Framingham, MA 01701
My Mom is a bargain hunter. She shops with the sole purpose of finding value,
a good product at a good price. I think it's a hereditary thing -- my Grammy
is so enamored by low prices, she'll buy deep-discounted merchandise for
which she has no use on the off chance that it will one day come in handy.
Mom passed the gene on to my sister and me, taking us on pilgrimages to Spags
(no bags), and teaching us comparison shopping and unit pricing in the TriTown
Perhaps the ultimate prize for Mom is deep-discounted, brand-name clothing,
and her most frequent bargain-hunting haunts are T.J. Maxx and Marshalls.
The numbers one and two off-price apparel retailers in the country, both
are owned and operated by THE TJX COMPANIES (NYSE: TJX). The first
T.J. Maxx opened in 1977 in Auburn, Massachusetts, and it didn't take Mom
long to find it.
In late 1995, TJX acquired Marshalls from Melville Corp. (now CVS). By making
that purchase, TJX strengthened its position as the discount clothing leader
in the U.S. The acquisition also brought about better buying power and a
larger distribution channel for inventory. While there are plenty of apparel
retailers out there, the only big players in the off-price brand-name arena
are TJX and ROSS STORES (NYSE: ROST).
I'd venture to say that Mom and her kin have done more research on the consumer
side of TJX than all the analysts that follow it combined. They have bought
(and exchanged) more clothing at TJX stores than humans should be allowed.
That certainly wouldn't have happened if T.J. Maxx and Marshalls didn't have
good clothing, great prices, and helpful customer service. While TJX gets
a ringing endorsement from the shopper's point of view, how attractive is
it to investors?
TJX closed today (5/8/97) at $46, up 48% from last Mother's Day, when it
was marked at $31 1/8, up from $13 the year before. I actually considered
writing about TJX for the last year's Stocks for Mom special, but at the
time it seemed that it wasn't a bargain, given the rise in price. I was wrong
then, so I figured I'd run through the numbers this year and let you decide,
Mom, you've always had a much better eye for a deal.
Last year, the company earned $2.36 per share after the gains from the sale
of the Chadwick's catalog business are backed out. Analysts estimate that
TJX will earn $2.92 in fiscal year '98, and $3.32 in fiscal year '99, with
five-year annual growth rates estimated to be 17% (which seems reasonable
given the 16.5% annual growth over the past five years). The current
price-to-earnings ratio (P/E) is 19.5. Comparing the growth figures to the
price and earnings (with the Fool's online
pegulator), we get a PEG of 1.05,
and a YPEG of 0.92.
Those numbers don't mean too much in a vacuum, though -- how do they stack
up to Ross Stores? (See Mom, I learned my comparison shopping lessons well.)
At the closing price of $27 1/8, Ross sits at a P/E of 17.2, with a PEG of
0.94. Using five-year growth estimates of 14.6%, the YPEG is 0.96. Neither
is really a bargain to this hunter's eyes, Mom, at least not on an earnings
basis. How do the sales figures look?
[Speaking of sales Mom, you always loved sales. Why not check out the
Retail Weekly Updates? You
might like them even better than the sale flyers in the paper. But I digress....]
TJX is an S&P 500 company, with a market capitalization of $4.154 billion.
Sales reached $6.689 billion last year, for a price-to-sales ratio (P/S)
of 0.65. That's certainly pretty low, but the competitive retail industry
is not a place where you'll find very high price-to-sales ratios. Competitor
Ross Stores has a market cap of $1.439 billion, and they sold $1.689 billion
worth of stuff last year, for a P/S of 0.85. That's more richly valued on
a trailing sales basis than TJX, but neither is totally beyond reason.
Sure, they're higher than SEARS (NYSE: S), which sports a 0.5 P/S,
but they're not as extreme as the 1.5 P/S that's built into the price of
HOME DEPOT (NYSE: HD) or the 1.7 P/S that GAP INC. (NYSE: GPS)
is sporting this season. For further comparison, projected five-year earnings
growth for the above retailers is 14.8%, 23.5%, and 16.5%, respectively;
TJX's 0.65 P/S seems pretty reasonable if they meet the 17% growth estimate.
TJX stock certainly isn't selling at as much of a discount as its clothing
does, but you might want to keep your eyes open, Mom, in case the price gets
marked down. Be careful, though; the stock should split two-for-one in June,
so be sure it's really a sale and not just the effect of the split. That
said, it seems that the company's long-term prospects are pretty good --
maybe just this once you should pay full price.
p.s. Mom, I'd like to thank you for taking me on a walk to Swider's farm
when I was home sick from class at Halls Hill. It was a beautiful autumn
afternoon, the cider was delicious, and it was some powerful