With inflation and excess inventory weighing on many retailers, there is one name that is getting a lot of love from analysts — TJX Companies. The off-price retailer beat earnings expectations on Wednesday, reporting third-quarter earnings-per-share of 86 cents versus a StreetAccount estimate of 80 cents. Revenue, however, came in lower than expected, at $12.17 billion compared to the $12.3 billion expected by Wall Street. The results sent the stock 4% higher Wednesday, although it has given up some of those gains Thursday. The glut of inventory in the retail space has helped lift TJX ‘s earnings, CEO Ernie Herrman said on the earnings conference call Wednesday. “The marketplace is absolutely loaded with quality branded merchandise across good, better and best brands,” he said. “Importantly, this has set us up very well to offer an excellent assortment of branded gifts this holiday season that we believe will excite and inspire our shoppers.” Several analysts agree, with Barclays naming TJX its top pick, “Hands Down.” “Despite the nuanced quarter, with both pluses and minuses, we believe the most important takeaway is that Off-Price is structurally built to remedy excess inventory problems and clear evidence of this is emerging,” Barclays analyst Adrienne Yih wrote in a note Thursday. In fact, there has been a shift in power to the off-price retailer, “which, in turn, allows them to charge higher selling prices and improve their merchandise margin,” she added. Yih raised her price target to $94 from $76, implying 19% upside from Wednesday’s close. Cash-strapped shoppers High inflation has many consumers planning to cut back on spending this holiday season. That could also benefit TJX, which is considered a recession play. “Momentum in Marmaxx, along with the Off-Price business model of on-trend branded goods at a discount to traditional retail, suggests an attractive channel for cash strapped shoppers in the Q4/Holiday quarter,” Cowen analyst John Kernan wrote in a note Thursday. Kernan boosted his price target to $84 per share from $78. TJX’s comparable-store sales were driven by the excellent performance of Marmaxx, particularly its apparel business, the company said. U.S. Marmaxx sales, which includes T.J. Maxx and Marshalls brand stores, rose 3%in the third quarter, while TJX’s HomeGoods’ comparable-store sales sank 16%. Looking ahead, the company narrowed its full-year expectations by 2 cents, to $3.07 to $3.11 earnings-per-share due to unfavorable exchange rates. “We view the guidance as achievable and potentially beatable given the high quality inventory and growing need for trade-down,” said Bank of America analyst Lorraine Hutchinson. She reiterated her buy rating and $80 price target. “We think that the multiple is warranted as TJX has outperformed the retail industry domestically, has a solid international growth opportunity, significant square footage growth potential, a strong track record of returning excess cash to shareholders in a normalized environment and high returns on invested capital,” she wrote in a note Wednesday. Off-price competition TJX’s trajectory to market share gains and margin expansion will likely occur in the second half of 2022, while Ross Stores and Burlington will lag by a couple of quarters, said Barclays’ Yih. That’s due to greater wallet pressure among lower household-income consumers, she said. TJX has already shown success in raising average ticket prices, while its competitors in the second quarter indicated they would lower ticket prices for the second half of the year, she said. “From what we have heard thus far in earnings, we believe the $50K to $60K [household] income consumer is pulling back spending further in 3Q22 versus 2Q22. Thus, we believe that it will [be] difficult for ROST and BURL to show material upside sales momentum during fall/holiday,” Yih said. Burlington also has had company-specific missteps, she added.
© heardonwallstreet.com