TJX: Profiting On Retail Strength

One sector is showing surprising resilience and strength in the face of the slowing domestic economic recovery, the sovereign debt crisis in Europe and fears of a slowdown in China. The retail sector has blossomed in these uncertain economic times. Zumiez Inc. (NASDAQ: ZUMZ) recently increased 2012 Q1 earnings by 150% YOY. Ross Stores (NASDAQ: ROST) recently posted a 26% YOY gain in Q1 and grew its earnings an average of 24% the last three quarters. Overall, the S&P Retail Index has soared 19.1% YTD, compared to 6.3% for the S&P 500. 
 
One retail company that has significant upside potential is The TJX Companies (NYSE: TJX). This company is an off-price apparel and home fashions retailer that operates its stores under names such as T.J. Maxx, Marshalls and HomeGoods. The company's stock is prospering, having increased 34.7% YTD. Moreover, TJX Companies is barely off its 52-week high, which shows strong investor interest in this company. 

Room For International Expansion
The TJX Companies is in a unique position to tap into significant opportunity for room to expand in the international stage. Currently, it is the only major off-price retailer in Europe and has seen significant European demand for its products even in the face of tough economic conditions. In fact, in the last quarter, TJX Europe reported its highest first quarter segment profit in the history of the division. Moreover, other international divisions, such as TJX Canada, have posted significant increases in division profits. The TJX Companies is planning on growing overall square footage by 4% to 5% annually for the next three years; this emphasis on penetration of international markets will result in significant revenue increases in the future.
 
It's also important to note that The TJX Companies is also focused on domestic expansion. Marmaxx (T.J. Maxx and Marshalls collectively) is currently the largest North American off-price retailer and dominates the eastern market. Despite this established presence, The TJX Companies stores operating in the U.S. continue to produce record figures. The company has also recently been focused on expanding its HomeGoods chain, which is the largest off-price retailer of home fashions in the U.S. In the first quarter of 2012, HomeGoods and Marmaxx stores delivered record first quarter profit segment and segment profit margins in their U.S. locations. Moreover, there is still huge room for The TJX Companies to grow; according to company research, tens of millions of consumers have not been tapped by The TJX Companies stores, which have lower market penetration (and more opportunity to grow) than most U.S. department stores. 

Off-Price Approach
The TJX Companies also has a very successful business model, one which emphasizes off-price products. This approach has definitely appealed to consumers across the U.S. and the world who have cut down on extravagant spending in light of recent global economic downturns. Many shoppers are now focused more on finding deals and inexpensive retailing products instead of simply embarking on spending binges. The TJX Companies is poised in a perfect position to accommodate these shoppers. Moreover, The TJX Companies has "dramatically widened" its demographic reach and thus its customer base. The company's successful business model have produced excellent financial results for the company. For its most recent quarter, the first quarter of 2012, The TJX Companies reported a 41% YOY increase in earnings. For its last three quarters, it had been averaging earnings growth of 24%. 
 
Overall, The TJX Companies is a solid play on the retail sector due to its successful international expansion, its positioning as the premier off-price retailer in the U.S., and its financially successful business strategies.