TJX TJX Companies Inc

Home Depot, discounter TJX post strong gains after department stores report sluggish sales

By Paul Ziobro and Suzanne Kapner 

American shoppers are willing to spend on their homes and buy new clothes, just not at traditional department stores.

Home Depot Inc. on Tuesday reported a strong start to the year with more shoppers visiting stores and spending at levels not seen since before the housing bust. Meanwhile, TJX Cos., the parent of off-price chains T.J. Maxx and Marshalls, posted another quarter of rising profits and sales.

Sales at existing Home Depot stores rose 6.5% in the three months ended May 1, including a boost from big-ticket items. The number of transactions over $900 rose 9.5% compared with a year ago, primarily from sales of appliances, roofing materials, sheds and windows.

TJX on Tuesday reported a 7% jump in sales at existing stores in the April quarter and raised its forecasts for the year.

"We are convinced that we are growing our customer base and gaining market share," Chief Executive Ernie Herrman said on a conference call.

The results stand in contrast to retailers like Macy's Inc., Kohl's Corp. and J.C. Penney Co. which reported sluggish sales last week, pummeling their shares. Those department stores reported steep drops in apparel sales and resorted to discounting to move unsold merchandise in the quarter.

As department stores cancel orders, TJX has been able to purchase current season, name-brand products at discounted prices.

"We see a marketplace loaded with quality branded merchandise," Mr. Herrman said.

Discount chains like TJX haven't been the only companies taking share from department stores. Online retailers, particularly Amazon.com Inc., have also made inroads. Morgan Stanley analysts estimate that department stores in aggregate lost $348 million dollars in apparel revenue in the recently completed quarter, while Amazon likely grew its apparel sales by $1.4 billion in the period.

Investors will get deeper insight into the health of consumer spending this week when Wal-Mart Stores Inc. and Target Corp. report. Investors expect Wal-Mart, which gets more than half of its revenue from groceries, to post a 0.5% increase in sales at existing stores. But profits are expected to come under pressure from investments in store improvements and e-commerce.

Target, which said it hired a new chief merchant on Tuesday, is expected to post a same-store sales increase of 1.7% for the quarter. Analysts at Buckingham Research noted that the company likely suffered from the same weak trends as department stores, but apparel accounts for about 19% of Target's sales.

Home Depot and fellow home-improvement chain Lowe's Cos., have favorable housing trends at their backs. Home prices are rising, giving owners more confidence to spend on larger projects. More people are moving and starting new homes, and America's old housing stock means plenty of opportunities for other improvement projects.

"Housing data indicates continued tailwinds for our business," Chief Executive Craig Menear said on a conference call, noting strong demand from both contractors and homeowners.

For the first quarter, Home Depot reported a profit of $1.8 billion, or $1.44 a share, up from $1.58 billion, or $1.21, a year earlier. Revenue climbed 9% to $22.76 billion.

Home Depot executives said weather had a minor impact on sales, just a $250 million boost to the U.S. business. Warmer, springlike weather hasn't yet reached many of its markets, which usually leads to sales picking up more.

"In certain parts of the country, spring has not yet arrived," Home Depot Chief Financial Officer Carol Tome said.

Home Depot shares, already up 12% over the past three months, slipped about 1% to $133.87 in recent trading. TJX rose nearly 2% to $76.69.

For 2016, Home Depot expects adjusted earnings of $6.27 a share on revenue growth of 6.3%, up from its previous guidance for earnings of $6.12 to $6.18 a share on revenue growth of 5.1% to 6%. Same-store sales are anticipated to rise about 4.9%.

For the period ended April 30, TJX reported a 9.9% jump in revenue to $7.54 billion. Profit was $508.3 million, up from $474.6 million a year earlier.

Unlike department stores, which have been closing stores, TJX plans to open 195 locations this year. The company said it could eventually envision operating 5,600 stores world-wide, a 50% increase over its current store base.

Still, TJX isn't immune from some of the challenges facing retailers, including higher wages. The company said wage increases hurt margins at its HomeGoods chain in the recently completed period and the pressure would likely continue into 2017.

--Anne Steele contributed to this article.

Write to Paul Ziobro at Paul.Ziobro@wsj.com and Suzanne Kapner at Suzanne.Kapner@wsj.com

(END) Dow Jones Newswires

May 18, 2016 02:48 ET (06:48 GMT)

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