TJX Companies Is Confident It's Capturing Market Share

TJX Companies (TJX 0.76%) just closed out its fiscal 2018 on a high note. The off-price retailer this week announced that key sales and profitability metrics outpaced management's guidance to deliver strong earnings gains for the year. The company relied on that improvement to fund a significant boost in planned cash returns to shareholders through a higher dividend and aggressive stock buybacks.

Let's take a closer look at the retailer's latest results:

TJX Companies: The raw numbers

Data source: TJX financial filings. 

What happened this quarter?

Sales outpaced management's forecast for the third consecutive quarter thanks to gains across the TJ Maxx, Marshalls, and HomeGoods brands. The retailer also took advantage of inventory buying opportunities to drive higher product margins over the holiday season. Slight earnings declines came from a quirk of the calendar that added an extra week to the prior-year selling period.

Image source: Getty Images.

Here are the highlights of the quarter:

• Comparable-store sales gains of 6% were a deceleration from the prior quarter's 7% spike. Nevertheless, the holiday result delivered 6% growth for the year versus the 5% uptick management had predicted back in November.
• Gross profit margin benefited from increasing customer traffic, but these financial gains were mostly offset by rising transportation costs.
• After adjusting for one-time charges, adjusted operating profit margin fell to 10.6% of sales from 11.5% in the previous year, mainly because of higher wages.
• The company ended the year with 4,306 locations spread across the U.S., Canada, Europe, and Australia, up from 4,070 at the start of the year.
• Inventory rose at a slower pace than sales, indicating flexibility as the retailer enters the 2019 fiscal year.

What management had to say

In a press release, CEO Ernie Herrman described the holiday sales results as "significantly above our plan." He credited the broad-based customer traffic gains for the successes and said executives are "confident that we are capturing market share."

"Our excellent values on great brands and great gift giving assortments resonated with consumers around the globe this holiday season," Herrman said, "and once again this quarter, our apparel and home businesses were both strong."

Check out the latest TJX earnings call transcript.

Looking forward

TJX sees "plentiful buying opportunities" in the market today, executives say, which should help support the retailer's 24th consecutive year of sales gains in 2019. To that end, Herrman and his team projected that comps would improve by between 2% and 3% this year. That rate would mark a slowdown from 2018's 6% spike, but the company is facing a tough comparison against that strong growth year, along with specific headwinds in the Canadian segment.

While they wait for updates to that outlook as the year progresses, investors can expect to see substantial cash returns. The retailer boosted its dividend by 18% and projects spending about $2 billion on stock buybacks in 2019. The dividend hike marks TJX's 23rd consecutive increase and puts the company just two annual raises away from qualifying for membership in the exclusive Dividend Aristocrats club.