Finding younger consumers are drawn to the company’s deal-driven, treasure hunt experience, TJX Cos. raised the company’s full-year forecast after reporting second-quarter results that handily topped Wall Street’s targets.
“We are particularly pleased that we’ve been attracting a significant share of Millennial and Gen Z shoppers among our new customers at each of our divisions,” said Ernie Herrman, president and CEO, on a conference call with a analysts. “Importantly, the majority of new customers at Marmaxx are these younger customers, which indeed bodes well, very well for our future. We continue to see a meaningful opportunity to grow our retail banners around the world.”
In the quarter, earnings rose 33.8 percent to $739.6 million, or $1.17 a share, well above Wall Street’s consensus estimate of $1.05. Revenues rose 11.6 percent to $9.33 billion, also ahead of Wall Street’s target of $9.03 billion.
Same-store sales increased 6 percent, driven by strong customer traffic and easily beating the 2.2 percent increase analysts had expected. Comps grew on top of last year’s 3 percent increase and were significantly above internal expectations.
On the call, Herrman noted that comps “significantly exceeded” internal expectations with strong comp growth seen across all divisions and a “very robust performance” in the company’s apparel business. Customer traffic was up for the 16th consecutive quarter at TJX and Marmaxx and drove the comp gains.
“We are convinced that we are attracting new customers, driving more frequent visits to our stores and gaining market share,” said Herrman. “We are particularly pleased to see that we have been attracting new younger customers at all divisions, which bodes well for the future.”
Merchandise margin was down, but would have been up significantly without the increased pressure from freight cost.
Among segments, Marmaxx comps increased 7 percent, significantly exceeding plans. Comps were driven by customer traffic and average ticket was up again this quarter. Marmaxx saw consistent growth across all regions and the apparel business “was very strong,” according to Scott Goldenberg, CFO. Segment profit margin was up 10 basis points.
The segment includes T.J. Maxx, Marshalls and Sierra Trading Post, which had 33 stores at the end of the quarter versus 32 at the start. T.J. Maxx closed the quarter with 1,236 stores and Marshalls, 1,077. Said Goldenberg, “We have many initiatives planned in the back half of the year that we believe will continue driving traffic and sales.”
Among other segments, HomeGoods comp grew 3 percent on top of last year’s 7 percent comp increase. TJX Canada second quarter comps grew at 6 percent over a 7 percent increase last year. At TJX International, comps increased 4 percent.
Herrman credited the company’s strong performance to the “enduring appeal of our treasure hunt shopping experience,” “amazing off-price values,” a healthy amount of opportunistic buys in the marketplace, the “instant gratification” that comes from brick & mortar shopping and enabling consumers to easily shop multiple categories. Loyalty programs are driving more frequent visits and increased cross shopping across banners.
Herrman further credited the company’s vast base of more than 20,000 vendors that provides the flexibility to respond quickly to changes in consumer taste. Said the CEO, “Our inventory turns very rapidly, and the freshness and newness of merchandise encourages and excites consumers to visit our stores more frequently. We have a strong focus on innovation and are constantly testing new ideas within our 4,000-plus stores as well as our online channels.”
He said TJX still believes the company’s long-term growth potential is 6,100 stores in just the company’s current countries and current chains. Said Herrman, “We target an extremely wide customer demographic, which also gives us greater flexibility to open stores in urban, suburban and rural locations. We believe our e-commerce sites are also driving customer traffic to our stores, although still a small piece of our overall business, we feel great about our differentiation strategies and the growth of both our U.S. and U.K. e-commerce sites.”
For the current quarter ending in November, TJX expects to earn $1.18 to $1.20 per share. That includes a benefit of 18 cents per share related to the tax overhaul. Analysts had expected adjusted EPS of $1.24. Excluding the tax benefit, TJX expects the company’s per-share earnings to range from $1 to $1.02.
The company raised full-year forecast and now expects EPS in the range of $4.83 to $4.88. Excluding benefits related to the tax overhaul, the retailer expects annual profit of $4.10 to $4.14 per share, up from a prior outlook of $4.04 to $4.10.
Photo courtesy TJX Cos.