Ahead of the Tape: TJX's Success Breeds Imitators -- WSJ

By Steven Russolillo

It isn't easy being an apparel retailer these days. Even a success story like TJX Cos. might soon feel the strain.

The parent of T.J. Maxx, Marshalls and HomeGoods has withstood the difficult environment plaguing department-store operators and other brick-and-mortar competitors. As an off-price retailer, TJX's bargain offerings have drawn cost-conscious consumers. TJX buys many of its goods through closeouts and sells them at discounted prices.

The strategy has succeeded. TJX's earnings and sales have been strong in recent quarters. Margins have improved and customer traffic has been good. Shares are up 12% over the past year and have nearly tripled over the past five.

Fiscal-first quarter results from TJX on Tuesday shouldn't break the company's momentum. Analysts polled by FactSet estimate earnings for the period ending in April of 71 cents a share, up 3% from a year earlier. Revenue is estimated to have risen 6% to $7.3 billion.

Yet there were rumblings last week when the stock fell more than 5% in sympathy with a slew of retailers that reported disappointing quarterly results. Even worse, the shares still appear priced nearly for perfection. In an increasingly crowded market that is also feeling the pinch from America's shift to online shopping and fast-fashion chains, TJX's upside looks limited.

For one, traditional retailers are trying to mimic TJX's success, creating more competition. Macy's Inc., the country's largest department-store chain, has been opening more of its own off-price Backstage stores. A rare bright spot at Nordstrom Inc. has been the success of its discount stores, Nordstrom Rack and HauteLook, whose comparable sales rose 4.6% from a year ago.

And don't forget Amazon.com Inc. The online behemoth has vaulted into second place among apparel sellers in the U.S., behind only Wal-Mart Stores Inc., according to Morgan Stanley.

Furthermore, TJX's shares are priced handsomely. Fetching more than 20 times projected earnings over the next 12 months, TJX's multiple commands a nearly 20% premium to its average over the past five years. It is also richer than a basket of retailers, including Kohl's Corp., Ross Stores Inc. and Target Corp.

TJX's success has been impressive. It is no longer assured.

tape@wsj.com

(END) Dow Jones Newswires

May 17, 2016 02:48 ET (06:48 GMT)

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