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Will TJX Companies Raise Its Outlook on Tuesday?

By Demitri Kalogeropoulos – Nov 18, 2018 at 2:30PM

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The off-price specialist is on track for its 23rd straight year of sales gains.

TJX Companies (TJX 0.43%) will post its third-quarter earnings results on Tuesday, Nov. 20, just a few days before Black Friday officially kicks off the holiday shopping season. The retailer behind off-price franchises of TJ Maxx, Marshalls, and HomeGoods gave investors plenty of good news in its last report, and management is looking to extend that positive momentum into the key fourth quarter.

Let's take a look at the critical metrics to watch on Tuesday.

Two young women shopping for shirts.

Image source: Getty Images.

Filling the aisles

CEO Ernie Herrman and his executive team had predicted that sales would rise by between 1% and 2% in the second quarter, but the actual results turned out much better. Rather than slowing from the previous quarter, comparable-store sales growth accelerated to 6% from 3%. Demand was broad-based, too, with comps rising by 3% or more in each of the company's four main selling divisions.

As for the current quarter, TJX executives predicted another slowdown, and so investors will be judging this report largely based on whether sales gains meet or exceed the 3% to 4% target that management has laid out.

Looking beyond the headline sales number, keep an eye on customer traffic, since any demand weakness would likely show up there first in the form of minor declines in one or more of TJX's off-price franchises.

Keeping prices steady

Gross profit margin has been holding steady at about 29% of sales, and another flat or modestly improving result here would confirm that the retailer is having no trouble attracting customers with its normal level of pricing promotions.

Its operating margin, meanwhile, is far above rival retailers including Walmart and Target, in part because TJX is choosing to focus on its physical selling strategy rather than build up a huge online presence. So far that approach appears to be working as the company has posted faster growth in each of the last two quarters. Investors will be looking for more good news on this score, and a continuation of TJX's history of outpacing value-based rivals in bottom-line profitability.

Inventory and outlook

Inventory maintenance is a critical point for any retailer, but it is even more crucial for TJX since the company uses short-term buying opportunities to fill a high proportion of its aisles. In late August, executives said they had a lean inventory position and plenty of liquidity to take advantage of these chances and load up on high-quality branded merchandise ahead of the holidays. TJX will explain on Tuesday whether its buyers succeeded in finding enough of these products to position the company to extend its market share in the fourth quarter.

TJX's official outlook today calls for comparable-store sales to rise by between 3% and 4% for the year to mark a nice uptick from last year's 2% increase. Meeting that goal would mean the retailer will have grown sales in each of the last 23 years. It would also demonstrate that the company has plenty of room to expand toward its global target of over 6,000 stores -- up from 4,200 right now.

Given that its earnings are rising at a much faster pace, meanwhile, shareholders could see a dividend boost in early 2019 that rivals last year's 25% spike. That hike would get TJX to within one year of achieving Dividend Aristocrat status in a testament to its flexible, and powerful, off-price retailing strategy.

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.

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