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A Discount Department Retailer to Own for 2014

TJX (NYSE: TJX  ) is one of the nation's leaders in off-price retail, and as such the slow recovery in the U.S. economy has been a positive for the retailer. TJX was up more than 130% during the last three years, compared to the S&P 500 index's 35%. However, how will TJX perform during a rebounding economy?

TJX runs the T.J. Maxx, Marshalls, and HomeGoods brands. One of the other big benefits for TJX should be its exposure to the rebounding home market, via its HomeGoods stores. TJX offers a wide array of products ranging from family apparel to home decor.

Expansion and store growth can drive the top line
Store growth is expected to help drive top-line growth. Its total stores were up to 3,050 in fiscal 2013, with plans to get that number up to 3,200 in 2014. This includes upping its reach to include rural markets and Europe.

Specifically, in Europe, TJX plans to open 475 stores by the end of fiscal 2015. TJX is the only off-price retailer operating in Europe. The other driver of growth should be e-commerce. TJX launched an e-commerce website in the U.S. in 2004, which is its second attempt (TJX launched in late 2013).

This is only the next step in TJX's move to online sales. At year-end 2012, TJX bought off-price Internet retailer Sierra Trading Post. The move was made to help boost online sales. TJX was able to use Sierra's expertise in online retailing and employ that expertise in the launching of its own e-commerce site. 

Why TJX wins out
TJX has a dominant market share, and with TJ Maxx and Marshalls owns more than 40% of the off-price retail market, which is a $40 billion-plus market. Meanwhile, its HomeGoods segment is also strong. HomeGoods saw comparable-store sales up 10% during the third quarter. This segment, HomeGoods, owns more than 7% of the nearly $40 billion home-furnishing market.

Its major competitors include Ross Stores (NASDAQ: ROST  ) and Kohl's (NYSE: KSS  ) . Worth noting is that TJX has the lowest dividend yield of the three at 1%. Meanwhile Kohl's is 2.7% and Ross Stores at 1%.  

Kohl's already has an e-commerce site, where about 7% of its sales come from online sales. The company expects that number to jump to 10% to 15% over the next few years. Third-quarter e-commerce sales were up 15% year over year.

However, Kohl's has been getting squeezed by the off-price retailers and the higher-end retailers, such as Macy's. As a result, Kohl's is turning to new stores that are smaller in addition to adding more national brands to its lineup and focusing on customers. Last year, Kohl's brought in Starbucks' executive Michelle Gass to fill its chief customer officer position.

Ross is the nation's largest off-price retailer by stores. The company is expecting to post comparable-store sales up 1% to 2% during the fourth quarter. Ross also has a strong operating margin, where from 2008 to 2012, Ross Stores saw a 750 basis point jump in its operating margin. Over the trailing-12 months, Ross Stores had an operating margin of 13.4% compared to TJX's 12.4% and Kohl's 9.4%.

Bottom line
Being one of the top off-price retailers, its products are low-priced and sold well during the weak economy. Yet, the company could continue to perform well in 2014 and beyond. Its focus on international growth and foray back into e-commerce are big positives for the company.

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