TJX Companies Inc., which continues to outperform its full-price rivals, wants Sierra Trading Post to become less promotional, President and CEO Ernie Herrman said May 17.
“We’re pretty bullish on the Sierra Trading Post business longer term,” said Herrman, who succeeded TJX Chairman Carol Meyrowitz as CEO Jan. 31. “We just want to get it into more of our philosophy of business to be less promotional. We’re trying to get out of the wild promotional up-and-down swings because that is not the way we like to retail goods.”
The comments came in call to discuss TJX’s impressive fiscal-first-quarter results, which further distanced the company and its off-price model from the struggling department store channel. TJX operated more than 2,800 off-price stores under the T.J. Maxx, Marshalls and HomeGoods banners by the end of the quarter.
TJX is further strengthening Sierra Trading Post’s merchandising and planning team to spur profitable growth and possibly make the clearance outlet for discontinued and surplus outdoor apparel, footwear and gear into its fourth major retail chain.
TJX has expanded Sierra Trading Post two to eight brick-and-mortar stores since acquiring it for $200 million in December 2012. It’s also invested millions doubling the size of the fulfillment center at the company’s headquarters in Cheyenne, WY, and said it will expand it to 10 retail locations this fall.
Hermann said that while Sierra Trading Post’s new stores adhere to TJX’s less promotional cadence, SierraTradingPost.com remains more promotional.
“We just need some more TJX-izing of the business which we’re continuing to do,” Herrman continued. “We are really getting more involved there with how we’re educating that team and we’re making some moves to really take it to the next level. We would be very pleased if we could eventually roll this out as a fourth major US chain.
TJX reported net sales grew 10 percent to $7.5 billion in the first quarter ended April 30 thanks to new store openings and a 7.0 percent increase in same-store sales on top of a 5 percent increase a year earlier. Gross profit rose 50 basis points to 28.8 percent and SG&A grew 70 basis points to 17.7 percent of sales. Net income reached $508 million, or 76 cents per diluted share, up 10 percent over the prior year and well beyond the 71 cents consensus estimate of Wall Street.
TJX expects comp stores sales to slow to the 2 to 3 percent range in the fiscal second quarter. Although its expects foreign currency headwinds and rising wages to trim earnings per share (EPS) by 600 basis points during fiscal 2017, it raised that guidance to reflect the strong first quarter. It now expect fiscal 2017 EPS of $3.35 to $3.42, which would represent an increase of 1 to 3 percent from fiscal 2016. TJX opened its 500th store in Europe during the fiscal first quarter.
“The wage situation is a little ambiguous out there,” Herrman said, referencing plans to increase the hourly wage to $15 in several U.S. cities.
Though department stores are devoting more space to discontinued and clearance merchandise, Herrman said the scale and expertise of TJX buying team and the company’s singular focus on the off-price model present considerable barriers to entry for any would-be competitors.
“We have a world-class global buying organization with over 1,000 associates located in 11 countries across four continents,” Herrman said.
Herrman said going-of-business sales and auctions of leases by bankrupt retailers Sport Authority and Sport Chalet could benefit all of its banners in terms of both merchandise and real estate.
“But that won’t be just for Sierra Trading Post,” Herrman said of the leases. “That will actually be also for potentially Marmaxx sites or HomeGoods sites, because you never know, based on some of those markets.”
TJX ended the quarter with inventory valued at $3.9 billion, up $500 million from a year earlier, and cash and cash equivalent of $1.94 billion, down 14 percent compared with May 2, 2015.
“We see a marketplace loaded with quality branded merchandise and have the liquidity to take advantage of the opportunities,” Herrman said.
