As September quarter earnings unfold in the retail sector, a key trend is that consumers are becoming more value-conscious, scrutinizing spending, and opting for lower price points. In this challenging environment, off-price retailer TJX (TJX, Financial) is thriving, likely capturing market share from department stores and big-box retailers like Nordstrom (JWN, Financial), Kohl's (KSS, Financial), and Target (TGT, Financial), which reported weak Q3 results and issued Q4 EPS guidance below expectations.
- TJX reported strong Q3 results, with EPS and revenue surpassing estimates due to a 3% increase in consolidated comparable sales and higher merchandise margins. Although Q4 EPS guidance of $1.12-$1.14 fell slightly below expectations, TJX often issues conservative guidance and exceeds it, as seen in the past three quarters.
- The company's comp growth was driven by increased customer transactions, reflecting the appeal of its product assortment and value proposition. HomeGoods stood out with a 3% comp, impressive given last year's 9% growth. Marmaxx, which includes TJ Maxx and Marshalls, also performed well with a 2% comp on top of last year's 7% comp.
- Benefiting from lower freight costs, higher net interest income, and stronger merchandise margins, TJX's pretax margin increased to 12.3% from 10.9% last quarter. For Q4, TJX forecasts a pretax profit margin of 10.8-10.9%, but the company often exceeds its own guidance.
CEO Ernie Herrman stated in the earnings press release that Q4 is off to a strong start, with high expectations for the holiday shopping season. We believe TJX will continue to succeed in the retail space as consumers seek bargains. Despite shares being near all-time highs, TJX faced high expectations before the Q3 report. The conservative Q4 EPS guidance prompted a profit-taking pullback, but the overall outlook for TJX remains positive.
