By Eric Smith
Shares of The TJX Cos. Inc. fell $2.14, or 4.4 percent, Tuesday as increased freight costs and supply chain expenses offset the company’s strong expense leverage in the third quarter, dropping gross margin 90 bps to 28.9 percent.
“Freight was the biggest component this quarter,” CFO Scott Goldenberg said on Tuesday’s earnings conference call with analysts. “It was almost approximately 50 percent impact to TJX. So, if you were to exclude freight from our merchandise margin, we would have been up on the merchandise margin. So the other factors were as we thought or better.”
The company reported third-quarter earnings improved as comps grew a stronger-than-expected 7 percent but earnings came in lower than Wall Street’s targets and the off-price retail giant gave weak guidance for the holiday quarter.
But EPS did exceed guidance for the quarter, and TJX increased its outlook for the remainder of the year.
“We believe our strong third quarter results demonstrate the fundamental strength of our off-price treasure hunt,” said President and CEO Ernie Herrman. “Staying focused on offering consumers great merchandise and great values continues to be our winning formula. We are convinced that we are continuing to gain market share in the U.S., Canada, Europe, and Australia, which is great for our future.
“With our very strong third quarter results, we are raising our full-year comp and adjusted EPS outlook, which Scott will detail in a moment. Looking ahead, the fourth quarter is off to a solid start and we have many initiatives planned to keep driving traffic and sales this holiday season and beyond.
Read more: TJX’s Q3 Disappoints With Holiday Guidance
TJX’s banners include T.J. Maxx, Marshalls, HomeGoods, Sierra Trading Post and Homesense in the U.S, Winners in Canada; and T.K. Maxx In Europe: and Australia.
For the 52-week fiscal year ending February 2, 2019, the company expects diluted earnings per share to be in the range of $2.41 to $2.43 compared to earnings per share of $2.02 last year. The company’s full-year guidance includes an expected benefit of approximately $.36 per share due to items related to the 2017 Tax Act and a $.02 negative impact from the third quarter pension settlement charge.
Excluding these items, the company is increasing adjusted earnings per share guidance to a range of $2.08 to $2.09, which reflects its strong third quarter results. This would represent an 8 percent increase over the prior year’s adjusted earnings per share of $1.93.
“We enter the fourth quarter well-positioned to take advantage of the plentiful buying opportunities we see in the marketplace and we will be flowing fresh merchandise selections throughout the holiday season,” Herrman said. “Longer term, we remain confident that we will continue our successful growth in the U.S. and around the world.
The company expects that the combination of incremental freight costs and wage increases will negatively impact EPS growth by approximately 5 percent. This EPS outlook is now based upon estimated comparable store sales growth of 5 percent on a consolidated basis and 6 percent at Marmaxx.
“The freight headwinds are a challenge,” Herrman said. “And certainly in our model, we are as impacted as anybody. It’s just I think our flexibility and our business model allows us to go after the right categories to help drive the sales and I think our track record has shown that we will figure out something to keep pushing that top-line to help with these freight increases.”
The company’s earnings guidance for the fourth quarter and full-year Fiscal 2019 assumes that currency exchange rates will remain unchanged from the levels at the beginning of the fourth quarter.
Photo courtesy TJX Cos.
[author] [author_image timthumb=’on’]https://s.gravatar.com/avatar/dec6c8d990a5a173d9ae43e334e44145?s=80[/author_image] [author_info]Eric Smith is Senior Business Editor at SGB Media. Reach him at eric@sgbonline.com or 303-578-7008. Follow on Twitter or connect on LinkedIn.[/author_info] [/author]
