Why TJX Never Goes Out of Style

On Tuesday, TJX (NYSE: TJX  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

TJX's TJ Maxx stores have capitalized on a trend that never seems to go out of style: picking up name-brand fashions at bargain prices. Yet with the economy finally starting to rebound, will shoppers decide that it's time to abandon TJX and pay up for the newest fashions instead? Let's take an early look at what's been happening with TJX over the past quarter and what we're likely to see in its quarterly report.

Stats on TJX

Analyst EPS Estimate

$0.62

Change From Year-Ago EPS

12.7%

Revenue Estimate

$6.16 billion

Change From Year-Ago Revenue

6.3%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can TJX's earnings this quarter support its share price?
Analysts have made very modest cuts in their views on TJX's earnings in recent months, dropping their estimates by a penny per share both for the just-ended quarter and for the current fiscal year. The stock, though, has moved in the other direction, climbing almost 15% since mid-February.

We've already gotten a good sense of TJX's quarter from its monthly same-store sales figures. In February, the company bested expectations with a 1% gain in comps, and even though winter's lingering effects caused a 2% drop in March comps, April brought better news with an 8% gain that brought the quarter's net boost to 2%. Those figures are pretty similar to what we've seen from rival Ross Stores (NASDAQ: ROST  ) , which saw a 1% decline in February followed by gains of 2% in March and 7% in April that added up to a 3% gain for the quarter.

In light of those strong results, TJX was able to announce a dividend increase of 26%. Even with the boost, however, the stock has a relatively low yield of just 1.1%.

The big question for TJX, though, is whether other retailers will pick up on the discount theme. Upscale retailer Nordstrom (NYSE: JWN  ) relies heavily on its Nordstrom Rack discount stores to broaden its appeal beyond the upper-income clientele of its flagship Nordstrom department stores, offering price reductions on high-quality merchandise in the same way that TJX and Ross do. Moreover, many retailers have discount stores at specialty outlet malls, and success there could lead those chains to consider stand-alone discounting on their own accord.

In TJX's report, watch closely for any signs of slowing growth. With the shares now fetching 20 times trailing earnings, investors might jump on any troubling signs as a reason to pull the stock back from its recent highs. For the long run, though, TJX's business model looks like an concept that will never go out of style.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only the most forward-looking and capable companies will survive, and they'll handsomely reward investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

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