Things are looking up across the retailing landscape these days, but demand trends are especially strong in the off-price niche in which TJX Companies (TJX 1.01%) competes. The retailer recently posted a surprising acceleration of its growth pace between the first and second quarters. Executives see that positive momentum continuing to lift results at least through the second half of the fiscal year.
In a conference call with Wall Street analysts, CEO Ernie Herrman and his team shared more context around that brightening outlook. Below are a few highlights from that presentation.
Surprising the management team
... [O]ur 6% consolidated comparable store sales increase was on top of last year's 3% increase and significantly above our expectations.
-- CFO Scott Goldenberg
Back in May, management forecast comp sales growth between 1% and 2% for this quarter, which would have marked a slight deceleration from the first quarter's 3% increase. Instead, comp sales jumped 6%, thanks mainly to rising customer traffic across the T.J. Maxx, Marshalls, and HomeGoods banners.
Executives called out the apparel business as a particularly strong performer. They also pointed out that unlike discounters such as Walmart and Target -- which announced first-quarter comp sales growth of 4.5% and 6.5%, respectively -- TJX Companies' comparable-store sales figure excludes the e-commerce channel.
Meeting the online challenge
With the vast majority of overall retail sales still happening in brick-and-mortar locations, and online retailers of all sizes starting to open physical stores, we are convinced that our four decades of experience in operating stores and responding to consumer trends is a tremendous advantage.
-- CEO Ernie Herrman
TJX Companies took baby steps toward bulking up its tiny e-commerce segment this quarter, and management said it was happy with the company's success at marketing that channel. But TJX executives spent more time explaining how they see their competitive advantages translating well in the emerging multichannel selling environment.
The retailer boasts major assets including a large universe of vendors, flexible store layouts, quick inventory turnover, and brands that consumers have grown to trust over the last 40 years. As a result, executives still see plenty of room to expand the physical store base to as many as 6,100 locations from 4,200 today.
Looking ahead to the holidays
... [W]e're extremely pleased with our second quarter performance and have many initiatives planned to continue driving sales and traffic in the back half of this year. The marketplace is loaded with quality branded merchandise and we love the buying opportunities that we are seeing.
Executives described TJX's inventory position as "excellent" heading into the back half of fiscal 2019. They're seeing plenty of good opportunities to acquire high-quality merchandise at a discount, too.
Those positive trends, plus the outperformance that the retailer has managed so far this year, led to a significant upgrade to TJX Companies' full-year outlook. The company now expects comp sales growth of 3% to 4%, which would mark its 23rd consecutive year of gains by that metric. Executives left their core profitability targets unchanged but noted that the faster sales growth should allow earnings per share (excluding the benefit from tax reform) to rise by about 7%, rather than the 5% to 6% increase projected back in May.
"... [W]e are convinced we will continue to gain market share by growing our customer base ... and driving more shopping visits," Herrman said, noting that the retailer has aggressive plans to boost traffic in the months leading up to, and including, the holiday shopping season demand spike.