A few weeks ago, I mused that TJX Companies (NYSE:TJX) would be best served by slowing down the expansion of its younger concepts A.J. Wright, HomeGoods, and Bob's Stores. I'm 100% sure that my musings meant nothing to the company, but as an investor, I was very happy this morning when TJX announced on its company update conference call that it will do exactly that.
I'm not happy because I was right; I'm happy because the lower expansion costs should boost TJX's free cash flow next year. Opening new stores requires substantial capital expenditures, and when those stores underperform, it's doubly painful for a company's cash flow.
On the whole, all three stores have shown signs of promise. The company doesn't plan to give up on any of them, though it does intend to make a few tweaks to each. A.J. Wright, which was profitable in fiscal 2004, will see a slower store expansion, and no expansion into markets where the concept doesn't already have a presence. Focusing on existing markets will allow TJX to more effectively advertise the A.J. Wright stores in more markets, which are spread too thin geographically. The company plans to slow down the expansion of HomeGoods stores in a similar manner.
Bob's Stores will see an even greater slowdown in store openings. Just one new store is planned for 2006, and the goal is to cut the company's losses in half by the end of 2006. In addition, Bob's will add more women's activewear to its stores; the company has found that, while women enjoy shopping at Bob's for their husband and children, they have no reason to go there for themselves. Bob's will remain distinct from its off-price brethren in that it sells a regular variety of goods and brands instead of the constantly changing goods available in the off-price stores.
TJX also issued a press release this morning stating that it has added another $1 billion to its share repurchase program. If fully executed at today's prices, the $1 billion in repurchases would represent about 10% of the company's shares.
A lot of companies announce large repurchase programs but never execute them. That's not the case with TJX, though. The company has completed five buyback authorizations since 1997 and intends to complete its sixth by the end of its 2006 fiscal year (ending in late January 2006). Each year since 1997, the company's number of diluted shares outstanding has fallen (a good thing). On today's conference call, in addition to announcing its seventh buyback program, the company further elaborated that its total buyback for fiscal 2006 will amount to $600 million worth of shares.
Surprising no one, the U.S.-based TJ Maxx and Marshalls, the U.K.-based TK Maxx, and the Canada-based Winners concepts remain strong and operationally profitable. With today's announcement, the free cash flows from these businesses will be available to reward shareholders, rather than being spent on unprofitable expansion of new concepts. Like TJX, a number of other solid retailers have seen their stocks in the doldrums this year, including Motley Fool Stock Advisor pick Gap (NYSE:GPS), Limited Brands (NYSE:LTD), and Wal-Mart (NYSE:WMT). The plans TJX outlined today should place its business in a solid position to rebound, which means the shares should, too.
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Nathan Parmalee has a beneficial interest in shares of Gap, but has no financial interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.
