TJX Companies (NYSE:TJX) hasn't given investors much to celebrate in its last two earnings reports. Like its peers, the off-price retailing giant endured a massive disruption to its business thanks to the COVID-19 pandemic. But its relatively tiny e-commerce platform has meant the rebound has been much slower. While Nike returned to modest sales growth one quarter after logging a 46% slump in the U.S. market, for example, TJX shrank its revenue base in both its fiscal first and second quarters.

The company has an opportunity to improve on that negative trajectory when it reports third-quarter results on Wednesday, Nov. 18. Let's look at the key metrics to watch in that announcement.

Three young women shopping together.

Image source: Getty Images.

Another step backwards

TJX announced a significant growth improvement last quarter as sales declines moderated to 32% compared to the 52% slump that characterized the months-long COVID-19-containment shutdown in the spring. But there were additional red flags in the company's Q2 report, including stubbornly low customer traffic after so many stores reopened. The owner of the TJ Maxx and Marshalls brands also noted that it struggled to stock its locations adequately.

These challenges convinced management to take a cautious outlook for fiscal Q3, and most investors who follow the stock are similarly downbeat about this week's results. Sales are projected to fall 10% this quarter, or roughly on par with TJX's forecast of double-digit losses even as companies like Walmart achieve record apparel sales.

Cost challenges

The earnings picture isn't especially bright, either. TJX said its impressive cash flow last quarter was mainly the result of a pause in new inventory purchases, which means profit pressures will likely roar back for the second half of the fiscal year. Its supply-chain challenges, combined with efforts to ramp up its digital-selling platform, could also reduce earnings.

Altogether, investors are bracing for profits to fall to $0.39 per share from $0.68 per share a year ago.

The biggest questions revolve around TJX's rebound trajectory, which won't be clear until after the key holiday shopping season passes. But we'll get a big clue about the retailer's position heading into that crush when CEO Ernie Herman and his team issue their inventory update.

TJX noted in August that it was struggling to find excess merchandise to purchase within niches like home furnishings and home decorating. These categories are seeing booming demand during the pandemic, but the off-price retailer hasn't been able to fully capitalize on that growth.

Looking to the holidays

The company's fourth-quarter outlook might depend on how well its merchandise-buying teams have managed to fix that problem. It's likely that the home-furnishings segment will see elevated demand through the holidays and into 2021, and the retailer should be able to capitalize on that favorable selling environment. But having the right inventory in stock won't help TJX much if it can't find a way to get customer-traffic levels trending back up toward normal levels this season.

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