We currently reiterate our Neutral recommendation on The TJX Companies, Inc. (TJX).
The TJX Companies Inc.’s fiscal fourth-quarter earnings grew 12.0% to $1.05 a share from 94 cents in the year-ago period. The quarterly earnings were ahead of the Zacks Consensus Estimate of $1.02 a share. Profits were primarily driven by prudent inventory management and increased store traffic.
For full year 2011, TJX reported a 23% increase in earnings to $3.49 a share versus $2.84 reported in fiscal 2010. Earnings were also ahead of the Zacks Consensus Estimate of $3.47.
For fiscal year 2012, the company expects earnings to be in the range of $3.63 to $3.78, representing a 10% to 15% increase over fiscal 2011. On an adjusted basis, earnings for the full year are expected to be in the range of $3.78 to $3.93.
The company’s off-price business model is flexible, allowing it to react to market trends. The opportunistic buying and inventory management strategies give it the required flexibility to adjust assortments more frequently than traditional retailers.
By maintaining a liquid inventory position, the merchants can buy when they need, enabling them to buy into current market trends and take advantage of opportunities in the marketplace.
Furthermore, the company operates with a low cost structure compared to many other traditional retailers. It focuses aggressively on expenses throughout its business. The advertising budget as a percentage of sales is low compared to traditional retailers.
The company designs its stores, generally located in community shopping centers, to provide a pleasant, convenient shopping environment but does not spend heavily on store fixtures.
Additionally, its distribution network is also designed to run operations effectively. Management continues to pursue cost saving strategies in areas such as non-merchandise procurement, operating efficiencies in the distribution centers and stores, as well as efficiencies in the supply chain. Moreover, the company has a strong balance sheet, with a debt to capitalization ratio of just 20.0% year-to-date.
However, intense competition from other established players and the willingness of discretionary spending among consumers, especially after the biggest financial crisis are major concerns for the company.
The company primarily competes with Wal-Mart Stores (WMT), Sears Holding Corp. (SHLD) and BJ’s Wholesale (BJ) and currently has a Zacks #3 Rank, which translates into a short-term Hold rating.
BJ’S WHOLESALE (BJ): Free Stock Analysis Report
SEARS HLDG CP (SHLD): Free Stock Analysis Report
TJX COS INC NEW (TJX): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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