repeat visits.
“The third quarter is off to a solid start,” said Herrman. “We are laser-focused on executing our business model and have many initiatives planned to keep driving sales and traffic in the second half of the year. We have plenty of liquidity and are in an excellent position to take advantage of the marketplace that is loaded with quality goods, goods which are widespread across categories and a range of brands. We are convinced that we remain in a great position to capture market share around the world for many years to come.”
TJX maintained its guidance for the year.
For the third quarter, the company expects EPS in the range of 63 cents to 65 cents versus the prior year’s 61 cents, and the prior year’s adjusted 63 cents, which excluded a 2-cents-per-share negative impact from a pension settlement charge. Comps are expected to grow 1 percent to 2 percent on a consolidated basis versus a 7 percent increase in the prior year. Comparable store sales growth of 1 percent to 2 percent are expected at Marmaxx versus a 9 percent increase last year.
For the full year, TJX continues to expect EPS in the range of $2.56 to $2.61. This would represent a 5 percent to 7 percent increase over the prior year’s $2.43, which included the 2-cents-per-share negative impact from a pension settlement charge. EPS is expected to increase 4 percent to 7 percent over the prior year’s adjusted $2.45, which excluded the pension settlement charge. Comps growth of 2 percent to 3 percent is expected on a consolidated basis at Marmaxx.
Photo courtesy TJX Cos.