TJX Posts Solid Rebound

Given narrow-moat

Full-year fiscal 2018 sales growth of 8%, driven mostly by customer traffic (which we see implying market share gains), exceeded our 7% estimate and 5% U.S. retail sales growth, leading us to feel more confident in our five-year outlook for mid-single-digit top-line growth (comparable to fiscal 2018 when accounting for the 53rd week contributing over 1.5% to the top line). We see little change to our operating profit expectations, which call for adjusted operating margin to be range-bound at 11%-12% range due to mix, distribution channel costs, and wage increases, somewhat offset by leverage and cost efficiencies. Both of these estimates are roughly in line with fiscal 2019 guidance for 5% top-line growth (including the impact of 52 weeks versus 53 this year) and adjusted operating margin of 11% at the midpoint. Therefore, we see little change to our $87 fair value estimate outside of the time value of money and the impact of a lower-than-expected tax rate due to U.S. federal tax reform (25.9% guidance for fiscal 2019 versus our 26.4% estimate). Despite the high-single-digit uptick following results, the shares still trade slightly under our fair value estimate, and we view this as an attractive entry point for investment.

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