TJX Companies (NYSE: TJX ) recently reported impressive financial performance for the second quarter of fiscal 2015, and management also raised its guidance for the rest of the year. The business seems to be firing on all cylinders, so let's go through TJX's earnings conference call and listen to some of the important things management had to say to investors.
Extraordinary long-term performance
The retail business is notoriously challenging and competitive, especially in categories such as home and apparel, which depend heavily on the economic health of the consumer and overall economic activity. TJX has demonstrated exceptional resiliency to continue growing through different economic scenarios over time. Said CEO Carol Meyrowitz in the conference call:
Over a 37-year history, we have sustained steady sales and earnings growth through many types of economic retail and consumer environments. This includes 22 consecutive quarters of consolidated comp store sales increases.
The outlook is strong
Inventory levels are a crucial variable to watch in the business, as they convey important information regarding demand strength and management's ability to make the right decisions and execute efficiently in key areas such as merchandising. Low inventory levels in comparison to sales speak well about TJX and its management team, and they suggest a positive outlook for investors in the middle term.
At the end of the second quarter, consolidated inventories on a per store basis, including the warehouses and excluding in-transit and e-commerce inventories were flat on a constant currency basis. We begin the third quarter in an excellent inventory position and ready to take advantage of the plentiful buying opportunities in the marketplace.
-- Scott Goldenberg, CFO
Abundant opportunities for growth
TJX has considerable room to expand its store base, according to management estimations, both in the U.S. and abroad. Europe could be a major opportunity in the middle term; the company believes it can add over 450 new stores in European countries where it already has a presence, more than doubling its current store base of 408 units in Europe.
With over 3,200 stores today, we see the potential to grow to 5,150 stores long-term with our existing chains in our existing countries alone. The magnitude of our store growth opportunity, especially internationally is tremendous. Something we believe is often underappreciated externally. In North America alone, we see the potential to add over 1,400 new stores. Our new store performance continues to exceed our expectations, which gives us great confidence.
Internationally, we could not be more excited about our growth potential. In Europe, we believe we can add more than 450 stores, which is more than double our existing base in just our current countries, with our current chains alone. We are on track to open 40 stores in Europe this year, up 25% from last year and may further accelerate the pace of store openings in 2015. Our 2014 plans include more than doubling the number of stores in Germany versus the prior year. Our new store performance across Europe continues to be excellent. We are looking forward to expanding into our next European countries, with our first few stores opening slated for Austria in the first half of 2015.
Sourcing is a key competitive advantage for TJX
In order to sustain sales growth and keep customers coming back for more, TJX needs to buy the right merchandise from the best suppliers around the world. The company has built a remarkable sourcing network which represents a crucial competitive advantage.
The major way we are leveraging our business globally is our sourcing universe. We see ourselves as a global sourcing machine. We have built a world-class buying organization over nearly four decades, that is 900 people strong and we plan to keep growing it. We sourced merchandise from a universe of more than 16,000 vendors in over 75 countries. We keep opening new vendors all over the world and I believe we are very far from done. We are also leveraging our relationships to bring the newest fashion to all our chains. We truly believe that there are few other retailers that can offer the eclectic mix you will see in our stores or build new categories as quickly as we do.
Increasing marketing spending
Management seems quite encouraged by the return the company is getting from the money invested in marketing and advertising, so these investments will be on the rise over the coming quarters. This could have a negative impact on profit margins over the short term, since marketing spending is not necessarily compensated by an analogous increase in sales during short periods of time.
However, as long as management is making smart investments in strengthening the company's brands and competitive position, investors have no reason to be concerned about increased marketing expenses.
We are leveraging our global marketing abilities and I believe we become better every year. At Marmaxx, through the back half 2014, we are increasing our total marketing spend and TV impressions and our commercials will be on TV even more weeks than last year. You will also be seeing more of our successful dual and tri-branding marketing campaign.
Balance sheets and income statements don´t tell the whole story when analyzing companies from a long term point of view. It's important to listen to management and what it has to say about the business and its fundamentals. Going through TJX´s latest conference call, it looks like there are strong reasons to expect solid performance from the company in the future.
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