The TJX Cos.’s third-quarter results exceeded Wall Street targets with strength in activewear, home and beauty categories. However, TJX officials warned that holiday selling would likely be hampered by a surge in COVID-19 cases here in the U.S.
In the third quarter, sales were down 3.3 percent to $10.1 billion, easily exceeding Wall Street’s consensus estimate of $9.38 billion. Net income improved 4.7 percent to $867 million, or 71 cents a share, topping the consensus estimate of 40 cents.
On a conference call with analysts, Ernie Herrman, CEO and president, said the quarter marked the first quarter this year that nearly all its stores were open and sales exceeded plans across all divisions. Herrman continued, “Despite the numerous macro headwinds, including COVID-19 and its impact on consumer behavior and the limitations in cost of operating with new safety and occupancy protocols, we generated strong cash flow and saw a strong rebound to our top and bottom line. We are convinced that we can continue our successful profitable growth once we are past this health crisis and the environment normalizes.”
Overall, open-only comps were down 5 percent. By concept, sales at Marmaxx (U.S.) were down 10 percent. The segment includes T.J. Maxx, Marshalls and Sierra Trading. Sales of HomeGoods (U.S.) were up 15.0 percent, TJX Canada was down 7 percent and TJX International (Europe & Australia) was off 6 percent.
Open-only comps include stores that were open in the current period versus those also open for the same days in the prior year.
Overall customer traffic was down but improved versus the second quarter. The average basket increased. Overall open-only comp-store sales were sluggish in August but improved significantly for the remainder of the quarter. TJX officials attributed the improving monthly trend to a combination of a more seasonally appropriate merchandise mix and improved in-store inventory levels as the quarter progressed.
Activewear, Home And Beauty Pace Sales
Herrman said the above-plan sales in the quarter benefited from an improved merchandise mix and higher store inventory levels. TJX’s buying team significantly flexed buying dollars toward higher demand categories.
“We saw strength in our home, beauty and activewear categories across Marmaxx, TJX Canada and TJX International,” said Herrman. “It’s great to see consumers seeking out our banners for the categories that they currently deem important. Our buyers have done a terrific job delivering great merchandise and value throughout the store for all of our categories including both the hot trending categories and the softer trending areas.”
Merchandise flow to stores improved since last quarter, and inventory flow is expected to incrementally improve throughout the fourth quarter. Said Herrman, “Overall inventory availability and the buying environment are excellent.”
Herrman said TJX also continues to receive “very good feedback” on its safety protocols that are communicated within its marketing efforts and helping support in-store traffic.
Merchandise margin was up significantly in the quarter, driven by stronger mark-on and lower markdowns, including a benefit due to the timing of markdowns between the second and third quarters. Gross margins improved to 30.2 percent from 28.8 percent a year ago. Strong merchandise margin gains helped offset a hike in SG&A expense to 19.6 percent of sales from 18.0 percent due to significant COVID-19-related costs.
Inventories Down 21 Percent
Inventories, as of October 31, were down 20.6 percent. Scott Goldenberg, CFO, said the decline was due to a combination of factors including lower planned store inventory levels, stronger than expected Q3 sales and merchandise delivery delays due to continued bottlenecks in the supply chain. He added, “While overall inventory was down, in-store inventory levels improved significantly compared to the second quarter and are close to where we want them to be in this environment. To be clear, the availability of merchandise in the marketplace is excellent and is not a factor impacting inventory levels.”
For the first two weeks of the fourth quarter, overall open-only comps were down 7 percent, similar to the trend the company saw during the last week of October. The off-price retailer said it would continue to not provide guidance due to COVID-19-related uncertainties.
Herrman said the company expects TJX’s banners to be a “gifting destination” during the holiday quarter with the popularity of its treasure hunt shopping experience, the planned arrival of fresh products multiple times a week and holiday marketing campaigns set to drive store traffic.
However, he said TJX continues to see “significant COVID-19-related headwinds that we believe will make it difficult to achieve the level of sales that we would normally expect during this time of the year.”
He cited the recent resurgence of COVID-19 cases that may lead to more temporary store closures. Currently, some stores are temporarily closed with the vast majority in Europe, with “only a very small number” in North America. The increase in cases will also drive “continued uncertainty around shopping behavior” to impact in-store traffic. He said, “We see some consumers are still reluctant to shop in stores, and others may make fewer shopping trips this holiday season.”
Occupancy limits and social distancing protocols may also limited in-store traffic.
On the product side, TJX’s buying team has shifted to emphasize high-demand categories such as home, beauty and activewear, but still has exposure to softer categories affected by stay-at-home trends in the short-term to medium-term. He added, ‘Medium- to long-term, while much of what I just discussed are macro headwinds that could persist until a vaccine is widely available and the environment normalizes, we feel very confident in the market share opportunities we see ahead.”
Photo courtesy TJX