TJX Earnings: Treasure Hunting Continues To Attract Traffic, Lifting Sales and Profits; Shares Rich

We plan to increase our $71 fair value estimate by a mid-single-digit rate for narrow-moat TJX TJX after digesting second-quarter results and nudging our full-year outlook higher. During the period, sales rose 8%, bolstered by same-store sales of 8% at Marmaxx and 4% at HomeGoods and benefiting from traffic rising across all divisions. More impressively, pretax margins of 10.4% handily outpaced the firm’s 9.3%-9.5% guidance, as lower freight costs and expense leverage on higher sales took hold. Given the outperformance in the second quarter, and continued momentum in the third quarter, the firm lifted its full-year outlook to include 3%-4% same store sales growth (from 2%-3% prior), a pretax margin of 10.7%-10.8% (10.3%-10.5%), and EPS to $3.66-$3.72 ($3.49-$3.58). Even when we nudge up our preearnings-call estimates for a pretax margin of 10.5% and EPS of $3.59 toward the updated outlook to within the revised ranges, we still view shares as rich, trading at 22.5 times our fiscal 2025 estimate.

From a competitive position, we continue to view TJX as uniquely positioned to benefit from ongoing macroeconomic uncertainty given the value proposition it offers. In the near term, TJX stands to benefit from the hesitancy of consumers to spend in the full-price channel, providing excellent product availability for TJX, which gives us confidence TJX should have little trouble reaching its lifted fiscal 2024 guidance. Over the longer term, we don’t see any reason to alter our outlook, given the market leadership position TJX holds and opportunities upon which it can continue to capitalize. As such, we are maintaining our forecast for average sales growth of 5% and an operating margin that methodically migrates up to 12% over the next decade, as TJX optimizes merchandise margins and captures expense leverage on higher sales. This should ultimately deliver high-20% average ROICs, supporting our view that excess economic rents will be captured for more than 10 years.