Shares of retailer TJX (NYSE: TJX) had a dizzying downward spiral yesterday after the retailer of designer clothing at discount prices reported first-quarter results that fell short of what Wall Street had been expecting.

TJX, the company behind brand name stores T.J. Maxx, Marshalls, and HomeGoods, reported a 4% jump in revenue over the year-ago period, but handed shareholders an income figure that fell 20% from a year earlier.

TJX blamed the drop in net income on two main factors. The closing of all of its A.J. Wright locations and subsequent reopening of those stores under the T.J. Maxx, Marshalls, or HomeGoods brand names ate into the bottom line. Also, poor weather factored into shoppers staying home more often during the past three months. Although the company did eke out a 2% rise in same-store sales figures, its forward guidance wasn't up to par according to shareholders, who sent the stock down 4%.

The company made sure to highlight that its growing revenue and higher same-store sales signal continued strength from consumers eager to get its designer merchandise at a discount, but it also revealed two potential weaknesses in the company.

No buck-passing here
During the conference call, the response of TJX CEO Carol Meyrowitz to a question regarding whether or not her company would be able to pass along rising prices to consumers if needed likely shook investors. Her response to the question was:

In terms of inflation, our average ticket is fairly flat today and our intention is to continue to give the consumer great, great value, and if we are in a certain category and prices increase out there, well, we are going to keep our distance.... If the world is out there at higher price points, then we have the ability to raise our price points. But, again, we want to keep that distance between everyone else and that is really what our job is.

Or to put this in plain English: "our customers won't shop with us if we raise our prices, so we're going to avoid raising them at all costs." Although stubbornly sticking to its pricing policy will help TJX retain customers, it could be detrimental to the company's bottom line.

This leads me to my next point: TJX's inventory jump. TJX saw a strikingly large jump in its inventory levels during the quarter, from $2.6 billion three months ago to $3.0 billion. Retailers like TJX aren't working with high margins to begin with, so a rapidly rising inventory level could be a red flag.

It's also worrisome that this trend just might be confined to TJX. Rival retailers Macy's (NYSE: M), Wal-Mart (NYSE: WMT), Kohl's (NYSE: KSS) and Dillard's (NYSE: DDS) all met, or in the case of Macy's and Dillard's, crushed analyst forecasts this quarter despite challenging weather conditions.

TJX in time-out
It's probably a little premature to raise the white flag on TJX after one poor quarter, considering the company has delivered strong dividend increases for shareholders for the better part of a decade now -- but I'd definitely put the company on your watchlist. Inventory issues don't resolve themselves and pricing is one of the few things retailers have control over. TJX needs to clean up its act quickly if it wants to appease investors.

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