I had to agree. All the pricey designer clothes we would never pay retail for were there. On a Saturday evening the place was packed, the line was some thirty strong to check out, and they were opening up another register for the crush. And this without any Memorial Day sale.
We had spent hours at the Kohl’s Corporation (NYSE:KSS) but there at TJ Maxx, owned by The TJX Companies, Inc. (NYSE:TJX) , was a Sam Edelman raincoat originally $300 for $50 and a beautiful kate spade New York dress marked down 75%. These were not designer second tier lines like Michael Kors Michael or kate spade Saturday, but their top of the line. Not only were prices great, but the quality was high—only 5% of TJ Maxx inventory is irregular.
If only the stock would go on sale.
Wait for a clearance sale
If you ever considered buying J.C. Penney Company, Inc. (NYSE:JCP) or Kohl’s Corporation (NYSE:KSS)’s stock you need to make a trip to TJ Maxx. The stock is close to 52 week highs, though, and is not the bargain its merchandise is at this level. The company operates close to 2,500 stores in Europe, Canada and the US with five main store brands: TJ Maxx, Marshalls, Home Goods, Winners, and Home Sense.
There are several good reasons to wait for a markdown sale. The yield at 1.10% would be higher and the trailing P/E, extended at 19.94, would be lower. The PEG at 1.61 is higher than its industry average at 1.38 and the S&P 500 at 1.33. But corporate governance risk is an admirably low 2.
The company just reported Q1 results on May 21 and CEO Carol Meyrowitz has every right to crow (like my daughter), “We are very pleased with our first quarter results…Consolidated comparable store sales increased 2% over an 8% reported increase last year and earnings per share grew 13% over last year’s adjusted 41% increase.” She further went on to say, “We are well on the road to being a $40 billion-plus company.”
I love it when a CEO is this gleeful over results, if not downright giddy. It’s exactly what you want to hear. The company retired 6.5 million shares in the first quarter and guided for the rest of the year a 9-13% EPS gain. Gross margin only expanded 0.2 percentage points but that was on top of an already healthy 28.4%. In this same first quarter the company opened another 50 stores, increasing square footage by 5%.
TJ Maxx and Marshall’s buyers are on the road 40 weeks of the year, buying merchandise, 85% of which is in-season. How can they beat department stores on price? It’s simple. Department stores return unsold merchandise to vendors but The TJX Companies, Inc. (NYSE:TJX) buys on a final sale, no returns basis. Also, their buyers can access 12,000 sellers in over 60 countries. They also have the advantage of “opportunistic” buying.
Fashionistas and savvy investors know you always wait for the perfect price point. Sometimes it gets away from you; you shrug wistfully, and move on. At all-time highs and with a huge pay raise for Meyrowitz of $19 million and a UBS price target boost to $57.00 it’s time to wait for a pullback. Analysts give the name a five year EPS growth rate of 11% (YOY).
Ross Stores, Inc. (NASDAQ:ROST) is its closest competitor on an apples to apples comparison as another off-price specialty retailer and home fashions store. Ross Stores has far fewer stores, only 1,200, and it doesn’t have the same deeply discounted high end merchandise available. Although it has a lower trailing P/E of 18.65 and a lower PEG of 1.39 it’s not the powerhouse that TJ Maxx and Marshall’s is for those shoppers who want a truly exciting bargain.
The TJX Companies, Inc. (NYSE:TJX) also has the largest market cap of Ross Stores and Kohl’s Corporation (NYSE:KSS)’s with $36.81 billion to Ross’ $14.49 billion and $11.52 billion. Ross Stores, Inc. (NASDAQ:ROST) has a yield of 1.00% so the difference between them and TJX on P/E and yield is negligible. The payout ratios are in the mid-teens.
Ross Stores also reported Q1 results this month and beat analyst expectations with sales of $2.54 billion for an 8% increase from the year ago quarter’s $2.36 billion. On EPS it met analyst expectations of $1.07 a share, better than the $0.93 EPS of Q1 2012. Although it guided higher for the rest of the year, $3.80 a share, analysts expect $3.88.
Both Ross Stores, Inc. (NASDAQ:ROST) and The TJX Companies, Inc. (NYSE:TJX) have underperformed the S&P 500 this last year, up 4.57% and 22.24% respectively. Ross Stores have a minimally higher five year EPS growth rate of 12.10%. These two specialty retailers are so close on so many metrics despite the huge difference in breadth of the chains that it’s difficult to choose.
That said, in surfing for opinions on the Ross Store experience versus TJ Maxx (and Marshall’s) sentiment was decidedly more favorable toward TJ Maxx and several commentators likened Ross Stores, Inc. (NASDAQ:ROST) to a dollar store for clothes with lower quality items.
TJX Total Return Price data by YCharts
Kohl’s chart says it all
On the face of it department store Kohl’s Corporation (NYSE:KSS)’s, considered a competitor to both, would seem to be the better value with a12.25 trailing P/E and a 2.70% yield. It’s not quite as large as The TJX Companies, Inc. (NYSE:TJX) but it has 1,146 stores in 49 states. What business they have pulled from J.C. Penney Company, Inc. (NYSE:JCP) isn’t enough to turn them into a Macy’s, Inc. (NYSE:M). The chart above is perfect proof of what an underperformer the stock is.
However, Kohl’s Corporation (NYSE:KSS)’s is more like J.C. Penney Company, Inc. (NYSE:JCP) as a shopping experience and the chance of getting a high quality designer item at a reasonable price is unlikely. On the same Saturday, Kohl’s wasn’t nearly as busy as TJ Maxx despite stackable coupons and Memorial Day promotions.
Wait and pounce
As an investor you should consider some opportunistic buying of TJX. You won’t ever get that 90% off bargain that you brag about to all your friends but getting a pullback on a general market downturn is entirely possible.
As for Ross Stores, Inc. (NASDAQ:ROST) and Kohl’s Corporation (NYSE:KSS)’s the quality of the shopping experience and their stock doesn’t merit a wait and pounce policy. On Wall Street as on Main Street, never pay retail.
The article Buy This Retailer Anytime It Goes on Sale originally appeared on Fool.com.
AnnaLisa is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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