As a general rule, I'm skeptical of the weather excuse that companies often use to explain soft sales. However, I tend to believe TJX Companies
Its TJ Maxx and Marshalls stores, which the company refers to as Marmaxx, make TJX the off-price behemoth in the apparel marketplace. But TJX has been looking more and more toward new concepts such as A.J. Wright, HomeGoods, and Bob's Stores for growth. With the majority of its stores in the Northeast, A.J. Wright -- which caters to middle-income shoppers -- was also affected by the poor weather.
How bad was the weather for TJX? Overall, the company turned in $0.30 per share in earnings compared with $0.32 a year ago, or just less than flat. On the bright side, sales were up a total of 9.8%, and the company mentioned on its conference call (a recording is available on the company's website) that inventories across all of its concepts are in great shape.
After listening to the conference call, management's explanation that the discrepancy in sales growth vs. earnings and the positive inventory position are related makes sense. Because of the poor weather and, in turn, soft sales in February and March, TJX needed heavy discounting to clear the winter and early-spring inventory and get ready for the late-spring and summer seasons. It's not pretty, but it does hold water.
Inventory management is TJX's strong suit, driving a great deal of its performance. Across all of the off-price concepts, the business tries to buy inventory "close to need" -- when the stores need it and can sell it quickly. Buying inventory in advance and preparing for the coming season, which is typical at department stores such as Federated
For current shareholders, the best news may be that the Marmaxx portion of the business is still a powerhouse. The huge amount of free cash flow it generates is then poured into the expansion of the other concepts. It also funds dividends, debt repayments, and, when prices are right -- as they have been lately -- large share repurchases. As long as Marmaxx remains strong and continues to grow, it provides shareholders a bit of protection until HomeGoods, A.J. Wright, and the other concepts start contributing more cash flow to the company coffers.
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