TJX Companies (TJX -0.17%) is making a slow but steady return to more normal operating results. The off-price retailing chain announced on May 18 that sales growth was flat for the first quarter of fiscal 2023, which ended in late April. Gross profitability fell, too, thanks to surging costs.

But the chain had good news to report to investors, including the prospect for higher margins and cash flow ahead, along with a return to a steadily growing sales pace over the next few quarters.

Let's take a closer look.

A couple shopping together.

Image source: Getty Images.

A tale of two segments

The company's Marmaxx division, which includes its Marshall's and T.J. Maxx stores in the U.S., expanded by 3% on top of a 12% spike last year. That growth was fully offset by a growth hangover in the HomeGoods segment, though. Those stores saw intense demand spikes through most of last year as shoppers spent aggressively on home furnishings. The segment shrank by 7%, year over year, after soaring higher by 40% in early 2021.

Executives described the results as mixed, with sales slightly underperforming expectations while earnings came in ahead of target. "This [profitability boost] underscores the power of our flexible, off-price business model," CEO Ernie Herrman said in a press release.

Good inventory

The inventory picture can be an early sign of trouble in the business, and TJX reported a potentially worrying surge in its inventory holdings. But the boost had more to do with scaling back up to a more normal level following wild demand swings over the past two years.

Executives said the $7 billion of inventory on hand, compared to $5.1 billion a year ago, is of high quality and positions the brand well for the summer selling season.

TJX is "confident" it has the right merchandising assets to keep shoppers engaged through the second quarter. There's also plenty of good inventory available from full-price retailers, which means its buyers can still snap up apparel and home goods to offer at a discount.

Is the stock a buy?

Management was comfortable enough to issue a full-year outlook after declining to make that forecast last quarter. Sales will be down again in Q2, it estimates, before rebounding in the second half of 2022. Profit margin should now expand to roughly 10% of sales, indicating a full recovery ahead from the pandemic hit.

While investors can find faster growth in other parts of the apparel industry, TJX Companies' stock looks attractive given its valuation slump. At about 1.4 times sales, that valuation is close to a decade low. Considering a high likelihood of stable sales and earnings growth ahead, the stock seems like a good bargain today.