Can TJX Companies' Growth Efforts Help To Offset High Costs?

The TJX Companies, Inc. (NYSE:TJX) is one of those retailers that is performing well even amid a tough retail landscape. This can be mainly attributable to the company’s robust initiatives to boost sales and its off-price business model. Both these factors have helped TJX companies attract solid consumer traffic, which has been aiding its performance for a while now.

However, the company has been incurring high wage costs for quite some time now and also expects it hurt bottom-line growth in fiscal 2018. It looks like these headwinds have dented the company’s stock performance. Evidently, shares of this leading off-price retailer have lost 4.6% so far this year, as against the industry’s growth of 6%. So, let’s analyze both sides of the story and see if the Zacks Rank #3 (Hold) company’s growth drivers can combat these hurdles and continue to fuel results.



Strategic Initiatives to Boost Sales

TJX Companies’ aggressive marketing and advertising campaigns through multiple mediums (TV, radio and social media) have been boosting traffic at stores. Its gift-giving initiatives, unique among off-price retailers and loyalty card program (which offers consumers a non-credit card choice and soft benefits such as early shopping hours) also help the company to improve customer engagement. Further, the company remains focused on innovation and has been introducing new products to drive sales. Incidentally, the company’s newly launched U.S. home concept, HomeSense, will offer consumers a different mix of home fashions from HomeGoods at good value.

Focus on E-Commerce & Stores Expansion

With consumers’ changing shopping patterns, TJX Companies has undertaken several initiatives to boost online sales by recruiting an experienced internet management team. The company’s official website tjmaxx.com, accessible from tablets and smartphones, appeals to the young generation — the company’s main target consumers. TJX plans to add more categories to the online shopping site and invest categorically in it to differentiate it from brick-and-mortar stores. However, TJX Companies also remains committed to its solid store opening strategy. During the third quarter, the company opened 139 stores, taking its total count to 4,052 stores as of Oct 28, 2017. Notably, TJX plans to take the store count to 5,600 over the long term, with plans to open approximately 260 stores in fiscal 2018.

While many retailers are struggling with soft traffic, TJX Companies’ off-price model and aforementioned sales driving efforts help it draw considerable traffic. Another retailer which is benefiting from an off-price model is Ross Stores (NASDAQ:ROST) , which boasts a solid top-line growth trend.

Q3 Retails Solid Trend

Coming back to TJX Companies, the company has been witnessing year-over-year growth in both top and bottom lines for over a year now. Notably, this trend was retained in third-quarter fiscal 2018 despite the adverse impact from hurricanes. The top-line growth can be largely attributable to solid customer traffic, which is backed by the company’s impressive merchandise mix, along with the other sales-driving efforts. Further, strong merchandise margins reflect the company’s disciplined inventory management and strength of its off-price business model. Further, management stated that it began the fourth quarter on a strong note, with its solid inventory position and other sales-driving efforts keeping it well placed for the holiday season.

What’s Weighing on TJX Companies?

TJX Companies has been reeling under high wage costs for a while now. In third-quarter fiscal 2018 higher wages dented the company’s bottom line growth by 1%, with its pre-tax margin going down by 10 basis points. Also, selling, general and administrative costs, as a percentage of sales, inched up 0.5 pp to 18.1% due to increase in wages and costs associated with hurricanes. Unfortunately, wage increases are expected to negatively impact earnings growth by 2% in fiscal 2018.

The company also posted flat comparable store sales in the quarter, with results being affected by hurricanes, with demand for apparel at the Marmaxx division also being hurt by warm temperatures in the United States. Nonetheless, trends at the division improved eventually as weather normalized, keeping it well placed for the fourth quarter.

Thus, we believe that TJX Companies strategic initiatives are most likely to offset the barriers and continue the growth story of this company with long-term EPS growth rate of 10.6%.

Looking for More? Check These Solid Retail Picks

Dollar General Corporation (NYSE:DG) carrying a Zacks Rank #2 (Buy) has an impressive long-term earnings growth rate of 11.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dollar Tree, Inc. (NASDAQ:DLTR) also carrying a Zacks Rank #2 has long-term earnings growth rate of 13.2%.

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