The TJX Companies: It's Not All Doom And Gloom In Retail The TJX Companies (NYSE: TJX) proves that it is not all doom and gloom in the retail sector. While the front-line retailers like Target and Walmart are struggling with growth...

The TJX Companies Beats And Raises On Strong Results

The TJX Companies (NYSE: TJX) proves that it is not all doom and gloom in the retail sector. While the front-line retailers like Target and Walmart are struggling with growth and margins the off-price retailers like The TJX Companies are coming into their own. Not only are customers looking for bargains but there is an abundance of merchandise for The TJX Companies to sell. The company took advantage of retail closings over the past year and boosted inventory by nearly 38% while buying back shares and paying a nice dividend. The takeaway is that The TJX Companies is well-positioned for the year, widening margins, and raising guidance where others in the retail sector are doing the exact opposite.

The TJX Companies Has Mixed Quarter

The TJX Companies had a mixed quarter but that is about as bad as the news gets. The revenue of $11.41 billion missed the Marketbeat.com consensus by 145 basis points but we choose to focus on the 13.1% YOY growth and the margin. On a segment basis, the Marmaxx segment grew by 3% (12% on an open-only basis) while the Homegoods segment contracted by 7%. Homegoods sales are still up 17% on an open-only comparison, however, so the data is not as bad as it may look. On a three-year basis, relative to the prepandemic 2019 levels, revenue is up 23%.

Turning to the margin, the news is a little mixed but gross margin contraction of 20 basis points is offset by 220 basis points of operating margin expansion so ultimately bullish. The detail of note, however, is that margin came in better than expected and led to outperformance on the bottom line despite the top-line weakness. The adjusted $0.68 in EPS is up in the 1, 2, and 3-year comparisons, and $0.08 better than expected including a $0.19 impairment related to Russia. The TJX Companies owns a minority stake in a Russian off-price retailer it is working to divest itself of.

The guidance is equally mixed and biased to the upside with Q2 revenue and earnings expected to fall YOY and the FY expected to expand. The FY guidance is calling for EPS of $3.13 to $3.20 versus the $3.16 Marketbeat.com consensus which has yet to be adjusted for the impact of Russia. Because the company is still working to improve margin, we see upside risk in the numbers as well, at least on the bottom line.

Capital Returns Help Lift The TJX Companies

The TJX Companies pays a healthy dividend and buys back shares with its cash flow and is on track to deliver upwards of $3 billion in capital returns to shareholders. The company purchased $600 million worth of shares in Q1 and can be expected to buy as much as $1.9 billion more by the end of the year. That is worth about 2.9% of the market cap and that is on top of the dividend. The dividend is worth about 1.9% with shares trading at $61 and it comes with a positive expectation for distribution growth. The board approved an increase for Q1 which has already been declared and the payout ratio is comfortably low and below 40%.

The Technical Outlook: The TJX Companies Confirms Support

Price action in The TJX Companies popped in the wake of the earnings report and has ended the budding downtrend. The caveat is that price action found resistance at the top of the recent range and resistance is capping the advance. If the market can not get above $62.60 there is a risk the downtrend will resume regardless of the outlook but we don't think that will happen. Our worst-case scenario is rangebound trading at current levels. The best-case scenario is that price action will move above $62.60 and begin a new uptrend but we are a little skeptical of that just because general market conditions are so lousy.