The country’s two biggest off-pricers, TJX Cos. and Ross Stores, both lifted their outlook for the fourth quarter after reporting third-quarter earnings that exceeded guidance as apparel sales outpaced many of their full-priced competitors. Burlington Stores’ reported results that came in at the lower end of guidance and slightly reduced for the year but is optimistic that a realigned sales mix emphasizing value will drive sales in the quarters ahead.
TJX Tops Wall Street EPS in Third Quarter
TJX Cos.’s third-quarter earnings improved 3.9 percent to $1.06 million, or 91 cents a share, from $1.02 million, or 84 cents, a year ago. Excluding a tax benefit of 5 cents a share related to the divestiture of the company’s minority investment in Russian retailer Familia, adjusted EPS was 86 cents, surpassing TJX’s guidance in the range of 77 cents to 81 cents a share. Wall Street’s consensus estimate had been 80 cents.
Sales were down 2.9 percent to $12.2 billion, in line with analyst targets. Q3 FY23 U.S. comp store sales decreased 2 percent, above the company’s plan calling for a decline in the range of 3 percent to 5 percent and versus a 16 percent U.S. open-only comp store sales increase last year
“I am very pleased with our third quarter performance,” said Ernie Herrman, CEO and president. “Once again, we delivered strong profitability and a terrific merchandise margin. On the top line, our better-than-expected U.S. comp sales were driven by the excellent performance at Marmaxx, particularly its apparel business, where sales were strong.”
By division, Marmaxx’s (U.S.) third-quarter segment profit margin was 13.5 percent. Marmaxx’s sales were $7.46 billion in the quarter, up 3 percent. U.S. open-only comp store sales at Marmaxx were up 3 percent on top of a gain of 11 percent in the 2021 third quarter. Marmaxx includes T.J. Maxx, Marshalls and Sierra stores.
Herrman said Marmaxx’s comp sales were positive each month and improved throughout the quarter. The average basket increased as it has throughout the year. He added, “While customer traffic was down, Marmaxx saw improvement each month of the quarter and versus the second quarter.”
HomeGoods (U.S.) sales were $1.95 billion, down 14 percent. The third quarter segment profit margin was 8.9 percent, showing improvement versus the first half of this year mostly due to a significant moderation of the year-over-year impact of incremental freight costs. Comp-store sales decreased 16 percent versus a 34 percent open-only comp increase last year. HomeGoods’ average basket increased slightly.
TJX Canada sales were $1.29 billion, down 1 percent but up 4 percent on a constant-currency basis. The third quarter segment profit margin was 15.8 percent, exceeding their fiscal ’20 margin.
TJX International sales (Europe and Australia) sales totaled $1.48 million, down 16 percent and off 1 percent. The profit margin was 6.7 percent, despite some deleverage from lower sales. The pretax margin was essentially in line with fiscal 2020 due to better buying and expense management, which mostly offset incremental freight wage and other expense pressures. Overall sales on a constant-currency basis were down 1 percent from the third quarter.
Gross margin for the quarter of Fiscal 2023 was 29.1 percent, a 0.4 percentage point decrease versus the third quarter of Fiscal 2022. Merchandise margin was flat despite 1.2 percentage points of incremental freight costs. Merchandise margin benefitted from strong mark-on mostly due to better buying. Incremental wage costs negatively impacted the pretax profit margin by 80 basis points. SG&A expenses were 18.0 percent, a 0.3 percent point decrease versus the year-ago third quarter.
Inventories at the quarter’s end were up 26 percent versus the third quarter last year, higher than expected due to early receipts of merchandise as the supply chain continued to improve. On a per-store basis, inventory was up 31 percent on a constant-currency basis. Said Scott Goldenberg, senior EVP and CFO, “We are very comfortable with our balance sheet and store inventory levels when compared to Fiscal 2020.”
For the full year, TJX maintained the high end of its outlook for adjusted pretax profit margin. The company expects the pretax profit margin to be 9.3 percent to 9.4 percent and the adjusted pretax profit margin to be 9.8 percent to 9.9 percent.
EPS is expected to be in the range of 2.93 to $2.97 (previously, $2.87 to $2.95) and adjusted EPS to be $3.07 to $3.11 (previously $3.05 to $3.13). The change in the high end of the adjusted EPS outlook is a result of an expected 2-cent negative impact due to unfavorable foreign exchange rates. Comparable store sales are now expected to decrease by 1 percent to 2 percent (prior, a decline of 2 percent to 3 percent) versus a 17 percent U.S. open-only comp store sales increase in Fiscal 2022.
For the fourth quarter, TJX now expects pretax profit margin to be 9.5 percent to 9.8 percent and diluted earnings per share to be $.85 to $.89. This guidance now assumes that most of the third quarter Fiscal 2023 timing of expenses benefit will reverse out in the fourth quarter of Fiscal 2023. For the fourth quarter of Fiscal 2023, the company is increasing its outlook for U.S. comparable store sales and is now planning them to be flat to up 1 percent (previously, flat to down 1 percent ) versus a 13 percent U.S. open-only comp store sales increase in the fourth quarter of Fiscal 2022.
Said Herrman, “As we enter the fourth quarter, we’re in a terrific position to take advantage of the tremendous buying environment and to flow fresh exciting assortments to our stores and online this holiday season. We have many initiatives planned to drive sales and our value proposition remains very strong. Further, we are convinced that our great values will continue to resonate with consumers whose wallets remain stretched.”
