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A month has gone by since the last earnings report for TJX (TJX). Shares have lost about 4.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is TJX due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
The TJX Companies' Q2 Earnings Beat Estimates, Sales Up
The TJX Companies reported stellar second-quarter fiscal 2022 numbers, with the top and the bottom line beating the Zacks Consensus Estimate. Earnings and sales increased year over year. The company witnessed solid performance in its home businesses across all divisions. Also, it saw encouraging open-only comp store sales in apparel category. The company’s U.S. and international divisions reported impressive double-digit open-only comp store sales growth in the quarter under review.
Q2 in Details
The TJX Companies’ second-quarter earnings came in at 64 cents per share. Excluding a debt extinguishment charge of 15 cents per share, adjusted earnings per share was 79 cents. In the year-ago quarter, it had posted a loss of 18 cents per share. In the second quarter of fiscal 2020, the company’s earnings came in at 62 cents per share. The Zacks Consensus Estimate for second-quarter fiscal 2022 was pegged at 58 cents per share.
Net sales came in at $12,077 million, significantly higher than $6,668 million reported in the year-ago quarter. The company highlighted that pandemic-led store closures were undertaken for nearly 31% during the same quarter last year. Further, net sales in the quarter increased 23% when compared with second-quarter fiscal 2020. The metric beat the Zacks Consensus Estimate of $11,233.2 million.
Management stated that owing to temporary store closures amid the pandemic, the comp store sales definition was not applicable in the quarter under review. To offer a performance indicator for the stores as they reopen, The TJX Companies has come up with a temporary new sales measure — open-only comp store sales. This includes stores that were initially classified as comp stores (in the beginning of fiscal 2021). This metric reports rise or decline in sales of stores for the days they were operational in the second quarter of fiscal 2022 compared with the same days in fiscal 2020 before the pandemic.
Open-only comp store sales for the company rallied 20% compared with second-quarter fiscal 2020 levels. The metric increased 18%, 36%, 18% and 12% for Marmaxx (U.S.), HomeGoods (U.S.), TJX Canada and TJX International (Europe & Australia), respectively.
The company’s consolidated pretax profit margin came in at 8.7%, including 2 percentage point adverse impacts from debt extinguishment charge as well as 0.6 percentage point projected impact from lost sales due to temporary pandemic-led store closures. Further, net pandemic-induced costs adversely affected pretax margin by 0.3 percentage points. The company saw incremental freight expenses as well as substantial supply chain and wage costs which was more than offset by solid sales and merchandise margin.
Other Financial Updates
The company ended the quarter with cash and cash equivalents of $7,106 million, long-term debt of $3,352.9 million and shareholders’ equity of $6,406.4 million. For 26 weeks ended Jul 31, 2021, the company provided operating cash flow of $946.9 million.
The company expects to declare a quarterly dividend in the third quarter of fiscal 2022. During the quarter under review, the company returned $614 million to shareholders via dividends and share repurchases. Management repurchased stocks worth $300 million. The company anticipates to buyback $1.25-$1.50 billion worth stocks in fiscal 2022, reflecting $250 million increase from earlier expectation.
Total inventories as of Jul 31, 2021, were $5.1 billion. Management is optimistic about its capabilities to provide fresh assortment of products in its stores and online websites during the back-to-school shopping season and all of fall.
Store & More Updates
The company’s performance in fiscal second quarter was affected by some temporary store closures thanks to the coronavirus outbreak. Although its stores in the United States were open, stores in Europe, Canada and Australia were shut for nearly 2%, 22% and 18%, respectively, of the quarter. Overall, the company witnessed store closures for nearly 3% of the quarter. Management projects that such store closures are likely to have resulted in $300-$350 million worth of loss in sales during second-quarter fiscal 2022. Incidentally, fiscal second-quarter EPS were adversely impacted in the band of 5-7 cents.
At present, all stores in the United States, Canada and Europe are operational. However, nearly 40 stores in Australia are shut currently. At the end of the quarter, 4,649 of the company’s 4,665 stores were operational.
At the beginning of third-quarter fiscal 2022, the company is currently witnessing solid sales, with overall open-only comp store sales higher by mid-teens from third-quarter fiscal 2020 levels.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 6.8% due to these changes.
At this time, TJX has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise TJX has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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