Betting on growth at TJX Companies (NYSE:TJX) is one of the safer predictions an investor could make these days. After all, the off-price retailer has proven it can expand sales in just about every type of selling environment and revenue has risen 23 consecutive years.
That track record helps remove some of the mystery ahead of the company's second-quarter earnings report, set for Tuesday, Aug. 20. But that announcement will still contain plenty of important information for investors seeking clarity about the retailer's outlook as it heads into its busiest retail season of the year.
Let's take a closer look.
Market share wins
Sales gains were a robust 5% in Q1 to mark a modest slowdown from the previous quarter's growth rate of 6%. Wall Street is looking for TJX to take another step lower this week, with comparable-store sales growth landing closer to the 2% to 3% range management has issued for the broader 2019 year. Most investors who follow the stock are expecting overall sales gains to land at 6%, after accounting for new store openings, compared to 7% at the start of the fiscal year.
The strength of that growth will show up in two key places. First, look for the retailer's Marshall's and T.J. Maxx brands in the U.S. to lead the way higher with healthy customer traffic growth. TXJ's smaller international segment will likely make an important contribution, too, since the company has been stealing market share in both Europe and Australia lately.
TJX's recent results contained a few warnings signs that will command investor attention next week. The biggest was a struggling Canada market that endured flat sales results compared to a 6% spike in the U.S. and 8% gains in Europe and Australia. That division is the retailer's smallest, but if it begins shrinking, it could threaten the outlook for the wider business.
CEO Ernie Herrman and his team also highlighted some profitability challenges as freight costs rose and the company spent more on labor. These issues combined to send pre-tax earnings down to 10% of sales from 11% a year ago. Executives expressed confidence in that figure stabilizing over the next few quarters, so look for improving trends here on Tuesday.
With the holiday season just a few months away, TJX will have a better idea about demand trends, in addition to its opportunities for sourcing quality apparel and home goods. That knowledge makes next week's outlook update critical for the business.
As it stands now, management is calling for sales gains to slow significantly in 2019 when compared to last year's 6% increase. Comps are still expected to notch their 24th consecutive annual increase but should expand by just 2% this year. The prediction might inch higher on Tuesday if shopping trends held up in its key brands through the spring.
Meanwhile, the earnings outlook will be clarified when TJX reveals how well its buying teams are navigating a difficult selling environment. Tariff rates threaten to raise prices on many of its popular products, but those increases could end up creating long-term wins for the business by generating more buying opportunities from distressed full-price retailers. Success on this score is the best way TJX can continue paving the way toward expanding its store base to over 6,000 locations in its existing markets over time, up from about 4,300 locations today.