S&P Global Ratings revised its debt rating outlook on TJX to stable from negative due to expectations that the COVID-19 vaccine rollout, store reopenings and less restrictive government mandates on crowd gathering would drive higher customer traffic to TJX’s stores, propelling historical same-store sales by the end of this year.

S&P said, “We expect TJX’s recent positive sales momentum will continue in 2021, the impetus for the outlook revision. TJX, which sells through its brick & mortar stores, was significantly affected during the COVID-19 pandemic by social distancing mandates from various governments that led to nonessential stores’ closures. As economies began to reopen, TJX reported sequentially improved performance, with same-store sales down 3 percent in the quarter ended January 30, 2021, compared with a 5 percent drop the previous quarter on higher customer transactions and benefits from the company’s merchandising initiatives. TJX also indicated on its recent earnings call that sales improved each month in the fourth quarter, with its Marmaxx, HomeGoods and TJX Canada brands achieving positive open-only comparable same-store sales in January.

TJX issued the following statement:

“We expect a return to historical comparable same-store sales by year-end 2021. We believe as vaccines are rolled out and COVID-19 cases fall, TJX’s geographic markets will reopen, and consumers will resume out-of-home activities they avoided during the pandemic. Pent-up demand for travel and entertainment may shift consumer spending from in-home activities, in our view. We expect TJX’s strong customer value proposition, highlighted by its attractive merchandise and competitive pricing, could normalize foot traffic at the company’s stores, including Marmaxx, which is more exposed to apparel demand. We expect sales at HomeGoods will moderate to flat to slightly positive as demand softens from a shift in spending toward out-of-home activities.

“TJX’s unique supply chain is a business strength that provides a competitive advantage and supports store growth. The company’s leading position in the off-price market, based on revenues and store count, is supported by its large, global supply base that permits a wide selection of eclectic merchandise, in our view. Product assortments include national to lesser-known brands the company sells at a discounted price, compared to department stores, creating a “treasure hunt” shopping experience. TJX’s sophisticated supply chain, which includes logistics and distribution centers, allows it to provide controlled assortments of frequently updated merchandise and a sense of newness, driving recurring traffic. We attribute these unique shopping experiences to the company’s robust buying group, which continues to cultivate a merchandise-driven experience and allows TJX to remain relevant in the evolving retail environment.

“We believe TJX will increase shareholder returns this year while store growth and business investments are cornerstone priorities. TJX has a sizable cash balance to weather uncertainty during the pandemic. Cash-on-hand totaled nearly $10.5 billion as of January 30, 2021, compared to pre-pandemic average annual cash between $2.5 billion and $3.5 billion. In an unprecedented environment, the company exercised its financial flexibility, including working capital management, curtailing shareholder initiatives, and raising additional debt. We expect TJX to fund store growth and supply chain investments with operating cash flow, which we expect to approach $4 billion as business conditions normalize.

“We also anticipate TJX could resume share repurchases in coming quarters given our cash flow forecast and cash-on-hand. To return more in line with pre-pandemic vendor terms, we expect TJX will deploy some cash to reduce outstanding accounts payable.

“The stable outlook reflects our view that TJX’s sales trends will improve in fiscal 2021 as the company’s strong value proposition and customer loyalty drive positive same-store trends over the next 1-to-2 years. We expect its conservative financial policies will continue to support leverage of less than 2x.”

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