Ross Stores Lifts Outlook On Better-Than-Expected Q3
Ross Stores’ earnings fell 11.2 percent in the third quarter ended October 29, to $342.0 million, or $1.00 a share, exceeding company guidance in the range of 72 cents and 83 cents. Wall Street’s consensus estimate had been 81 cents.
Sales slipped 0.2 percent to $4.6 billion. Comparable store sales were down 3 percent but topped company guidance calling for a decline in the range of 7 percent to 9 percent.
Barbara Rentler, CEO, said on a call with analysts, “At Ross, shoes were the best performing business, while Florida and Texas were the top performing regions as they were bolstered by the outperformance of border and forex locations. At dd’s Discounts, sales trends improved versus the first half, but continue to trail Ross’s results due to ongoing inflationary pressures that are having a larger impact on dd’s lower-income customers.”
Looking ahead, EPS for the year is now projected in the range of $4.21 to $4.34, up from a previous range of $3.84 to $4.12 previously. Ross earned $4.87 last year.
For the fourth quarter, Ross now expects same-store sales to be flat to down 2 percent on top of a 9 percent gain in the prior year, with EPS in the range of $1.13 to $1.26. Previously, same-store sales for the fourth quarter were forecast to be down 4 percent to 7 percent with EPS in the range of $1.04 to $1.21.
Michael Hartshorn, group president and COO, said, “We continue to expect a very promotional holiday selling season and ongoing inflationary headwinds to pressure our low to moderate-income customers. That said, we face our easiest sales and earnings comparisons in the fourth quarter and are raising our guidance given our third quarter sales momentum and improved holiday assortments.”
The year-ago fourth quarter was impacted by a spike in COVID cases and supply chain challenges delaying apparel deliveries.
Rentler added that she believes Ross’ holiday assortment this year has improved versus last year due to ample brand availability in the marketplace as well as the improved supply chain. She said, “With consumers’ heightened focus on value and convenience, this bodes well for our ability to expand our market share and profitability in the future.”
Burlington Stores Hit Lower End Of EPS Guidance
Burlington Stores’ earnings on an adjusted basis slid 30.1 percent to $28 million, or 43 cents per share, reaching the lower end of guidance in the range of 36 cents and 66 cents. Net earnings came to $17 million, or 26 per share, versus $14 million, or 20 cents per share, a year ago.
Sales decreased 11 percent to $2.04 billion. Comparable store sales decreased 17 percent, the lower end of guidance in the range of a decline of 18 percent to 15 percent. The quarter compared to a year-ago total sales increase of 30 percent and comparable store sales increased 16 percent.
Gross margins eroded 20 basis points to 41.2 percent. Merchandise margins decreased 90 basis points, partially offset by a 70 basis point improvement in freight expense. SG&A was 35.7 percent of sales versus 33.0 percent a year ago. Adjusted SG&A was 26.7 percent of sales versus 25.3 percent, an increase of 140 basis points.
Adjusted EBITDA was $123 million, down from $205 million in the third quarter of Fiscal 2021, a decrease of 290 basis points as a percentage of sales.
On a call with analysts, Michael O’Sullivan, CEO, said that while Burlington faced headwinds in the quarter, he was disappointed with results while noting that TJX and Ross showed more momentum. He said that Burlington has realigned its mix “to sharpen the values on fresh receipts,” expand its mix of opening price points, aggressively clear slower sellers, and take advantage of “great opportunistic deals” in the marketplace.
He said, “The main headline is that since mid-October we have seen a pickup in our sales trend that has continued into November month-to-date. This is a short period of time, and of course, there are many important shopping days ahead of us. But we believe that this improvement is attributable to the actions we have taken and this pickup gives us some optimism going into Q4.”
O’Sullivan said Burlington is maintaining the guidance for Q4 previewed on its August earnings call while lowering full-year guidance due to the third-quarter underperformance.
Updated full-year guidance calls for:
- Comparable store sales to decrease in the range of down 15 percent to down 14 percent (prior, down 15 percent to down 13 percent), on top of the 15 percent increase during FY21. This translates to a 3-year geometric comparable store sales stack of down 2 percent to down 1 percent versus Fiscal 2019;
- Adjusted EBIT margin to be down 400 basis points to down 370 basis points (previously, down 410 basis points to 360 basis points) compared to last year; and
- Adjusted EPS to be in the range of $3.77 to $4.07 (previously $3.70 to $4.30), compared to $8.41 on a non-GAAP basis last year.
For the fourth quarter, comparable store sales are projected to decrease 9 percent to 6 percent. Adjusted EPS is expected in the range of $2.45 to $2.75, as compared with $2.53 on a non-GAAP basis last year.
For 2023, O’Sullivan is more optimistic about Burlington’s performance based on five factors. He said, “Firstly, we expect that the economy will continue to slow down. And as it does, we anticipate that there will be an even stronger consumer focus on value. Secondly, throughout 2022, there has been a huge imbalance between supply and demand with too much inventory across retail. This has driven much higher promotional activity, especially in mass channels. Put simply, in 2023 we expect a lower level of promotional activity and this should help to recover our sales trend. Thirdly, there is a very strong availability of great off-price merchandise. This has also been reported by our peers. By year-end, we think it is likely that we will have rebuilt our reserve inventory with great opportunistic buys. We also expect that the availability of great in-season merchandise will remain strong, well into 2023. Fourthly, we have made mistakes this year that has hurt our sales trend. I realize we have to demonstrate this, but we do not intend to repeat these mistakes in 2023. Finally, we believe that the expense environment in 2023 is likely to improve very significantly versus this year, especially the contracted transportation rates. Those are the reasons why were optimistic about 2023.”
Photo courtesy TJX