Morningstar | TJX's Unsurprising End to Fiscal 2019 Leaves Our Outlook Intact; Shares Near Fair Value
We do not plan a large change for our $45 per share valuation for narrow-moat TJX after it posted unsurprising fourth-quarter earnings. Our long-term outlook (mid-single-digit sales growth against roughly 11% adjusted operating margins over the next decade) is intact. With the shares trading near our valuation, we suggest investors await a more attractive entry point before building a position.For fiscal 2019, TJX posted $39.0 billion in sales against adjusted diluted EPS of $2.11, near our $38.8 billion and $2.12 respective targets. Management calls for $2.55 to $2.60 in adjusted diluted EPS next year; our $2.64 pre-announcement is slightly higher as we include share buybacks (our estimate is at the high end of the range when repurchases are excluded).
Fourth-quarter comparable store sales growth was strong across all divisions, with Marmaxx (62% of fiscal 2019 sales) a highlight at a 7% mark that well exceeded our 3% target. The strong result capped a strong year for the unit (7% full-year comparable-store sales growth) despite ongoing turmoil in the broader apparel retail industry, which is consistent with our view that TJX is relatively well protected from the persistent headwinds from factors including digital competition. In that vein, TJX announced plans to start a Marshalls U.S. e-commerce offering, hewing to the strategy it honed with T.J. Maxx, which offers a differentiated assortment that we believe encourages physical store traffic while preserving vendor relationships with manufacturers that wish to keep their discount channel presence discreet.
TJX's 10.6% fourth-quarter adjusted pretax margin fell roughly 90 basis points from last year's mark. However, we are encouraged that freight was the main culprit rather than an endogenous change in TJX's profitability, with management indicating merchandise margin rose significantly. We expect competition to hold adjusted margins near fiscal 2019's 10.8% mark long term despite building cost leverage.
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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