Will TJX Companies' Robust Comps Run Continue To Drive Stock?

The TJX Companies, Inc. (NYSE:TJX) has been benefiting from robust comparable sales (comps), courtesy of rise in consumer traffic and strong merchandising policies. Also, comps have been benefitting from the company’s robust off-price model, strategic store locations and impressive brand strategies. All these factors have driven TJX Companies’ top and the bottom line amid hurdles like increased supply-chain expenses.

Notably, this trend continued in third-quarter fiscal 2020, with the top and the bottom line surpassing estimates and increasing year on year. Encouragingly, management raised its bottom-line guidance for fiscal 2020. This development has made analysts more appreciative of the company’s performance. Evidently, the Zacks Consensus Estimate for fiscal 2020 earnings has moved up by a couple of cents to 77 cents per share in the past 30 days.

In fact, the company’s stellar past performance has long been boosting investors’ optimism in the stock. Shares of this Zacks Rank #2 (Buy) company have increased 10.9% in the past three months compared with the industry’s growth of 6.4%. Let’s take a closer look.

What’s Driving TJX Companies’ Performance?

TJX Companies has been gaining from sturdy comps trend on the back of high customer traffic as well as effective marketing initiatives and loyalty programs across all segments. In third-quarter fiscal 2020, comps rose 2%, 6%, 4% and 1% in TJX Canada, TJX International, Marmaxx and HomeGoods segments, respectively. This indicates that the company’s merchandising and brand growth initiatives have been yielding well. Moreover, it expects consolidated comps growth of 2-3% for the fiscal fourth quarter.

The company’s initiatives to boost e-commerce business along with differentiated online merchandise mix have been yielding. In fact, management witnessed online business growth in the United States and the U.K. in the fiscal third quarter fiscal.

This apart, the company has been benefitting from solid store openings. In this regard, TJX Companies added 107 stores during the fiscal third quarter, taking the total count to 4,519 as of Nov 2. TJX Companies intends to continue expanding store base with plans to operate about 6,100 stores in the long term.

Will Woes be Pared?

We note that high supply-chain costs have been exerting pressure on TJX Companies’ gross margins for quite some time. In the fiscal third quarter, gross margin fell 0.1 percentage points to 28.8%. Further, the company is battling margin pressure stemming from tariff-related impacts on goods sourced from China.

Apart from this, TJX Companies’ solid international presence keeps it exposed to risks associated with adverse currency fluctuations. Persistence of these trends is a threat to margins.

Nevertheless, the company’s focus on strong merchandising and brand strategies combined with effective marketing efforts is likely to enable the company overcome these hurdles and sustain its impressive momentum.

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