Online Sales Help The TJX Companies (TJX), High Costs Garlic

The companies TJX, Inc. TJX benefits from efforts to improve both offline and online business. The HomeGoods segment of the off-price retail leader has been helping for some time. However, the company is not immune to rising cost inflation. In addition, adverse foreign currency translation could pose a threat.

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What helps TJX companies?

As more consumers turn to online shopping, The TJX Companies has undertaken several initiatives to drive online sales and strengthen its e-commerce business. On its latest earnings call, management said it was impressed with the growth in e-commerce business sales in 2021. During the year, the company introduced new categories and brands across all of its banners. online while initiating purchases on homegoods.com.

The TJX Companies is benefiting from its strong store improvement efforts. The management quickly expanded its presence in the United States, Europe, Canada and Australia. In fiscal 2022, the company increased its store count by 117 stores to 4,689 stores. Management expects to incur capital expenditures in the range of $1.7 billion to $1.9 billion for fiscal 2023. These expenditures will be for new store openings, renovations, relocations and investments in distribution, network and infrastructure. TJX Companies are optimistic about its abilities to deliver fresh spring produce to its stores and online.

The HomeGoods segment of the Zacks Rank #3 (Hold) company has been in high demand for some time now. Due to store closures amid the pandemic, management had proposed a new temporary sales measure – open store sales only – to provide a better view. In the fourth quarter of fiscal 2022, open-only comparison store sales jumped 22% in the HomeGoods (US) segment compared to fiscal 2020 levels. Management emphasized that it witnessed consistent strength in every key category and geography for HomeGoods and HomeSense through fiscal 2022. We note that TJX Companies launched homegoods.com in the third quarter of fiscal 2022. value on its digital platform with this launch.

Cost barriers to staying

In the fourth quarter of Fiscal 2022, the TJX Companies’ consolidated pretax profit margin was 9%, down 1.9 percentage points from levels in the fourth quarter of Fiscal 2020. Management pointed out that additional investments to expand distribution capacity and wage increases were hurting margins. Additionally, net pandemic-induced spending hurt pretax margin by 0.5 percentage points. Commodity margin for the quarter was impacted by higher freight costs. In its latest earnings call, management emphasized that it expects spending headwinds to persist for fiscal 2023 from the level of fiscal 2022. It expects the first quarter of fiscal year 2023 will be the most pressured with additional freight spending. The company also expects higher labor costs to affect the first quarter pretax tax margin.

Well, it remains to be seen whether the strength of its HomeGoods unit along with other growth efforts can help The TJX Companies sustain growth in a rising cost environment. TJX stock is down 8.5% in the past three months against industry growth of 11.3%.

Hot Retail Bets

Here are some top-ranked stocks — Target company TGT, Costco Wholesale Corporation COST and dollar tree LTDR.

Target, a general merchandise retailer, sports a Zacks rank of #1 (Strong Buy). The company has an earnings surprise for the last four quarters of 21.3% on average. You can see the full list of today’s Zacks #1 Rank stocks here.

Zacks consensus estimate for Target’s sales and earnings per share (EPS) for the current fiscal year suggests growth of 3.5% and 6.7%, respectively, over the period of the last year. TGT has an expected EPS growth rate of 16.5% over three to five years.

Costco, which operates membership warehouses, currently carries a Zacks rank of 2 (purchase). COST has a surprise on earnings for the last four quarters of 13.3% on average.

Zacks consensus estimate for Costco’s current fiscal year sales and EPS suggests growth of 13.3% and 17.4%, respectively, over corresponding readings for the prior year period . COST forecasts an EPS growth rate of 9.1% over three to five years.

Dollar Tree, the operator of variety retail stores at discount prices, currently carries a Zacks ranking of 2. DLTR has an earnings surprise for the past four quarters of 11.8% on average. DLTR has an expected EPS growth rate of 15.5% over three to five years.

Zacks consensus estimate for DLTR’s current year sales and EPS suggests growth of 5.6% and 36.4%, respectively, over the corresponding readings for the prior year period .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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David A. Albanese