Investors were optimistic heading into the third-quarter earnings report from TJX Companies (NYSE:TJX). The off-price retailer had announced solid operating trends in the prior quarter that benefited from increased customer traffic across its portfolio of T.J. Maxx, Marshalls, and Home Goods stores. That success, plus the company's robust earnings growth and rising capital returns, persuaded investors to push the stock higher through most of 2019.

That optimism should only build following its earnings release, which showed surprisingly strong sales growth and predicted a positive market share performance during the holiday period. Let's dive in.

Two women shop for clothing.

Image source: Getty Images.

Market share gains

Three months ago, the company issued a conservative outlook that called for sales growth to slow for the third consecutive quarter as comparable-store sales growth landed between 1% and 2% compared with 2% last quarter and 5% at the start of 2019. Actual results exceeded that forecast by a comfortable margin.

Comps ended up rising 4%, with growth occurring at each of the retailer's four banners. The biggest gains came from its international segment, where sales bounced 6%. Yet TJX Companies also saw significant growth in its core Marshalls and T.J. Maxx businesses in the U.S., where sales rose 4% on top of a 9% spike a year ago. Net sales rose 7%, with a bit more help coming from a rising store base. TJX Companies operated 4,519 locations at the end of the quarter, translating into 100 additions during the period .

"We are extremely pleased with our strong performance," CEO Ernie Herrman said in a press release. "We are especially pleased that [each retailing division] delivered a sequential increase in their comp store sales growth."

A solid inventory position

TJX's financial results back up management's claim back in August that its army of merchandise buyers was finding plenty of opportunities to stock up on quality inventory. Gross profit margin held steady at 29% of sales, and management also kept a lid on selling expenses. As a result, operating margin was unchanged at 11% of sales.

These healthy financial results gave management plenty of resources it could direct toward growth initiatives while also returning cash to shareholders. To that end, TJX Companies spent $778 million on stock repurchases and dividends.

Looking to the holidays

The improving demand trends persuaded management to issue a more aggressive outlook for the fourth quarter and the broader 2019 year. Herrman and his team still see comps rising by about 3% in the core Marshalls and T.J. Maxx brands this year, but the earnings outlook is brightening. Profits should now climb to between $2.61 and $2.63 per share, translating into an 8% increase year over year.

Management sounded confident about the discounted inventory that it hopes to acquire to keep customers streaming into its stores during the holidays. "The company is well positioned to take advantage of the fantastic buying opportunities it sees in the marketplace," executives said.

Investors don't merely have to take management's word, here, though. TJX's streak of 21 consecutive quarters of growth is strong evidence that the retailer's sourcing approach can work through a wide range of industry conditions, including the upcoming holiday season.