This week, TJX Companies (NYSE: TJX) announced third-quarter results that were marked by a growth slowdown headed into the critical holiday shopping season. Yet the off-price retailer left its outlook unchanged and hinted at a rebound in the fourth quarter even though management wasn't happy with the latest operating trends.

Here's how the headline numbers compared to the prior year period:

 Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$8.8 billion

$8.3 billion

6%

Net income

$641 million

$550 million

17%

EPS

$1

$0.83

21%

Data source: TJX financial filings.

What happened this quarter?

Sales growth ground to a halt, in part due to hurricane-related store closures and unseasonably warm weather that reduced apparel demand at TJMaxx and Marshalls. The retailer managed healthy customer traffic trends, though, which helped it post higher profitability.

Two women browse for shirts.

Image source: Getty Images.

Here are the key highlights of the quarter:

  • Comparable store sales growth was flat and worsened as compared to the prior quarter's 3% gain. That result came as Marmaxx, the unit that includes TJMaxx and Marshalls, posted a 1% comps decline while the HomeGoods and international segments logged modest growth.
  • Overall revenue rose 6% thanks to the opening of 139 new locations, which brought the total global footprint to 4,052 stores.
  • Gross profit margin ticked up to 29.8% of sales from 29.5%.
  • Expenses rose to 18.1% of sales from 17.6% due to hurricane costs and rising wages.
  • Bottom-line profitability improved to 7.3% from 6.6% due to the higher gross profit margin and a debt extinguishment charge that reduced earnings in the prior year period.
  • TXJ's inventory dipped 2% as management made final stocking decisions heading into the holiday season shopping crush.

What management had to say

While noting that third-quarter comps were "not as strong as we would have liked," CEO Ernie Herrman highlighted several metrics that suggested the slowdown was simply a temporary challenge brought on by hurricanes and warm weather. "We were pleased that sales trends at Marmaxx improved as the weather turned more seasonable," Herrman said.

"Further, customer traffic, or transactions, were strong and up at every major division. Importantly, our consolidated merchandise margin increased, which we believe speaks to the flexibility of our off-price business model," Herman continued. Executives noted that the fourth quarter was off to a "strong start."

Looking forward

Hermann and his team are bullish about the merchandising opportunities they see in the marketplace right now as so many retailers are looking to unload excess inventory at discounted prices. That's a favorable situation for the off-price specialist, especially since TJX is entering the fourth quarter with a lean inventory position.

Management's focus now turns to capitalizing on those inventory opportunities over the coming weeks, first by securing the right mix of branded merchandise, and next by driving enough customer traffic to move those products.

The retailer would have preferred to enter the holiday shopping season with stronger comps trends. Last year, after all, comps were up 5% in the third quarter before accelerating to a 6% pace to close out the year. Still, its lean inventory position and positive customer traffic put TJX in position to enjoy at least modest sales and profit growth over the holidays this time around.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.