EUR 850.00 For Business Accounts Only

Morningstar | TJX's Agile Merchandising and Differentiated Business Model Should Help It Weather Competition

We believe TJX offers investors an attractive domestic and international growth story, strong free cash flow generation, and a proven record of success in both strong and weak economic environments through its T.J. Maxx, Marshalls, Sierra Trading Post, HomeGoods, Homesense, TJX Europe, Trade Secret, and TJX Canada stores. With its experienced management team, compelling discounted offerings, and competitive advantage in scale and inventory management, we see low risk in strategy or execution.In our opinion, revenue growth can be sustained through the benefit of scale inherent in access to over 20,000 vendors worldwide, the availability of highly automated distribution centers, and a proprietary inventory management system that allows for local customization of merchandise at more than 4,000 stores. These attributes form the basis for our narrow moat rating. We think TJX can achieve an average 3% annual same-store sales growth rate over the next five years, driven by increased visits from existing customers, new customer acquisition with new marketing campaigns and e-commerce-driven awareness, especially in the younger demographic, and as the steady stream of new stores scales.Because merchandise can be obtained from such a wide variety of vendors and proprietary systems allow for differentiation of floor plan and merchandising to match local demand, the target market is broad and allows for expansion to a range of markets. We estimate that the firm's footprint in current markets can grow almost 50%, and eventual expansion into additional European markets should make room for almost 1,000 more storefronts. We think constant currency operating income growth will be slightly ahead of revenue growth, driven by the scaling of the HomeGoods, Trade Secret, and TJX Europe businesses offset by wage inflation in the near term. Our model assumes low-double-digit average annual earnings per share growth over the next five years, driven by 6% revenue growth, 7% operating income growth, tax reform, and a benefit from share buybacks.