TJX Cos. reported first-quarter earnings that exceeded expectations despite slightly softer-than-expected revenues as pricing actions helped offset inflationary pressures.
Shares of TJX closed up about 6 percent in trading Wednesday in a down market with TJX’s strong earnings coming as Target warned that rising costs would hurt profitability for the remainder of the year with a similar warning coming from Walmart on Tuesday.
“In today’s highly inflationary environment, we believe our value proposition is as appealing as ever,” said CEO Ernie Herrman. “We serve a wide customer demographic and offer a range of merchandise categories and brands across good, better and best, which we see as a major advantage.”
In the quarter ended April 30, sales were $11.4 billion, an increase of 13 percent versus the first quarter of Fiscal 2022. Results were just short of Wall Street’s consensus estimate of $11.586 billion. U.S. comp-store sales growth was flat over a 17 percent increase in U.S. open-only comp-store sales in the first quarter of Fiscal 2022.
Net income was $587 million, or 49 cents per share, up from $533.9 million, or 44 cents, a year ago. Excluding a charge of 19 cents per share related to a write-down of the company’s minority investment in Russian-off-pricer Familia, adjusted EPS would have been 68 cents, easily ahead of Wall Street’s consensus estimate of 60 cents.
“I am very pleased with our first-quarter performance,” said Herrman. “I’m especially pleased that both first-quarter adjusted pretax profit margin and adjusted earnings per share exceeded our expectations. We achieved these results even though comp sales came in slightly lighter than our plans.”
He highlighted that TJX’s largest division, Marmaxx, which includes T.J. Maxx, Marshalls and Sierra, delivered a comp increase of 3 percent over a 12 percent open-only comp increase last year. Said Herrman, “We were especially pleased that Marmaxx’s comp was driven by customer traffic increases, which speaks to the appeal of our values and merchandise. Our first-quarter performance highlights the sharp execution and flexibility of the entire organization that once again navigated through an uncertain environment and global supply chain issues to bring an exciting mix of merchandise to our stores and online shoppers. During the quarter, our teams flexed our product mix and categories to respond to consumer trends and preferences,” added Herrman. “We saw the benefits of our pricing initiative for another quarter while continuing to deliver our customers outstanding value, which is our buyer’s number one priority. With people’s wallets stretched even further in the current environment, our teams did an outstanding job of offering shoppers excellent values every day. Longer-term, I am confident about our ability to capture market share and improve the margin profile of TJX.”
Herrman reiterated TJX’s goal to return to its fiscal 2020 pretax margin level of 10.6 percent within three years. Herrman said, “We are convinced that our differentiated treasure hunt shopping experience and outstanding values will continue to resonate with consumers and drive the successful growth of our business in the U.S. and internationally for many years to come.”
By category, the apparel category at the Marmaxx segment was up a strong 6 percent. U.S. comp sales were down 7 percent in the home category across the HomeGoods segment and Marmaxx, although the category was going against a gain of over 40 percent in the prior year.
Scott Goldenberg, CFO, said,” Importantly, we believe the comp sales decline in our U.S. home businesses resulted from the difficult year-over-year comparison and not driven by our pricing initiative. Another point I want to highlight is that our store inventory turns for every division and overall markdowns were favorable to pre-pandemic levels.”
By division, Marmaxx’s first-quarter comps increased 3 percent, supported by a 13.2 percent gain in segment profit. Marmaxx’s profitability benefited from an increase in the average basket, driven by a higher average ticket, primarily due to pricing initiatives and apparel sales being a higher percentage of the mix.
At HomeGoods, first-quarter comp-store sales decreased 7 percent versus a 40 percent open-only comp increase last year. Segment profit margin was hurt by nearly 700 basis points of incremental freight costs. HomeGoods’ three-year comp stack for the first quarter was up 33 percent, the average basket increased due to higher tickets and customer traffic decreased. Goldenberg said, “Looking ahead, we see HomeGoods as strongly positioned in the retail environment, and we will be emphasizing our value messaging in our marketing.”
At TJX Canada, overall sales jumped 41 percent, and segment profit margin exceeded their pre-COVID Q119 levels. Year-over-year sales benefited from having stores open all quarter this year versus significant temporary closures a year ago.
TJX International’s overall sales increased 163 percent due to the benefit of having stores open all quarter this year, even while there were still some shopping restrictions. And freight costs negatively impacted segment profit margin. Goldenberg said, “We are very pleased that all of our stores in Europe are currently operating without restrictions.”
Looking ahead, TJX raised its guidance for a full-year adjusted pretax margin to 9.6 percent to 9.8 percent, up 10-to-30 basis points higher than its original plan. The higher outlook reflects better margins on lower-than-planned sales and reflects 150-to-160 basis points of incremental freight expense.
Full-year adjusted EPS is expected in the range of $3.13 to $3.20, up 10 percent to 12 percent over last year’s adjusted $2.85. The updated outlook is 4 cents more on the high end than its original plan for EPS.
Full-year U.S. comp sales are projected to increase 1 percent to 2 percent over an outsized 17 percent U.S. open-only comp increase last year. TJX previously forecast 3 percent to 4 percent growth.
For the full year, TJX is now planning total sales from $51.3 billion to $51.8 billion. The lower sales guidance is primarily a result of a change in F.X. rates, which reduced the full-year sales forecast by approximately $700 million and lower-than-planned first-quarter sales.
For the second quarter, U.S. comps are expected to be down 1 percent to 3 percent versus a 21 percent U.S. open-only comp-store sales increase in the year-ago second quarter. EPS is expected in the range of $0.65 to $0.69. The implied back half comp guidance calls for a 4 percent to 5 percent increase over a 14 percent increase in the second half of last year.
