Investors were anticipating good things from TJX Companies(NYSE:TJX) second-quarter earnings report, given its solid start to the year and the healthy growth that retailing peers have been reporting lately.  

But the off-price specialist managed to significantly outpace those expectations on Tuesday. And the growth was strong enough that management hiked its full-year outlook.

Let's take a closer look:

 Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Revenue

$9.3 billion

$8.4 billion

11%

Net income

$740 million

$553 million

34%

Earnings per share

$1.17

$0.85

38%

Data source: TJX financial filings. 

What happened this quarter?

Sales growth accelerated meaningfully between the first and second quarters even as profit margins held steady. And since the gains were powered by customer traffic growth across its store portfolio, TJX Companies found plenty of support for a more bullish outlook on the year.

Two women shop for shirts.

Image source: Getty Images.

Here are the key highlights of the quarter:

  • Comparable-store sales jumped 6% to double last quarter's pace and blow past the 1% to 2% target range management had set. The retailer's core Marshalls and TJ Maxx segment led the way with a 7% increase, but its Canada division wasn't far behind with a 6% increase. HomeGoods was the relative straggler at 3% comp growth.
  • Customer traffic rose in each of the retailer's sales divisions and was especially strong in apparel categories.
  • TJX Companies opened 53 locations to bring its global store count to 4,194.
  • Gross profit margin held steady at 29% of sales, indicating no need to resort to aggressive price-cutting.
  • Operating profit inched up to $1.16 billion, or 12.4% of sales, from $1 billion, or 12.1% of sales a year ago.
  • Tax expenses plunged to $3 million from $10 million, which helped power a 34% spike in net income.
  • TJX Companies returned $844 million to shareholders, split between $600 million of stock repurchase spending and $244 million of dividend payments.

What management had to say

"We are extremely pleased with our second quarter results," CEO Ernie Herrman said in a press release. Executives highlighted the retailer's shopper traffic growth and said it bodes well for more sales gains ahead. "We have been attracting new customers to all our divisions," Herrman explained, "a significant share of whom are younger customers."

"This is great for our business today and for future," Herrman said.

Looking forward

The healthy growth through the first half of the year, along with what management called a "very strong start" to the fiscal third quarter, has executives feeling more confident about their growth prospects. To that end, Herrman and his team lifted their 2019 comp forecast to between 3% and 4%, compared to the prior 1% to 2% target. That new goal represents an acceleration over last year's growth and would also mark TJX Companies' 23rd consecutive year of sales gains.  

The profit picture brightened, too, with earnings now set to rise by between 6% and 8%, up from the prior target range of between 5% and 6%. To some extent, the improving operating targets reflect a strengthening economy and a healthy industry. But TJX Companies' outsized growth pace implies that it is also increasing its market share in important categories like apparel and home goods.

 

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