Morningstar | TJX Continues Its Strong Execution, Leveraging a Cost Advantage in Service of a Differentiated Model
After TJX reported second-quarter earnings that leave it on pace to meet our full-year targets, we do not plan a large change to our $91 fair value estimate for the narrow-moat company. The strong period is consistent with our view that TJX can capitalize on its cost and inventory management advantages despite intense competition, and our long-term targets (averaging mid-single-digit revenue growth against 11% pretax profit margins over the next decade) remain. However, we contend that trading prices more than reflect TJX's advantages, so we suggest investors await a more attractive entry point.Year-to-date revenue rose 12% on 5% comparable-store sales growth against an 11% consolidated pretax profit margin. Management lifted its fiscal 2019 EPS target to $4.83 to $4.88 from $4.75 to $4.83, versus our $4.86 mark.
Marmaxx (about 60% of fiscal 2018 sales) led the performance with 7% comparable-store sales growth. Management cited strong apparel sales, with traffic and ticket growth contributing. We were encouraged that the division is performing well with younger customers, with the majority of its new shoppers aged 18-34. We have argued that the different attitudes of millennials, and the older members of Generation Z, require brick-and-mortar retailers to focus on the store experience alongside value delivery, and Marmaxx's success in leveraging its treasure hunt approach with the cohort reinforces our view that TJX can protect its returns in a fast-changing landscape.
The Canadian unit (about 10% of fiscal 2018 sales) also saw solid growth despite a high bar, with comparable-store sales up 6% for the quarter on top of last year's 7%. We contend that the results show the strength of the firm's value proposition north of the border, with performance offsetting wage pressure. We expect TJX's Canadian unit to outpace Marmaxx's growth (3% long-term comparable store sales growth versus 2%) as it expands and rising awareness of the firm's offering yields traffic.
TJX Companies is an off-price apparel and home fashions retailer. The company's segments comprised of: Marmaxx, which sells family apparel (including footwear and accessories), home fashions (including home basics, decorative accessories and giftware) and other merchandise; HomeGoods, which provides a range of home fashions, including home fashions, including furniture, rugs, lighting, soft home, decorative accessories, tabletop and cookware as well as pet, kids and gourmet food departments; TJX Canada, which operates the Winners, HomeSense and Marshalls chains in Canada; and TJX International, which operates the T.K. Maxx and HomeSense chains in Europe and the T.K. Maxx chain in Australia.
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