Has TJX Lost Its Mojo?

Challenging industry dynamics have eaten into the profits of many American retailers. However, TJX  has managed to outmaneuver these headwinds and has given healthy returns to its investors recently. The company's strategy to offer the lowest possible prices has enabled it to steal customers away from peers and to stay ahead in the industry. Let's analyze TJX and see how it stacks up to rivals Gap  and Ross Stores .

First-quarter earnings
TJX's first-quarter earnings came in at $0.64 per share, missing the Zacks consensus estimate by 4.5%; the earnings miss was largely due to unfavorable foreign exchange rates. However, earnings grew 3% from the year-ago figure of $0.62 a share, fueled by higher traffic, higher margins, and strong identical-store sales growth.

Net sales climbed 5% from last year to $6.5 billion. Same-store sales inched up 1% as opposed to 2% a year earlier. Comps at Home Goods and TJX Europe increased by 3% and 1%, respectively, while Marmaxx remained flat. Comparable sales for TJX Canada dropped by 1%.

What is TJX up to?
During the first quarter, TJX spent $360 million to repurchase 6 million of its common shares. The retailer has said that it plans to buy $1.6 billion to $1.7 billion of common stock during fiscal 2015. Apart from rewarding its shareholders through buybacks, the company also raised its quarterly dividend by 21%. It will now pay a quarterly dividend of $0.175 per share. This is the 18th straight year in which TJX has increased its quarterly dividend.

Going forward, TJX has plans to introduce more categories to its e-commerce site, tjmaxx.com, for which it's adding more vendors to its portfolio. The company's management still thinks that its penetration in the US market is below that of most department stores. For this reason, it is also investing heavily in its marketing campaigns in the country. Apart from this, TJX is also expanding its loyalty programs.

In order to improve the shopping experience at its stores, TJX will be remodeling more than 250 locations this year. Owing to its great performance in Europe, the company will be opening 40 new stores in the region by year-end, 25% more than the last year. The majority of this expansion will be in Germany, where TJX will double the number of store openings compared to last year. Moreover, in the first half of 2015, it will also enter the Austrian retail market. TJX has a long-term goal of operating 5,150 stores, 60% more than its existing store base.

TJX expects its fiscal 2015 earnings to fall in the range of $3.05-$3.17 per share compared to earlier forecasts of $3.05-$3.19 per share. Same-store sales are projected to grow by 1% to 2%.

Industry peers
U.S apparel company Gap posted a mixed bag of results in its recent quarter. Revenue came in at $3.77 billion, up 1% from $3.73 billion in the same period a year earlier. However, despite strong sales growth, overall earnings declined sharply, largely driven by the negative impact of foreign currency fluctuations. The retailer earned $0.58 per share compared to $0.71 a share in the year-ago quarter.

Due to the strong growth potential of China, Gap recently launched its first company-operated Old Navy store and e-commerce site in mainland China.

In the most recent quarter, Ross Stores posted per-share earnings of $1.15; earnings increased 8% year over year, as they stood at $1.07 in the comparable quarter last year. Similarly, revenue rose 6% from the same period last year to approximately $2.7 billion. 

Ross is actively pursuing expansion plans to enhance its presence both locally and abroad; it expects to open 95 Ross stores by the end of fiscal 2014. Since the company is confident about its future growth, it has given an upbeat outlook for its current quarter, which is a great sign for its investors. The retailer expects its second-quarter earnings to end up somewhere between $1.05 and $1.09 a share.

Final thoughts
TJX missed its first-quarter expectations due to the negative impact of foreign currencies, especially the Canadian dollar. Had the Canadian dollar remained stable, TJX would have met its estimates.

In comparison to its last year's figures, the company's top- and bottom-line growth rates are still impressive, which is an encouraging sign for the retailer. TJX's massive expansion plans reflect its confidence to do well in the future as well. The company is rightly investing in e-commerce, which is set to become a major driving force for all retailers in the coming years. In addition, extensive marketing campaigns will certainly help it in enhancing its brand image.

The company has always rewarded its shareholders through share buybacks and attractive dividends. It revised the upper range of its earnings guidance in a downward direction but just by $0.02, so it shouldn't be a worrying sign for investors. All in all, TJX still looks to be a good choice as an investment in the retail sector.

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The article Has TJX Lost Its Mojo? originally appeared on Fool.com.

Zahid Waheed has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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