TJX Companies Focuses On Store Openings & E-Commerce Growth

The TJX Companies, Inc. (NYSE:TJX) is well poised to achieve growth on the back of its brand enhancing initiatives, aggressive store opening strategy and improving e-Commerce business. These factors also aided the company to improve margins and market share, leading to better-than-expected results in its recently reported second-quarter fiscal 2018.

Though shares have been declining for the last several quarters owing to disappointing comps growth and higher costs, the stock has turned around and started moving up over the last one month on the back of solid fundamentals. Shares of this discount retailer have gained 6.8% in the last one month compared with the industry’s increase of 4.7%.

Let’s now take a closer look into some of the factors that have been aiding the company’s performance as well as few of the challenges it has been dealing with.

Initiatives Boosting Performance

TJX Companies posted its second-quarter fiscal 2018 results wherein both earnings and revenues exceeded expectations, driven by margin growth, improved traffic and higher market share. As traditional retailers struggle in the face of changing consumer tastes and competition from Amazon (NASDAQ:AMZN) , TJX Companies has maintained its solid earnings trend and outpaced estimates for the last 11 quarters. In fact, higher traffic has been benefiting comps growth for the last 33 quarters. However comps growth rate is slowing down. The company’s consolidated comps grew 3% in the second quarter, lower than the 4% growth in the year-ago quarter.

TJX Companies has an aggressive store opening strategy. The company regularly opens stores and is rapidly expanding across the United States, Europe and Canada. With almost 3,800 stores in nine countries, the company plans to increase the number of stores to 5,600 over the long term. TJX Companies plans to open approximately 260 stores in fiscal 2018. In July, the company announced plans to launch a fourth chain called Homesense, which provides furniture, lighting and art. The company has opened its first Homesense store recently, with a few more stores slated for the fall.

An increasing number of retailers are focusing on online businesses spread to a greater number of customers. TJX Companies has undertaken several initiatives to boost online sales and is aiming to add more categories to the online shopping site to differentiate the same from its brick-and-mortar stores.

The company’s aggressive marketing and advertising campaigns through multiple mediums (TV, radio and social media) have also been aiding sales growth. Its gift-giving initiatives, unique among off-price retailers and loyalty card program also help in improving customer engagement.

Factors Posing Concerns

Being an off-price retailer, TJX Companies cannot increase the price of its products despite rising product costs. Moreover, lower spending on apparel and accessories and a general slowdown in consumer spending are hurting sales at department stores. To add to its worries, TJX Companies has also been experiencing an increase in employee payroll. Higher wages are expected to negatively impact fiscal 2018 earnings by 2%. Further, the company expects incremental investments, additional supply chain costs and pension costs to pressurize margins in the coming quarters.

Bottom Line

TJX Companies’ business expansion initiatives which include store openings, e-Commerce growth and marketing campaigns are quite appealing and are expected to yield favorable results. While these efforts are expected to boost store traffic, we are cautious about the challenges which may dent the company’s performance in the near term.

Given the mixed pros and cons, the company currently carries a Zacks Rank #3 (Hold).

Do Retail Stocks Interest You? Check These

Investors may also consider better-ranked stocks such as Best Buy Co., Inc. (NYSE:BBY) and Burlington Stores, Inc. (NYSE:BURL) both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Best Buy delivered an average positive earnings surprise of 33.8% in the trailing four quarters. It has a long-term earnings growth rate of 11.8%.

Burlington Stores delivered an average positive earnings surprise of 13% % in the trailing four quarters. It has a long-term earnings growth rate of 15.9%.

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