People who like to make predictions often go to the extreme. If they're incorrect, it's forgotten about. If they're correct, they look like geniuses. It's only once in a while where you will run into someone who makes a prediction with confidence and that prediction ends up being correct. It's even better when that person happens to be the CEO of a multi-billion dollar company.
A bold prediction
On a August 20, 2013 conference call, TJX Companies' (TJX -0.51%) CEO Carol Meyrowitz stated that TJX Companies would see continued top and bottom-line growth, and that it would become a $40 billion-plus company. She delivered.
Impressive Everywhere
As an off-price retailer, TJX Companies' store brands, such as T.J. Maxx, HomeGoods, and Marshalls, are able to sell apparel and home fashions for 20%-60% discounts to department store prices.
TJX Companies takes advantage of excess inventory at department stores and sells that merchandise to you at a steep discount. This is the perfect business model for an economic environment featuring a value-conscious consumer, which is proven in the company's results.
In the first half of the year, net sales jumped 8% year over year to $12.6 billion, thanks to a 5% increase in new store sales as well as a 3% improvement in same-store sales. Traffic and average ticket have grown, and TJX Companies is seeing strength in both apparel and home fashions.
To add to the good news, earnings-per-share improved 15% to $1.28 in the first half. TJX Companies repurchased $625 million worth of its own shares in the first half of the year, and it plans on repurchasing a total of $1.3 billion-$1.4 billion worth of shares for the full year. This will reduce share count and aid earnings-per-share, which then has the potential to drive the stock price higher.
Looking ahead, TJX Companies expects full-year diluted EPS of $2.74-$2.80. Even if the number comes in on the low end, it's an improvement over the $2.55 number delivered in 2012. TJX Companies also expects comps growth of 2%-3% for the year. While this might not be extraordinary, it's difficult to find retailers seeing full-year comps growth.
It's evident that TJX Companies is a strong company that's well positioned given industry trends, but it's still possible that one of its peers offers an even better long-term investment opportunity.
TJX Companies vs. Peers
Target (TGT 1.28%) is similar to TJX Companies in size, sporting a market cap of $40.02 billion versus TJX Companies' $40.30 billion market cap. Many people might be surprised by this considering Target's strong brand name, but TJX Companies offers more store brands.
Target's second-quarter revenue increased 2% year over year, and the company is well known for its cost management and strategy execution. In regards to the latter, Target is currently focused on remodeling P-fresh, store renovations, offering smaller-box stores, price matching, and international growth opportunities.
Considering Target's strong management and its ability to retain more customers thanks to its 5% REDcard Rewards program, Target should be a long-term winner. The one "negative" here is that Target lowered its full-year 2013 EPS guidance to the lower end of $4.70-$4.90. However, this relates to expectations. If you're looking at these numbers from a factual standpoint, they're impressive.
Ross Stores (ROST -0.75%) is a smaller company with a market cap of $15.92 billion, but its business model makes it a direct competitor to TJX Companies. Ross Stores takes a pack-away inventory approach. In other words, Ross Stores purchases inventory at steep discounts, then lets it sit prior to bringing that merchandise to the sales floor. This keeps its inventory in good shape, and it allows Ross Stores to be very selective with what's currently matching consumer demands.
Ross Stores is also looking to add to the current angst of teen retailers by entering the teen apparel market. Ross Stores delivered record revenue of $9.7 billion in 2012. Considering the company's current momentum and future strategies, that number should grow going forward.
Prior to deciding whether to invest in one of these three companies, consider their performances over the past five years on both the top and bottom line.
Revenue:
TJX Revenue TTM data by YCharts
Earnings-per-share:
TJX EPS Diluted TTM data by YCharts
TJX Companies and Ross Stores are growing faster than Target, but that's to be expected. Target will be the best option for dividend investors, as it yields 2.70%, whereas TJX Companies and Ross Stores yield 1.00% and 0.90%, respectively.
The Bottom Line
TJX Companies has just about everything going for it. The company's recent numbers are impressive, but what's more important is why they're impressive. This directly relates to the value-conscious consumer constantly looking for bargains. With TJX Companies offering 20%-60% discounts, it's a top shopping destination for many consumers. This trend should continue.
