Rising inflation could drive the shares of The TJX Companies (TJX) higher, as shoppers will eventually become value-oriented, searching for bargains in off-price retailers. I’m bullish on TJX (See Analysts’ Top Stocks on TipRanks)
TJX sells brand name and designer fashions merchandise at discounted prices, ranging from 20%-60% less than the regular prices of department and specialty stores.
Meanwhile, TJX operates under several store names — Marshalls, HomeGoods, Winners, HomeSense, T.K. Maxx and Sierra Trading Post—rather than a single store name.
A broad collection of brand-name products selling at deep discounts combined with multistore names allows TJX to reach a broad market and avoid the problems of other discount retailers, like JCPenney, which failed a few years ago.
On Tuesday, the company reported net sales of $12.5 billion for the third quarter of Fiscal Year 2022. That’s a 24% gain over Q3 of Fiscal Year 2021. In addition, earnings per share came in at $0.84, a 24% increase from $0.68 per share in the third quarter of Fiscal Year 2020. Both numbers exceeded analyst expectations.
TJX’s results come one day after the U.S. government reported a 1.7% jump in retail sales, confirming a favorable trend for retailers.
TJX Is Beginning to Impress Wall Street
TJX’s solid performance in the third quarter was music to the ears of traders and investors on Wall Street, who sent the company’s shares higher following the report.
That’s a significant change from the previous two financial reports, which failed to impress Wall Street, though they beat analyst expectations. So far this year, the company’s shares have gained 3%, compared to 25% earned by the SP&500.
Nonetheless, Ernie Herrman, Chief Executive Officer and President of The TJX Companies cheered the company’s strong Q3 performance, “I am extremely pleased with the continued strength of our business, with our overall open-only comp-store sales up a very strong 14% over Fiscal 2020, and earnings per share of $.84, well above our plan.”
He then continued, “We saw robust trends throughout the quarter, with comp sales exiting the quarter as strong as the beginning of the quarter. Further, our home businesses across all of our divisions continued their phenomenal performance, and overall apparel open-only comp-store sales increased mid-single digits.”
Herrman is also upbeat for the upcoming holiday season, “We feel great about our ability to deliver customers an exciting mix of gift-giving merchandise and amazing brands and values throughout the holiday selling period.”
He added, “We are in an excellent inventory position, with most of the product needed for the holiday season either on hand or scheduled to arrive at our stores and online in time for the holidays. As a result, we are very confident in our ability to continue to gain market share, improve our profitability in the medium to long term, and reach our strategic vision of TJX becoming a $60 billion company.”
Wall Street’s Take
Turning to Wall Street, TJX has a Strong Buy consensus rating, based on 13 Buys and two Holds assigned in the past three months. The average TJX Companies price target of $84.93 implies 20.3% upside potential.
Analyst price targets range from a low of $43 per share to a high of $102 per share.
The Bottom Line
TJX is well-positioned to capitalize on rising inflation, which will favor discount retailers over full-price retailers.
Disclosure: At the time of publication, Panos Mourdoukoutas did not have a position in any in TJX.
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