People love to find a good deal, whether they're shopping online or at a physical store. And that simple but powerful motivation helps explain how TJX Companies (TJX -0.06%) has managed an impressive streak of unbroken sales and profit growth in the last decade.
The off-price retailer is succeeding today despite big challenges impacting the broader retailing industry. Yet investors might not be fully accounting for its healthy business trends. Below, we'll look at a few ways that these metrics might send the stock higher in the coming quarters.
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Grabbing market share
Here's how CEO Ernie Herrman recently summed up the retailer's key competitive advantage in a conference call with investors: "The depth and breadth of our off-price knowledge in the U.S. and internationally is unmatched and extremely difficult to replicate."
There's plenty of data to back up that boast. After all, TJX Companies just marked its 15th straight quarter of rising customer traffic. And its 3% increase in comparable-store sales, or sales at existing locations, kept it on pace to achieve its 23rd consecutive year of growth in 2018.
TJX Companies tends to hold up well during times of market disruption like these, and that's another reason to believe it can keep capturing market share from rivals. When full-price retailers focus on reducing their sales footprints, there are more opportunities for merchandise buyers to step in and secure deals.
Meanwhile, TJX Companies is flexible about the products it can offer across its apparel and home furnishings stores. And its huge revenue base, which recently passed $35 billion of annual sales compared to $14 billion for Ross Stores, amplifies that scale advantage.
Boosting the store base
TJX has more than 4,100 stores, with 71 added in the first quarter. And even as many peers -- especially in the full-price department store segment -- are closing locations, TJX Companies sees a long runway for growth ahead.
Its appeal to young shoppers, flexible store format, and quickly changing product assortments are a few of the reasons that management thinks there is stability in the market for its mix of name brands at compelling discounts. That's why, over the long term, TJX Companies expects to operate over 6,000 stores across its four divisions of TJ Maxx, HomeGoods, TJX Canada, and TJX International, up from 4,100 shops today.
More capital returns
Like most of its peers, TJX Companies' profits are being hurt by rising costs in two key areas: labor and investments into the digital sales channel. However, the company's strong cash flow, which has been at least $3 billion in each of the last three fiscal years, provides ample room to fund these investments without threatening the company's dividend or share buybacks. That dividend recently jumped 25% and has been raised in each of the last 22 consecutive fiscal years. With just three more increases, TJX Companies will qualify for membership in the exclusive Dividend Aristocrat club.
The retailer keeps very little debt on its books, and this strong capital position allows TJX Companies to make opportunistic inventory purchases while supporting healthy cash returns to shareholders. That financial outlook is even brighter thanks to the cash flow benefits set to come from recent tax law changes.
In fact, the retailer is planning to roughly double its share buyback spending to as much as $3 billion this year. Those purchases should lift per-share earnings by reducing the outstanding share count. They might contribute to a rising share price, too -- especially if the business extends its long streak of market-beating sales growth into 2019 and beyond.
