TJX Earnings: Gaining Momentum

Source: TJX.

Shares of discount department store operator TJX Companies (NYSE: TJX  ) rose as much as 8% Tuesday morning after the company delivered better-than-expected sales and earnings for the second quarter of fiscal 2015. Management also raised its guidance for the rest of the year, so the business seems to be gaining momentum. Let's go over TJX's latest earnings report and try to find out what the future may bring for investors in the company.

Solid financial performance

Net sales during the quarter ended Aug. 2 increased 7% versus the same period in the prior year, reaching $6.92 billion. The number was better than the $6.88 billion in sales forecast on average by Wall Street analysts according to Thomson Reuters.

Comparable-store sales increased by 3%, coming in at the high end of the company's own guidance for a growth rate between 2% and 3%. Importantly, performance was quite strong across the board, with all of TJX's divisions generating healthy comparable-sales growth.

 Division Comps Growth Q2 2015 Sales Q2 2015 Sales Q2 2014 Net Sales Growth
Marmaxx U.S. 2% $4494 million $4295 million 5%
HomeGoods U.S. 5% $773 million $690 million 12%
TJX Canada 3% $696 million $679 million 3%
TJX Europe 6% $954 million $778 million 23%
Total Company 3% $6917 million $6442 million 7%

Source: TJX earnings press release. 

TJX opened a net of 23 new stores during the quarter, ending the period with a total store count of 3,279 units. Square footage grew 4%, to 94.8 million square feet.

Earnings per share came in at $0.75, a 14% increase versus the same quarter in 2013 and ahead of Wall Street forecasts of $0.73 per share on average based on data from Thomson Reuters.

The future looks good

CEO Carol Meyrowitz sounded quite optimistic about the future in the company's press release:

The third quarter is off to a solid start and we are excited about our opportunities for the second half of the year. We entered the third quarter in an excellent inventory position and see plentiful opportunities for great brands in the marketplace. We are raising the bar on our marketing campaigns and gift-giving initiatives, which I believe are going to be even better than last year, and above all, we will be bringing consumers amazing values! We are very confident in our ability to deliver another strong year, on top of many...  

Consolidated inventories on a per-store basis were up 1% on a reported basis and flat on a constant currency basis. This means inventories remain quite low in comparison to sales growth, and this is an encouraging sign when evaluating operating efficiency and management's ability to place the right merchandise in the right stores at the right time.

Keeping this in mind, it's no wonder management raised earnings guidance for the fiscal year ending Jan. 31, 2015. TJX is forecasting adjusted earnings per share of between $3.10 and $3.18, versus a prior range of $3.05 and $3.17.

Industry context

Retailers in general and department stores in particular have been hurt by unfriendly weather conditions and lackluster consumer spending over the last few quarters. In this context, TJX missed earnings forecasts over the previous two quarters.

Investors have valid reasons to feel comforted by the latest earnings report from TJX, as healthy performance and a strong outlook suggest that the business is accelerating.

Ross Stores, arguably TJX's closest competitor, is scheduled to report earnings Thursday, and the news should provide an up-to-date assessment about industry conditions and competitive dynamics among discount department stores.

For the quarter ended May 3, Ross Stores reported a 6% increase in total sales as well as a 1% increase in comparable-store sales. Management is forecasting a 1% to 2% increase in comparable store sales for the 13-week period ended Aug. 2. If Ross Stores reports in line with guidance, this would mean that TJX is doing better than its main competitor.

Key takeaways

Sales were strong across the board for TJX, and the company delivered a healthy increase in earnings per share during the quarter. Perhaps more important, streamlined inventories and an increased guidance are encouraging signs regarding future performance. TJX seems to be moving beyond its weakness and delivering accelerating performance, and that is good news for investors in the company.

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