What happened
Shares of The TJX Companies (TJX +2.03%) were up 9.2% as of 10:47 a.m. ET on Wednesday after reporting better-than-expected earnings results. The positive reaction to TJX's sales performance was the opposite of what happened with shares of Walmart and Target after the retail giants reported disappointing numbers recently.
For the fiscal first quarter ended April 30, TJX reported net sales of $11.4 billion, up 13% year over year, while comparable-store sales excluding e-commerce were flat.
So what
Sales came in slightly below management's expectations, but TJX performed well on the bottom line. The company's pre-tax profit margin was 9.4% on an adjusted basis compared to 7.2% in the year-ago quarter. "This underscores the power of our flexible, off-price business model when we execute well," CEO Ernie Herrman said.
NYSE: TJX
Key Data Points
Shoppers are clearly gravitating more to discounted merchandise as cost inflation causes wholesale and consumer prices to spike. Specifically, the company's Marmaxx comparable-store sales were up 3% year over year, driven by customer traffic.
As for inflationary pressures, TJX experienced a 2.2 percentage point increase in freight costs and 0.7 percentage points of incremental wage increases on its expense line. But the company's pricing initiatives helped offset these higher costs to keep the pre-tax margin up.
Image source: Getty Images.
Now what
TJX is still dealing with a highly uncertain near-term economic environment. The results from Walmart and Target suggest that retail shoppers are getting squeezed by higher energy costs, among other things. TJX could see further pressure on sales if the economy sinks into a severe recession.
However, Herrman is optimistic that they can continue to drive sales growth. "We believe our value proposition is as appealing as ever for consumers in today's retail environment, and we are excited about our initiatives to drive customer traffic and sales," he said.
Long-term, management is targeting more than $60 billion in annual revenue, which is more than 20% higher than trailing-12-month sales.
