During a Wednesday earnings call, The TJX Companies, Inc. (NYSE:TJX) President/Chief Executive Officer Carol Meyrowitz said she’s repeatedly asked one question that I find myself positing quite a bit where the company is concerned: how can its positive operational momentum continue? When it sports a 21% five-year CAGR in EPS and steady annual gains in both sales (8.48% three-year CAGR) and operating income (16.25% three-year CAGR)—and given pundits’ ongoing worries about consumer discretionary spending in light of the Federal payroll tax increase, delayed income tax refunds, and nasty weather—the question’s popularity comes as little surprise.
Funny thing, though. Even as The TJX Companies, Inc. (NYSE:TJX) missed consensus estimates for fiscal 2014 EPS ($2.66-$2.78/share vs. $2.84) and sales ($26.8-$27.1 billion vs. $27.32)—equating to YOY growth of 7.7%-12.6% in the former metric based on a 52-week comparison and a rise of 3.5%-4.6% in the latter—shares appreciated. Following are a few likely reasons that TJX’s adherents aren’t fleeing despite the company’s slowing growth:
TJX sits in a retail sweet spot along with Ross Stores, Inc. (NASDAQ:ROST) and Stein Mart, Inc. (NASDAQ:SMRT) by offering sought-after clothing and home furnishing brands at discount prices. This operational thrust worked exceedingly well (at least for The TJX Companies, Inc. (NYSE:TJX) and Ross) during the economic volatility of the past five years and should continue in earnest as many consumers remain cash strapped and the housing market continues its recovery, meaning value-based home goods are at a premium. Indeed, I’ve long marveled at Ross Stores’ operational prowess that includes continuous annual growth in key metrics such as sales and gross and operating margins. Through December 31 Ross Stores, Inc. (NASDAQ:ROST) delivered a 10.2% five-year CAGR in sales– sales were $9.72 billion in 2012 and $5.98 billion in 2007–and gross and operating margins have expanded every year over the same period. Stein Mart, Inc. (NASDAQ:SMRT) recently emerged from a lackluster early 2012 by announcing January overall and same-store sales growth of 31.3% and 4.6%, respectively, and comparative 4Q gains of 11.3% and 6%. Plus, the company’s February comps came in at +0.6%, ahead of consensus estimates of flat growth. In all, Stein Mart has now achieved eight consecutive quarters of same-store sales growth. Beware, however, that Stein Mart must regain compliance with NASDAQ listing standards requiring timely filings of periodic reports with the Securities and Exchange Commission. No doubt it’s impossible to like the triumvirate equally–in my eyes Stein Mart, Inc. (NASDAQ:SMRT) isn’t quite in the same league as TJX or Ross Stores, Inc. (NASDAQ:ROST)–but it’s easy to like the consumer value proposition they each offer.
Meyrowitz said during the Wednesday call that the company plans conservatively and aims to beat future estimates. Last year, for example, The TJX Companies, Inc. (NYSE:TJX) forecasted 0-2% growth in same-store sales and came in at +7%. I’m not saying such a positive surprise will repeat itself this year, but I’ve always been a big fan of a company’s goal and ability to under promise and over deliver.
TJX said February same-store sales will likely be flat compared to +8% a year ago, certainly a disappointing admission. Yet the month ended up 1% after the company said sales picked up as March approached. Also important: Meyrowitz allayed, at least for the time being, any concerns over weakness in consumer discretionary spending by asserting that the comparative February underperformance was “absolutely a weather story for us,” adding that comps have been negative in the snow-covered northeast but positive in the sun-soaked southeast. Translation: Mother Nature can be fickle, to be sure, but the company hasn’t witnessed any meaningful hit to consumer health.
