TJX Companies' (TJX 1.40%) operating and financial momentum is accelerating at just the right time. The off-price retailing giant behind T.J. Maxx, Marshalls, and Home Goods revealed accelerating sales growth, steady profit margin, and a strong inventory position as the industry heads into its biggest selling period of the year.
Following that earnings announcement, CEO Ernie Herrman and his team held a conference call with investors that detailed the hits and misses from the third quarter along with management's updated outlook for 2019 and beyond. Below are a few highlights from that presentation.
Image source: TJX Companies.
Extending one of the industry's best growth streaks
Clearly, our great values and eclectic mix of quality branded merchandise continue to attract shoppers around the world. Further, this quarter marks the 21st consecutive quarter of customer traffic increases.
-- Herrman
TJX's solid second-quarter results demonstrated positive momentum, but the retailer went on to post growth in Q3 that surprised investors and the management team. Comparable-store sales growth sped up to 4% rather than slowing to around 2% as executives had forecast. Notably, the boost came on top of last year's 7% comps spike and included strength in the core U.S. segment and robust customer traffic in the retailer's European division.
Management called customer traffic gains the "primary driver" for the quarter and noted that this growth metric doesn't include the e-commerce sales channel, as is the case for rivals like Target. Chalk those up as solid wins for the business.
Profitability is rising
Each division exceeded the profit plan.
-- CFO Scott Goldenberg
The company's consolidated gross profit improved to $1.26 billion from $1.21 billion a year ago, with big gains in the core U.S. segment offsetting modest declines in the Canada and broader international divisions. Part of that boost came from the robust sales growth, but management also credited some successes in raising the retailing bar.
The Home Goods franchise is winning market share, for example, and the Europe segment is benefiting from more successful retailing execution despite spots of economic weakness in places like the U.K. TJX overall is succeeding at keeping costs low, too, despite inflation from tariffs, higher wages, and increased supply chain expenses.
Plans to win over the holidays
We feel great about our momentum heading into the fourth quarter, which is off to a solid start.
-- Herrman
Executives ticked off several reasons why they think TJX is well positioned for a great close to the year, which would mark its 24th consecutive year of comparable-store sales gains. These include a strong inventory position, both in stores now and available in the marketplace. Add to that mix other positive factors such as a robust marketing plan and healthy economic trends.
But the best evidence investors have right now is the accelerating growth that TJX is seeing in the early days of the fiscal fourth quarter. That factor is bolstered by the broad-based customer traffic gains that the retailer notched this past quarter. "We like the growth metrics that we are seeing," Herrman concluded. With market share trends looking strong as of mid-November, investors should like what they see, too.
