TJX Companies (NYSE:TJX) reported 6% year-over-year sales growth in its fiscal third-quarter 2020 earnings report released Tuesday, and provided investors with a solid fourth-quarter earnings per share projection while raising its full-year earnings outlook. The clothing and home-goods retailer represents the rare consumer discretionary investment that seems to flourish even in difficult economic conditions, due to the off-price, brand-name value proposition of its merchandise. Below, let's hone in on three illustrative numbers from the third quarter that characterize the company's recent success.
Comparable-store sales growth of 4%: "Comps" on top of strong comps
TJX Companies reported a comparable-store sales improvement of 4% -- a particularly notable result as it built on 7% "comps" growth in the third quarter of 2019. Another way to look at this is that two-year, or "stacked" comps represent total same-store sales growth of 11% cumulatively since the third quarter of 2018.
As has often been the case over the last several quarters, management attributed the growth primarily to higher traffic in stores. While many peer physical store retailers are struggling to draw shoppers due to competition from e-commerce, TJX's global brands, which offer a constantly evolving mix of goods in a "treasure-hunt" retail experience, rarely seem to experience soft traffic trends.
A 13% surge in inventory
The third quarter is a fascinating period to scan the balance sheets of major retail chains. During this quarter, you'll often see a significant rise in a company's inventory account, along with a corresponding bump in accounts payable and/or a decrease in cash, as the organization purchases inventory in advance of the fourth-quarter holiday season.
TJX Companies' fiscal third quarter ends on Nov. 2, roughly a month after the calendar-based third-quarter end of Sept. 30. But the effect is more or less the same, as TJX's various brands load up on enticing holiday merchandise during August, September, and October. In the third quarter of fiscal 2020, TJX's inventory surged 23% sequentially from the second quarter, to $6.3 billion. Perhaps more impressively, inventory totals increased by 13% over the third quarter of 2019, which itself grew 17% over the Q3 2018 inventory total.
The chart below perhaps more compellingly represents the firepower TJX has marshaled in anticipation of a strong fourth quarter, in the context of its five-year quarterly inventory trend:
Shareholders should also note the steep drop-off each year between the early November peak and February's beginning balance (i.e., the end of each fiscal year). This represents TJX's prowess at seasonal sell-through. In other words, its buying teams typically have an accurate read on coveted fashion and home goods, offered at pretty persuasive price points. Customers tend to clean the shelves at brands like TJ Maxx and Marshalls in December, resulting in the cyclical troughs just past the beginning of each calendar year in the chart above.
Retail expansion of 2.1 square million feet
TJX increased its total gross retail square footage by 1.7% in the third quarter, to a total of 201.5 million square feet. Management takes a methodical approach to brand building within core geographic regions, but it's also strategic in its total allocation of resources. The chart below presents the third-quarter addition of retail space per concept, further broken down by geographical market:
TJX Companies' 11 geographical brands averaged 200,000 square feet of expansion, and as you can see, each brand grew its gross square footage by at least 100,000 feet. It's interesting to note that the company's largest chain, TJ Maxx U.S. (which at nearly 35 million square feet makes up 29% of the company's total gross retail space), grew by just 100,000 square feet, equal to several other smaller brands.
Instead, TJX poured more resources into faster-growing Marshalls (in both the U.S. and Canada) and its burgeoning U.S. HomeGoods and Homesense furnishings and home accessories businesses. TJX isn't attempting to add stores to dominate any given market, rather, the company invests in accordance with previously proven growth. It's no coincidence that Marmaxx (i.e., the combination of TJ Maxx and Marshalls in the U.S.), HomeGoods, and the Canadian businesses each achieved sequential comps growth as well as year-over-year expansion this quarter.
The TJX Companies has added 4% to its retail space since the end of the third quarter of 2019, which is a fairly quick pace for a mature organization in a difficult retail environment. This metric adds heft to the following assertion by CEO Ernie Herman in the company's third-quarter earnings release: "...[W]e are confident that we can gain additional market share and continue the successful growth of TJX in the U.S. and internationally."