Just when you thought retail finally found its footing, along comes coronavirus and knocks it all down.
Stores are closing faster than you can say "COVID-19," and while TJX Companies (TJX 5.13%), also decided to shutter for the next two weeks, it remains a solid investment.
A history of performing in any retail climate
Ernie Hermann, CEO of TJX, has said many times that TJX has a unique model that works in any retail climate, including a recession. This hedged business model continues to deliver value for investors under many types of circumstances.
One of the advantages the company touts is its flexibility, both in its supply chain and its store setup. It gets merchandise from overstocks, store order cancellations, and end-of-season clearances, so the selection is usually current, just at high savings. TJX has relationships with 21,000 vendors in more than 100 countries, and there's always something to buy. And the stores are configured in a way that sections can be moved around easily to accommodate changes in product selection.
2020 was the twenty-fourth fiscal year of comp increases, which means those happened during the financial crisis as well as in the 1997 market crash.
The stores are working off high momentum, with the 2020 fourth quarter showing a 10% increase in sales and a 6% increase in comps year over year. Both revenue and earnings-per-share of $0.81 were above company guidance for the period.
But there may be challenges ahead
What's different about the current situation from any previous economic setback is that people are literally not leaving their houses. One of the perks for TJX customers is that there's always something new to find in the store, a great bargain that buyers have to find. This model has helped the company weather retail pivots to digital, and although the company's brands now each have their own web sites, they're not as robust as other companies. Does this mean sales will be on hold for now?
As stores close, sales could seriously decrease. On the other hand, with the company's recent strong move into digital, that might be enough to keep it going for the time being.
With the world economy in flux, there may also be some supply chain issues. Hermann has said with the company's extensive supplier list, merchandise is not an issue, but as doors close in different countries, this may present unprecedented concerns. However, with so many retailers closed, there are bound to be huge amounts of apparel waiting to land on your local TJX-owned Marshalls doorstep in a few months' time.
TJX hit a high of $64 earlier this year before tanking, and it's now trading at about 20 times trailing 12-month earnings. It erased all of its gains from 2019, so investors who were on the fence last year now have the opportunity to grab shares of a company with a healthy business model at a discounted rate.
Even if there ends up being a dip in store sales over any shelter-in-place initiatives or the general social distancing programs, sales are likely to shoot up in the aftermath and make up for the lag. The company also has a more than $3 billion cash position while it's waiting to see what will happen.
TJX has identified markets that are untapped and still has high growth potential, and with the high comps, the company should enjoy increased revenue in the coming years, whether the country endures a recession or not. This will benefit investors who buy in now.