Scandal-tarred budget retailer TJX (NYSE:TJX) reports Q4 and full-year 2006 earnings results Wednesday morning. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Twenty analysts follow TJX, with half rating it a buy, nine more a hold, and one saying sell.
  • Revenues. On average, they're looking for 8% quarterly sales growth to $5.08 billion.
  • Earnings. Profits are predicted to climb 11% to $0.51 per share.

What management says:
Sad to say, the big news at TJX recently had nothing to do with the firm's entirely solid sales and earnings performance. Instead, it was all about the firm's unfortunate encounter with a hacker who managed to compromise what The Wall Street Journal pegged as 40 million or more of the firm's customer records; the firm's less-than-elegant response to the crisis; and the executive and directorial departures that soon ensued. In January alone, one director and one executive senior VP resigned; the company's founder, Bernard Cammarata, gave up his acting CEO-ship and moved entirely onto the board; and company president Carol Meyrowitz took over as CEO. All this, and the company per se didn't actually do anything legally wrong!

What management does:
Nor has TJX done much wrong on the margins front. For four straight quarters, we've seen nothing but consistently rising profit margins at each of the gross, operating, and net levels. Superb.

Margins

7/05

10/05

1/06

4/06

7/06

10/06

Gross

23.3%

23.0%

23.4%

23.6%

23.7%

24.1%

Operating

6.8%

6.3%

7.1%

7.3%

7.4%

7.9%

Net

3.7%

3.3%

4.3%

4.4%

4.5%

4.8%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
TJX achieved these margins through a combination of factors. Over the last two quarters, sales have grown 10% year over year. Cost of sales increased more slowly at just 9% (expanding the gross), and selling, general, and administrative costs rose only 7%, adding to the pre-tax profits.

The balance sheet shows similar success. Accounts receivable, never very large at most retailers, got even smaller at TJX, heading in the opposite direction from sales -- down 4%. Inventories, although they did expand year over year, did not grow as fast as sales. On average, over the past two quarters, they're up just 8%. All of this has done wonders for the firm's free cash flow, by the way. Whereas Q2 and Q3 of fiscal 2005 saw the firm generate a mere $20 million worth of cash profits, the same quarters this year added $230 million to TJX's coffers.

So what do we want to see at TJX on Wednesday? Simple: More of the same.

But this time, without the scandals.

Competitors:

  • Citi Trends (NASDAQ:CTRN)
  • DSW (NYSE:DSW)
  • Federated Department Stores (NYSE:FD)
  • Kohl's (NYSE:KSS)
  • Ross Stores (NASDAQ:ROST)
  • Stein Mart (NASDAQ:SMRT)

Learn more about TJ Maxx in:

Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy knows how to slow it down.