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TJX Stock Looks Appealing After Big Earnings Beat

By Adam Levine-Weinberg - May 20, 2021 at 8:25AM

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The top off-price retailer's sales recovery accelerated in a big way last quarter.

U.S. home furnishings sales surged during 2020, as people looked to freshen up their homes using their stimulus checks and money saved from spending less on restaurants, travel, and entertainment during the COVID-19 pandemic.

The pandemic has started to ease in recent months. Yet consumers are spending more than ever on their homes. Meanwhile, demand is starting to rebound in merchandise categories that suffered last year, such as apparel and luggage. This enabled off-price giant TJX Companies (TJX 1.65%) to post a massive sales and earnings beat for the first quarter of its 2022 fiscal year. Let's take a look.

Strong domestic sales growth, led by HomeGoods

TJX's HomeGoods segment (which includes U.S. HomeSense stores) has capitalized on the surge in demand for home-related items. Last year, HomeGoods' open-only comp sales increased 13%. (This metric adjusts for pandemic-related temporary store closures by excluding stores on the days they are closed.) Each of TJX's other three business segments reported full-year declines in open-only comp sales.

Impressively, HomeGoods achieved this strong performance last year while many consumers were still nervous about shopping in stores (and without the benefit of an e-commerce business). As vaccination levels have increased and the pandemic has started to recede in the U.S., people have become more comfortable visiting stores.

The exterior of a HomeSense store, with a "coming soon" banner

Image source: TJX Companies.

HomeGoods cashed in last quarter with a phenomenal 40% increase in open-only comp sales compared to two years ago. The segment's total sales jumped from $1.4 billion to more than $2.1 billion over that period.

Importantly, apparel sales also returned to growth last quarter. That enabled the Marmaxx segment -- consisting of the domestic T.J. Maxx and Marshalls chains -- to log a 12% open-only comp sales gain and a 14% total sales increase relative to the same period two years ago. All told, sales at TJX's U.S. chains surged 22% over this period, rising from $7.2 billion to $8.8 billion.

Store closures weigh on sales outside the U.S.

Business trends were quite different outside the U.S., as the pandemic continued to rage across much of the world last quarter. On average, TJX's stores in Canada were closed for 25% of the period, and its stores in Europe were closed for 76% of the period.

Naturally, those temporary closures weighed heavily on sales. TJX's revenue in Canada fell 10% from two years ago to $766 million, while revenue for its international unit -- which comprises stores in Europe and Australia -- fell by more than half to $572 million.

On the bright side, open-only comp sales rose 9% in Canada and 11% in TJX's other international markets compared to the first quarter two years ago. That points to solid underlying demand trends. Moreover, the company expects that store closures will have a much smaller impact on sales this quarter -- particularly in Europe, where most stores have already reopened.

Sales and earnings crush estimates

TJX's total sales came in at $10.09 billion last quarter, cruising past even the most bullish analyst estimate of $9.42 billion. That, in turn, allowed the retail giant to post earnings per share of $0.44, more than 40% ahead of the analyst consensus of $0.31.

A woman pushing a full shopping cart in front of a Marshalls store

Image source: TJX Companies.

To be fair, TJX's EPS still lagged the $0.57 recorded two years ago. However, management estimated that the company lost between $1.1 billion and $1.2 billion of sales last quarter due to its temporary store closures, reducing EPS by approximately $0.21 to $0.24. Indeed, whereas TJX posted double-digit segment margins in the U.S., the remainder of its operations posted a combined loss of $150 million.

Assuming management's estimates of lost revenue and earnings are roughly accurate, TJX's underlying earnings power increased 14% to 19% from two years ago.

Massive long-term potential

TJX hasn't provided guidance for the second quarter, but it says that comp sales trends remain similar so far. With vaccination rates still improving in the U.S. and many states relaxing retail restrictions, domestic sales could accelerate further this summer. Meanwhile, with most stores outside the U.S. having reopened, the earnings headwind from temporary store closures should abate.

Looking further ahead, the outlook is even brighter. TJX has massive room to expand over the next decade. It will look to capitalize on an abundance of real estate availability while taking market share from rivals that have shrunk or gone out of business entirely.

This makes the post-earnings dip in TJX stock look like a great buying opportunity. TJX shares recently traded for around $67, just 25 times the company's pre-pandemic annual EPS of $2.67. EPS will likely soar past that level next year -- and that could send TJX stock to new heights.

Adam Levine-Weinberg has no position in any of the stocks mentioned. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.

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