Club Holdings’ TJX Companies (TJX) recently posted its first quarter sales of fiscal year 2024, which were lower than expected. However, the company managed to offset these lower sales with strong expense management and significantly improved profitability, highlighting the ability of off-price retailers to weather economic headwinds.
The total revenue for the three months ended April 29 rose 3.3% to $11.78 billion, which was below market estimates of $11.82 billion, mainly due to a $151 million foreign exchange headwind. However, excluding the foreign exchange impact, sales increased by 4.6% annually at constant currency. Adjusted earnings per share grew 55% to 79 cents per share, which exceeded the Refinitiv data estimate of 71 cents per share.
Despite the sales flop, it was a strong quarter for TJX. The company’s department stores TJ Maxx, Marshalls and HomeGoods, demonstrated their ability to diligently manage expenses and boost overall profitability. The team’s ability to source a curated mix of better brands and inventory stores enabled them to hit the high end of management guidance for the same store sales growth. Strong first quarter results and a tremendous off-price buying opportunity in the market gave management the confidence to upgrade pre-tax margins and full-year earnings.
TJX Companies’ focus on providing best-in-class value and their team’s flexibility in sourcing a curated mix of better and better brands and inventory stores, positions the company to gain retail market share even in the uncertain operating environment for the retail industry. The company reiterated that it expects overall comparable same store sales to increase by 2% to 3% for its 53-week fiscal year, whilst management raised its pre-tax margin outlook to a range of 10.3% to 10.5% and its diluted EPS outlook to a range of $3.49 to $3.58 for the period.
In conclusion, TJX demonstrated that off-price retailers can withstand economic headwinds, by managing expenses and improving profitability. The company’s focus on providing best-in-class value and flexible sourcing of brands has placed them in a position to gain retail market share. Therefore, a buy recommendation is reiterated, with a stock valuation of 1 and a price target of $88 per share.