Yet Another Great Day at The Office for TJX

What makes TJX a valuable buy?

Apr 3, 2014 at 2:14PM

During the winter season, US retailers weren't able to enjoy significant profits as severe weather continued to put pressure on their sales. This also affected TJX (NYSE:TJX) to some extent, but its off-price business model made sure that it did pretty well in the fourth quarter. Let's analyze TJX and see where it is heading before we examine Kohl's (NYSE:KSS) and Target (NYSE:TGT).

Fourth-quarter earnings
In the latest quarter, TJX managed to post per-share earnings of $0.81, up 9% from $0.74 in the comparable period last year. The retailer had expected EPS in the range of $0.77-$0.80. Net sales edged up 1% to $7.8 billion, while same-store sales increased by 3%.

The company's U.S. business contributed $5.9 billion in sales with backing from strong performances at Marmaxx and HomeGoods, where comps grew by 3% and 4%, respectively.

Sales for the international segment rose 1.3% year-over-year to $1.9 billion. The company enjoyed great demand in Europe as comps jumped 9% in the region. On the other hand, same-store sales in Canada declined by 2%.

What is TJX up to?
In the company's biggest market, the US, TJX has a long-term goal of increasing Marmaxx's store count to 3,000 stores, while it is set to open 825 new HomeGoods locations. Moreover, the retailer will remodel 250 stores in the country this year in order to improve its customer experience; it's also co-locating more T.J. Maxx and Marshalls stores. In overall terms, TJX maintained its long-term store growth estimate at 5,150 stores worldwide.

TJX is also among the few US retailers that have successfully operated in the UK for the last 20 years. Keeping its success in Europe in mind, the company said it plans for 25% of its store growth this year to take place in Europe. Furthermore, TJX will open its first few stores in Austria next year. Management believes that they know the Austrian marketplace quite well, as they have been analyzing the country for a long period of time.

The retailer has also announced that it will repurchase $1.6 to $1.7 billion in TJX stock during fiscal 2015. The company's board of directors recently approved a new stock buyback program which allows the company to repurchase an additional $2 billion of TJX common stock. This marks the 15th consecutive program approved by the company's board since 1997. During this period, the retailer spent more than $12.8 billion on stock buybacks. In fiscal 2014, TJX bought back $1.5 billion of its own stock.

Recently, the company said it plans to increase its quarterly dividend to $0.175 per share. It expects to declare the dividend in April and pay it in June this year. This increase will mark the 18th consecutive year in which the company has raised its dividend. During those 18 years, the retailer's dividend has grown at a compound annual rate of 23%.

In the next quarter the company anticipates EPS of around $0.65-$0.66, which represents a 5%-6% increase from the year-ago quarter. TJX also remains optimistic about this year's earnings, as it expects full-year EPS between $3.05-$3.19.

Industry peers
US department store chain Kohl's recently announced a dividend hike of 11% to $0.35 per share. The company's latest earnings were in-line with its expectations as it reported EPS of $1.56. However, Kohl's earnings fell by 12% for the quarter; the company attributed this to weak sales and higher operating expenses during the fourth quarter.

Sales stood at $6.09 billion, down 3.8% from the year-ago quarter. Same-store sales also declined by 2%. November and December sales were satisfactory, but the company was unable to draw substantial traffic to its stores during January. The retailer had low levels of clearance merchandise in January, which hurt its sales.

For the fourth quarter, Target's earnings fell drastically to $0.81 a share from $1.47 per share in the year-ago period. Sales also declined 3.8% to $21.52 billion. Analysts had expected the retailer to post these weak results after the infamous security breach in December last year. Since then, Target has faced several lawsuits which have affected its earnings and its customer base. The company is currently offering huge discounts at its stores to clear its old inventory, which means that its margins will remain low in this quarter as well.

Final thoughts
Once again, TJX had an admirable quarter. Earnings and comps kept growing as the company's off-price business model continued to pay dividends. The company's regular share repurchase programs and its 21% dividend raise reflect its ability to keep rewarding its shareholders. The retailer is expanding across Europe and North America; this reflects the company's confidence about its future prospects. Finally, the outlook given by the company's management looks solid. Considering all of this, I believe TJX appears to be a judicious investment choice at this point in time.

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Zahid Waheed has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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