Shares of off-price retailer TJX Companies (NYSE:TJX) have rallied nearly 50% so far this year, and while that means they are no longer at bargain-basement levels, there is just too much in the company's favor to ignore its investment appeal.
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First Quarter Review
Total sales eked out a 1% gain to $4.35 billion, as 2% same-store sales growth and a 4% increase in square footage from the addition of 28 stores during the quarter just offset the effects of a strong dollar on international sales. The flagship domestic Marshall's and TJ Maxx stores, which collectively made up over 65% of quarterly sales, posted 1% comparable sales growth. Notable strength came from the similarly-focused A.J. Wright chain in the U.S. as comps improved 12%, though they made up a small proportion of overall sales. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)
Canadian comps were flat but improved 6% in Europe on a constant currency basis, demonstrating that TJX's array of store concepts also have appeal on a global scale. The only category to post negative comps was HomeGoods, as anything geared to the housing market is struggling these days. However, the 1% decline was modest, especially considering that firms such as Pier 1 Imports (NYSE:PIR) and Ethan Allen (NYSE:ETH) are fighting for survival as cheap furniture imports, and the bursting of the housing bubble weighs on operations.
TJX's discount bias is serving it well in the current environment, which is evident in its sales growth, and pre-tax margin improvement of almost 1-7.8% of sales. Management attributed this to "strong merchandise margins and expense control," which served to boost earnings to 49 cents per diluted share. The second quarter could prove more challenging as the firm projects flat to slightly negative comps and earnings between 43-49 cents, which could grow a penny from last year's levels if it hits the high end of this range.
The Bottom Line
The current full-year projection by analysts is $2.15 per share, which places the forward P/E at just under 14. That's a very reasonable multiple for investors interested in staying defensive as they wait for tangible signs of a full economic recovery. Yet others are concerned that TJX will lag other retailers, as consumer spending shifts back toward higher-priced rivals such as Saks (NYSE:SKS), which just posted a bottom-line loss and 27% fall in sales during its own first quarter. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)
TJX has a history of consistent growth during bad and good times. Sales growth has averaged in the high single digits over the past five years, while earnings growth is firmly in the double-digits over this time frame. Couple this with overseas expansion prospects, low debt-to-capital ratio, decent valuation and high returns on invested capital, TJX remains a compelling investment opportunity.
