Ahead of the Tape: TJX Defies Retail's Downturn -- WSJ

By Steven Russolillo

In this difficult retail environment, TJX Cos. keeps passing competitors while marching to its own beat.

The parent of T.J. Maxx, Marshalls and HomeGoods has thrived by buying much of its merchandise -- including current season, name-brand products -- through closeouts and selling it at discounted prices. This approach stands out for its success, particularly as shoppers shun traditional brick-and-mortar retailers in favor of online outlets like Amazon.com.

With consumers spending at a healthy clip and the macroeconomic backdrop remaining favorable, there is little reason to think TJX is set for a stumble in its fiscal second-quarter results, out Tuesday. Analysts polled by FactSet estimate earnings of 81 cents a share for the period ended in July, up 1% from a year before. Revenue is expected to have increased by 7% to $7.85 billion.

TJX's expansion strategy stands out the most; as department stores shutter locations, it plans to aggressively open more stores. In May, TJX said it would boost its store count to 5,600 in the coming years, up from nearly 3,700 today. That seems lofty, but might be justified if it can replicate its revenue growth. TJX's sales per square foot tops many of its competitors, including J.C. Penney Co. and Macy's Inc.

Competitors' pain is TJX's gain, too. Macy's disclosed last week that it plans to close 100 stores, or 15% of its store base, next year. That alone could add as much as 1 percentage point to TJX's same-store sales growth, according to analysts at Deutsche Bank.

And more could be to come. Green Street Advisors estimates department stores need to close roughly 800 locations just to regain the sales productivity they enjoyed a decade ago.

Investors have been rewarded handsomely for TJX's success. The stock has risen at a 25% annual pace over the past five years and hit a fresh record on Monday.

The risk is that the bar is set pretty high for Tuesday's earnings. Fetching 22 times projected earnings over the next 12 months, the stock isn't cheap relative to department stores.

But, as one of the few success stories in retail, TJX's shares don't need a discount to keep flying off the shelves.

tape@wsj.com

(END) Dow Jones Newswires

August 16, 2016 02:47 ET (06:47 GMT)

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