Fri, 1 Aug 2014
The recent decline in same-store sales growth at TJX is being driven by temporary weather trends and not an erosion of the firm's moat.
Bridget Weishaar: TJX [Companies] is my top pick in the apparel retail space. It sells clothing at a 20% to 60% discount to brand prices, and it's really in the sweet spot right now of what consumers are looking for. The consumer has been very, very cautious in spending and really focused on finding the best value for their money. TJX is sitting squarely in that spot.
We have given the stock a narrow moat rating, and we think that it has sustainable competitive advantages due both to scale and to cost advantages. In scale, they have 900 buyers shopping 16,000 vendors, and that really gives them an upside over their competitors in finding the best merchandise out there and stocking their stocks.
They also have the ability to ship the merchandise and localize it to tastes in each market. They move a large volume of SKUs [stock keeping units], and they do so frequently. They make shipments almost twice a week to their stores. The scale that they have really enables them to do this successfully. A lot of their competitors have failed where they have been succeeding--we have seen both Syms and Filene's Basement file for bankruptcy.
Recently, the stock has traded down off of its highs because their same-store sales growth has started to decelerate. Investors have panicked and have started to doubt TJX's moat; they think that competitors are moving into the space. We disagree and think that [the deceleration in their same-store sales growth] has been due to weather issues, not to competitive issues. We expect them to maintain mid-single-digit revenue growth through new store openings and also through comparable sales. With the stock trading at a 20% discount to our fair value estimate of $67, we think it's very attractive right now.