TJX Companies (TJX) Tops Q3 Earnings On Comps, View Up

The TJX Companies, Inc. (NYSE:TJX) reported third-quarter fiscal 2017 results, wherein its net sales, comparable store sales (comps) as well as earnings exceeded expectations. The company also raised its fiscal 2017 comps and earnings guidance, based on the upbeat results.

In the reported quarter, earnings of 91 cents per share surpassed the Zacks Consensus Estimate of 87 cents by 4.6%. Earnings also exceeded management’s guidance of 83–85 cents per share.

The bottom line grew 5.8% year over year, backed by higher consumer traffic and solid comps growth. Currency headwinds impacted earnings by 1 cent per share. Shares gained in the pre-market trading.

Quarterly Details

Net sales increased 7% year over year to $8.29 billion, supported by higher comps. The figure also marginally beat the Zacks Consensus Estimate of $8.27 billion. Currency headwinds impacted sales by 2 cents.

TJX Companies' consolidated comps grew 5%, flat with the year-ago quarter, backed by higher comps at Marmaxx, HomeGoods and TJX Canada. Comps were flat in the International segment. Comps also exceeded management’s guidance of 2%–3% growth.

While TJX Canada comps grew 8% in the reported quarter, HomeGoods and Marmaxx comps increased 6% and 5%, respectively.

TJX Companies' adjusted pre-tax profit margin contracted 0.4 percentage points (pp) year over year to 11.7% of sales. Gross margin expanded 0.5 pp year over year to 29.5%. The upside was primarily driven by strong increase in merchandise margins and gains related to the company’s inventory hedges.

However, selling, general and administrative costs, as a percentage of sales, went up 0.9 pp to 17.6% due to increased wages and investments.

Other Financial Updates

Cash and cash equivalents were $2.38 billion as of Oct 29, 2016, while long-term debt was $2.23 billion at the end of the third quarter.

During the quarter, the company increased its store count by 110 stores to a total of 3,785 stores. It had increased square footage by 4% over the same period last year.

Also, in the reported quarter, the leading off-price retailer paid $170 million as dividends and repurchased 5.2 million shares for a total of $400 million.

Q4 Guidance

TJX Companies also issued its guidance for fourth-quarter fiscal 2017. The company expects earnings in the range of 96–98 cents per share compared with 99 cents reported a year ago. Wage increases are expected to negatively impact earnings growth by 3%. Currency headwinds are likely to hurt earnings by 6%.

For the fourth quarter, the company expects comps growth of 1%–2% over last year’s strong 6% increase.

Fiscal 2017 Guidance Raised

For fiscal 2017, TJX Companies now projects adjusted earnings per share in the range of $3.46–$3.48, up from its previous estimate of $3.39–$3.43. The company had reported adjusted earnings of $3.33 per share last year. Comps are also expected to grow 4%, which is on the higher end of the previous guidance of 3%–4% growth.

The company continues to expect to repurchase approximately $1.5–$2.0 billion of TJX stock in fiscal 2017.

Zacks Rank

TJX Companies has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the retail sector are Francesca's Holdings Corp. (NASDAQ:FRAN) , Foot Locker, Inc. (NYSE:FL) and Boot Barn Holdings, Inc. (NYSE:BOOT) . All these stocks hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While Francesca's Holdings carries an expected long-term earnings growth of 13.75%, Foot Locker and Boot Barn have an expected earnings growth of 9.88% and 14.50%, respectively, for the next three to five years.

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