TJX Could Be a Good Long-Term Investment

The economic environment in the U.S. isn't conducive to discretionary spending, which is why the retail sector has witnessed muted spending by consumers for a large part of the last year. However, according to The NPD Group, total aggregate sales of the five largest off-price retailers in the U.S. increased by 11% during 2012 compared to a 4% increase in total national apparel sales during the same period. A similar report from The NPD Group also highlights that warehouse-club channels have also been gaining market share.

With these numbers and research data in mind, it is easier to understand the success of TJX (NYSE: TJX  ) , Ross Stores (NASDAQ: ROST  ) , and Costco Wholesale (NASDAQ: COST  ) . But can they sustain their growth momentum in the future? Let's take a look.

TJX continues its march
TJX has an enviable track record of comparable-store sales growth. It has consistently clocked positive comps each year for the past three decades, except for a negative 2% in 1996. Its third quarter of fiscal 2013 wasn't any different, and consolidated comps soared 5% over last year's 7%. In short, TJX has delivered positive comps growth for 17 years without missing a beat and looks all set to continue the same going forward.

Comps growth in the third quarter was fueled by a combination of increases in ticket and traffic. The fourth quarter is also off to a good start, and management is confident of sustaining the comps-growth momentum. TJX manages to attract and retain buyers because of its trendy designer names priced at a deeper discount to big department stores and other retailers.

On the back of comps growth and the better-than-expected performance of new stores, adjusted earnings per share increased 21%. This marked five consecutive years of double-digit EPS growth. This shows that the company is connecting well with its target customers, and its initiatives of store remodels and new store openings are panning out well, irrespective of the economic environment.

An optimistic future
Going forward, TJX is optimistic and sees huge growth potential across all segments and geographies. For example, the store count for TJX Canada has been upped to 450, which represent 30% more stores than the current base. It's a long-term goal and no time frame has been specified by management. In addition, it is also planning to add new stores in Europe.

Beyond the conventional brick-and-mortar business, TJX is also chasing the e-commerce channel in order to give consumers the ability and convenience to shop 24/7. After a long hiatus of eight years, it has launched an e-commerce website and customer response has been terrific.

Comparing to peers
Whereas TJX's comps growth record is truly spectacular, Ross Stores isn't a laggard either, and its revenue growth trajectory bears testimony to that fact. This growth is also fueled by a robust track record of comps growth. Ross has delivered positive comps without missing a beat for almost 10 years. It was in 2004 that it recorded its only negative comps in 10 years. In the third quarter, comps grew by 2%.

As a result of positive comps, revenue increased 6% to $2.4 billion versus the year-ago quarter. On the heels of revenue growth, earnings per share increased 11% to $0.80, up from $0.72 in the year-ago quarter. Juniors and missy sportswear were the strongest businesses during the quarter, while Florida was the top-performing region.

Bargain hunters run through a wide demographic, ranging from those who "need a bargain" to those who "want a bargain," thus belonging to a wide range of household-income categories. They have been the main reason behind the success of not just TJX and Ross, but Costco Wholesale as well.

Costco reported consolidated comps growth of 3%in the first quarter of fiscal 2014. On the back of positive comps growth and 13 new locations opening during the first quarter, total sales were up 5% to $24.5 billion. Earnings per share came in at $0.96.

Costco's membership renewals have been steady at 90% in the U.S. and slightly less than 87% worldwide, which is a pretty good number. In addition, new membership signups in the first quarter companywide were up 17%. These two metrics are really important because a major portion of the profit comes from memberships. Costco, like TJX and Ross, aims to increase comps by offering trend-worthy merchandise at the right prices.

Bottom line
TJX has been the pick of the three in terms of stock price performance over the last year. Its share price gains of 30% easily outpace both Ross and Costco. In the future, the trend is all set to continue as TJX is optimistically expanding store count and is set to profit from the e-commerce initiative. With a P/E ratio of 20, it is cheaper when compared to Costco and looks worthy of your investment dollars.

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