TJX Companies (TJX -0.51%) is set to announce its latest earnings results in a few days, and investors are bracing for some bad news in that report. Sure, the off-price apparel and home goods specialist is back to setting sales records, and has resumed its dividend payment following slumping sales in the earlier phases of the pandemic.
But there are concerns around how well the business can hold up as consumer spending shifts away from home goods products. TJX might also face big challenges tied to inflation and supply-chain issues as it approaches the spring selling season.
With that big picture in mind, let's look at the prospects for a turnaround for the business that might start showing up in the Wednesday morning earnings report.
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Sales trends
TJX Companies entered the early 2022 period with solid momentum. Comparable-store sales jumped 10% over the holiday season, putting the company comfortably back in record revenue territory after a brutal 2020. During the pandemic, it didn't share "essential retailer" status like some peers, including Walmart and Target, and as a result the chain took a financial hit from widespread store closings .
Wednesday's report will likely show weaker results. Management is forecasting comps will rise by 1% to 3% as the company goes up against much harder comparisons to the year-ago period.
Investors are concerned about a pullback in spending in the HomeGoods brand, which helped carry the wider company back to record sales territory last year. Rival retailers have reported a shift in demand away from home spending and toward things like restaurants and travel, and that swing could pressure TJX's sales in 2022.
Prices and inventory
The company likely faced several profit pressures in the first quarter, including rising wages and higher costs across the board. It may have had to pay higher prices for merchandise, too, even as management spent more on capital projects like upgrading the distribution network.
These factors should push profitability down in 2022, but the company isn't in any kind of financial stress. Management just raised its dividend by 13% and boosted its stock buyback spending, after all. And executives said in February that they are "very confident" in a return to rising profit margins for this strong business. Look for more bullish comments along that line on Wednesday.
A 2022 outlook?
CEO Ernie Herrman and his team declined to issue a full-year outlook last quarter, citing all the uncertainty around COVID-19 demand swings. But now, with a quarter of data already in the books, executives might change that tune.
Ideally, TJX can keep growing sales and earnings in 2022 after comps spiked 17% last year. Many factors could threaten that rebound, though, including a weakening economy and soaring costs. Watch for the retailer to address at least some of those concerns on Wednesday.
