Why Was TJX Stock Up 6% In A Day?

Note: TJX fiscal year 2024 ended February 3, 2024

The TJX Companies stock (NYSE: TJX), an off-price retailer that owns Marshalls, TJ Maxx, and HomeGoods, rose 6.1% on 21st August, as compared to a 0.4% increase in the S&P 500 index. In sharp contrast, TJX’s peer Target stock (NYSE: TGT) was up almost 11% on the same day. TJX stock price was up after the company beat on both top and bottom lines in the recent second-quarter results and raised the FY 2025 profit outlook. The company saw positive comparable sales and showed improvement on the margin line. TJX also made news on investing $360 million in Brands for Less (BFL), Dubai’s major off-price retailer, for a 35% stake. TJX’s ownership in BFL is expected to be slightly accretive to earnings per share in fiscal 2026.

TJX stock has seen extremely strong gains of 85% from levels of $65 in early January 2021 to around $120 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. TJX is one of a handful of stocks that have increased their value in each of the last 3 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 13% in 2021, 7% in 2022, and 20% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that TJX underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could TJX face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

In Q2 (which ended on August 3), TJX’s revenues grew 6% year-over-year (y-o-y) to $13.5 billion, driven by a 4% growth in the company’s consolidated comparable sales. These sales were entirely driven by an increase in customer transactions, which increased at every division. The company operates its business in four main segments: Marmaxx and HomeGoods, both in the U.S., TJX Canada, and TJX International (including Europe and Australia). The performance of Marmaxx, its largest division, was outstanding, with a comp sales increase of 5% while HomeGoods comp sales grew 2% in Q2. Comparable sales were up 2% for TJX Canada and were 1% higher for TJX International during the same period.

TJX’s Q2 gross profit margin was up 20 basis points y-o-y to 30.4% and its pre-tax profit margin grew 50 bps y-o-y to 10.9% – driven by lower freight costs and stronger sales. The pre-tax income is calculated before adding general corporate expenses, interest expenses, and certain separately disclosed items. This value as defined by TJX may not be comparable to similarly titled measures used by other companies. TJX’s Q2 net income was $1.1 billion and diluted earnings per share were $0.96, up 13% compared to $0.85 a year ago. The company also generated $1.6 billion of operating cash flow and ended the quarter with $5.3 billion of cash. TJX repurchased $559 million of TJX stock and paid $423 million in shareholder dividends during the second quarter. The retailer expects to repurchase approx $2 billion to $2.5 billion of its stock during FY 2025.

For the third quarter, TJX is expecting consolidated comparable store sales to be up 2% to 3%, pretax profit margin to be in the range of 11.8% to 11.9%, and diluted earnings per share to be in the range of $1.06 to $1.08. For the full year fiscal 2025, the company is planning consolidated comparable store sales to be up approximately 3%, up from the previous estimate of 2% to 3%. The company is increasing its outlook for pretax profit margin to be approximately 11.2% and increasing its diluted earnings per share outlook to be in the range of $4.09 to $4.13, up from the prior estimate of $4.03 to $4.09.

[1] Returns as of 8/22/2024
[2] Cumulative total returns since the end of 2016

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