Please ensure Javascript is enabled for purposes of website accessibility

Can TJX Companies Succeed During COVID-19?

By Jeremy Bowman – May 24, 2020 at 10:08AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Customers are back at the off-price chain? Will they stick around?

It was no surprise that TJX Companies (TJX 4.01%) delivered a stinker of first-quarter earnings report. The company shut down all of its stores and even its e-commerce site when the pandemic hit in March.

What was surprising, however, was that sales came roaring back as soon as the company reopened stores. TJX, which is the most valuable American apparel retailer, owns TJ Maxx, Marshall's, and Home Goods, and began reopening stores on May 2. It now has over 1,600 stores open globally, and of the 1,100 that have been open for more than a week, sales overall are up from a year ago. CEO Ernie Herrman said:

Although it's still early and the retail environment remains uncertain, we have been encouraged with the very strong sales we have seen with our initial reopenings. We believe this very strong start speaks to our compelling value proposition and the appeal of our treasure-hunt shopping experience, as well as pent-up demand.

That news was enough to drive the stock up 6.8% on Thursday and lift the apparel retail sector with it. With more than 3,000 stores in the U.S., TJX is a bellwether in the apparel industry, a cornerstone of discretionary spending, and is worth watching for investors looking for insight into the economic recovery, as its performance should say a lot about the state of the American consumer.

A woman looking at a dress she just pulled off the rack

Image source: Getty Images.

The off-price mystery

As an off-price retailer at a time like this, TJX has both advantages and disadvantages over other retailers. Its low-price model is a clear advantage. With the economy unraveling and the unemployment rate in double digits, consumers are clearly looking for bargains. However, the TJ Maxx-owner's business model relies on consumers coming into its stores, as nearly all of its sales come from its brick-and-mortar locations. The off-price model has been a winner in recent years because it's difficult to replicate online. During the pandemic, online sales have soared as shoppers are reluctant to visit stores, so TJX's reliance on in-store visits seems like a weakness. Since the company relies on fast turnover of discounted merchandise, it can't easily shift its business to an online model, which would require photographing individual items, and additional shipping and fulfillment costs. Its stores are also high-touch environments as shoppers tend to rifle through clothes hanging on racks, though the strong response since reopening shows that customers, at least the most loyal ones, have no misgivings about coming back to its stores. Pent-up demand, indeed, seems to be a key factor driving the recovery as the company pointed to higher-than-normal basket sizes and strong sales in home goods.

Finally, TJX has a clear advantage on the supply side as the off-price model is designed to take advantage of excess inventory in the supply chain, of which there is an inordinate amount right now. On the earnings call, Hermann said, "The marketplace is loaded with inventory, and I am convinced that we will have access to plenty of high quality branded merchandise to offer consumers the category they want when they shop." Keeping the deals coming for its customers will not be a problem for TJX during this time.

Still recession-proof

TJX has outperformed the broader retail industry for years, but its advantages are most apparent during difficult economic times as its reputation for discount prices attracts consumers. In 2009, when sales were down more than 5% in the broader clothing category for much of the year,  TJX posted same-store sales growth of 7% at TJ Maxx and Marshall's, the division it calls MarMaxx.  

The company expects to have most of its stores open by June, and if the early trend persists, the retailer looks set to be a winner as a combination of low prices, ample inventory on the supply side, the treasure hunt experience, and even pent-up demand all work in its favor, especially as the economy sinks into a recession. 

Still, the big question here is if consumers are ready to come back to stores. While the early answer from TJX is yes, investors should keep an eye on the company's performance and customer response as it moves to reopen the rest of its stores.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The TJX Companies, Inc. Stock Quote
The TJX Companies, Inc.
$65.42 (4.01%) $2.52

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.