The TJX Companies Is A Rebound Story With Legs
The TJX Companies (NYSE: TJX) first emerged as a play on the pandemic rebound because of its strong capital position. Its strong capital position allowed it to weather the storm so that it could capture expected trends in the second half of 2020 and the first half of 2021. Those trends included the resumption of foot traffic in its stores, strong retail demand, and a heavily reduced competitive environment. The competitive environment is important to note because it at once reduces the number of competitors as well as provides The TJX Companies with even more products to stock its shelves. Now, deep into the second half of 2021, the company is in a better position than ever to deliver returns for shareholders.
The TJX Companies Returns To Real Growth
The TJX Companies fiscal Q2 2022 earnings report shows not only the strength of the retail rebound but the company's operating model as well. The TJX companies reported $12.08 billion in consolidated revenue for a gain of 81.1% over last year. This figure not only beats the consensus by 1000 basis points but it's up 23% over the past two years despite the lingering impact of store closures. The company says about 3% of its footprint was closed during the past quarter which hit the bottom line by $0.05 to $0.07. The company says that most of its stores are open now. On a comp-store basis, the open-only comps are up 20% over the past two years versus the 14.5% expected by the analyst.
Moving down the report, the company says it experienced a 150 basis point hit to the margin that was offset by revenue strength and business leverage. Margin actually widened by 150 basis points to help drive a 29% two-year gain in segment profit. On the bottom line, both the GAAP and the adjusted earnings beat the consensus estimates. The GAAP $0 64 beat by $0.08 while the adjusted $0.79 beat by $0.22 on leverage enhanced by the company's pricing power. When the average retailer has no need to rely on discounts, discount retailers like the TJX companies are able to charge higher prices as well.
The company didn't give any formal guidance but it did provide some positive commentary on the third quarter. Basically, the third quarter has started off fairly strong with a mid-teens increase in open-only comp-store sales. With back-to-school in full swing, we expect to see The TJX Companies produce a very solid fiscal third quarter.
The TJX Companies Increases Its Capital Return
The TJX Companies increased its share repurchase program by $250 million to a range of $1.25 billion to $1.50 billion. That's worth 1.5% of the market cap at the low end of the range and is compounded by a very safe dividend. The stock is only yielding about 1.1% but it's a safe 1.1% and there is a positive outlook for distribution growth. The company suspended its distribution during the pandemic in order to preserve the balance sheet and we're not upset about that. The company has since reinstated the payout to above the pre covid level and there is a robust history of dividend increases as well. Based on the low 29% payout ratio, strong balance sheet, the outlook for earnings we think the next dividend will be double digits.
The Technical Outlook: The TJX Companies Find Support
Price action in The TJX Companies slipped in early trading but have since regained their footing. The stock appears to be confirming support at the $68 level and the short-term moving average which is bullish for the near term. If price action can maintain the upward bias we see this market retesting the $72 level very soon and possibly moving up to retest the all-time high at $74 by the end of the summer. Assuming the third quarter unfolds as we expect for this retailer, this stock should set a new all-time high before the end of the year.
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