Earlier this morning, discount apparel and home fashion
retailer TJX Companies (TJX 86.37, +1.67, +1.97%) issued a strong Q1 report, coupled with an
aggressive capital allocation program, which has shares approaching new
all-time highs. In fact, it can be argued that this was TJX's strongest
quarterly report in several years as it easily exceeded top and bottom line
estimates and showed a meaningful improvement in comparable store sales growth.
To top it off, the company noted in its earnings press release that it expects
to repurchase approximately $2.5-$3.0 bln of stock during the fiscal year
ending February 2, 2019, and that it plans to increase its dividend payout.
Taking a closer look at its Q1 results, TJX generated GAAP EPS of $1.13, comfortably surpassing the $1.02 consensus, and also ahead of its own guidance (provided in its Q4 report) of $1.00-$1.02. The $0.11 beat was its widest beat in at least five years. The impressive bottom line performance was driven by a combination of factors, including a pick-up in comparable store sales growth, a modest improvement in gross margin, and better management in SG&A costs.
Specifically, comparable store sales growth came in at +3.0%, beating its own expectation of 1-2% growth for the quarter. The upside performance here was mainly attributable to a sharp improvement in its Marmaxx stores -- its largest segment -- which posted a +4% compared to flat in the year ago period. Comp growth, overall, improved to +3% versus +1% in 1Q18 with strong customer traffic being the main catalyst.
The acceleration in comparable store sales growth helped push total revenue higher by 11% year/year to $8.7 bln, also ahead of the $8.47 bln consensus.
As for margins, gross margin increased slightly to 11.0% from 10.7%. While only a modest improvement, the fact that gross margin moved higher at all is encouraging, considering that many retailers have experienced some pricing pressures related to higher commodity costs. Further, TJX executed well in terms of cost containment as SG&A expense, as a percentage of revenue, decreased by 0.3% percent to 17.8%, primarily due to expense savings and a gain related to a lease buy-out.
One blemish on the report is that TJX issued downside guidance for Q2, seeing EPS of $1.02-$1.04 versus the $1.10 consensus, with a slight down-tick in comparable store sales growth to 1-2%. However, the company did slightly raise its outlook for the full year, forecasting EPS of $4.75-$4.83 versus its prior guidance of $4.73-$4.83, although that is still a penny below consensus at $4.84.
Finally, what also really stands out about its Q1 report is the company's capital allocation plans. Namely, that it intends to buy back as much as $3.0 bln in stock this year, and that it is increasing its quarterly dividend by 25% to $0.39/share. So, in addition to the solid Q1 results, TJX is aggressively returning capital to shareholders, driving its shareholder yield higher. All in all, while guidance came in a bit disappointing, the report overall looks positive in terms of the health of its business and from a shareholder standpoint.
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- LEARNING CENTER