TJX: No Longer on Sale

TJX Companies' (NYSE: TJX  ) strong December sales results confirm that the off-price retailer is back on track. With the new year and TJX's new CEO set to take charge at the end of the month, it's a good time to check up on the stock.

First, a review of the sales figures. Sales for December were $2.5 billion, up 10% from $2.3 billion in December 2005. Same-store sales for the combined eight chains were up 6%, on top of a 6% increase in the prior period. Results varied across the chains: T.K. Maxx, TJX's presence in Europe, had the best results with an increase of 10% in local currency and 23% in U.S. currency.

Although I would have guessed Home Goods to be the laggard, Bob's Stores was, with a drop of 1% in same-store sales. Most importantly, though, was that Marmaxx, which includes Marshall's and T.J. Maxx and is the company's largest group, managed a 3% increase in same-store sales.

One negative in the sales release was the inventory buildup caused by the unseasonably warm early winter. (It's hard to sell parkas to people walking around in T-shirts.) At this point, it's unclear how much this will affect margins.

Still, with comps back on a positive trend, the stock has rebounded from its lows of the summer. With TJX trading at roughly $29, I think the question is, how much future growth is discounted, and is the company undervalued?

As for the quality of the company, one only has to look at TJX's financial records to see that this is a solid Y company. The retailer earns more than its cost of capital, but it's not growing fast enough to reinvest all of its profits. Therefore, the free cash flow has been returned to shareholders in the form of share buybacks and increasing dividends. I estimate that if TJX can maintain its economic profits, it's worth $25, even if it doesn't grow.

That gets us to future growth. Let's face it -- the Marmaxx division's 1,577 stores leave less room to grow. Internationally, both in Canada and in Europe, growth is solid, but not enough to make a significant impact now. Still, I think the $4 per share of estimated growth underestimates TJX's future value creation.

On a relative basis, TJX also looks moderately priced. The retailer's enterprise value-to-EBITDA multiple is in line with competitor Ross Stores (Nasdaq: ROST  ) and lower than Kohl's (NYSE: KSS  ) , which has higher growth expectations.

The bottom line is that expectations are conservative for TJX in 2007, giving its stock some appeal. However, the expectations aren't low enough for this Foolish investor's need for a margin of safety.

For related Foolishness:

Are you open to new ideas this year? Take a look at Stocks 2007, where 13 of the Fool's best analysts give you 13 great investment ideas.

Fool contributor Matthew Crews welcomes your feedback -- really! He has no financial position in any of the companies mentioned. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 519638, ~/Articles/ArticleHandler.aspx, 9/19/2014 10:07:10 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement