TJX: A Value Stock for Value Shoppers

07/08/2013 9:45 am EST

Focus: STOCKS

Charles Mizrahi

Editor, Park Avenue Investment Club and Inevitable Wealth Portfolio

This off-price retailer is 'printing money at will,' showing strong growth in revenues, profits, and cash flow, suggests Charles Mizrahi of Hidden Values Alert.

TJX Companies (TJX) is the nation's largest off-price retailer of brand-name apparel and home fashions. It sells its assortment of quality brand name and designer merchandise at generally 20% to 60% lower than regular prices.

We like its strong segment performance. TJX is producing strong results from its Marmaxx segment (Marshalls and TJ Maxx). This segment accounted for more than $4 billion of the company's $6.2 billion in revenue this past quarter.

TJX grew its net sales by 6.7% compared to the same quarter in 2012. The growth in revenue is consistent throughout its different markets (US, Canada, and yes even Europe).

When companies undergo growth in revenue, it usually comes at the expense of its margins. To sustain revenue growth, a company often has to eat into its margins. This tradeoff is inevitable in most businesses, and a company is faced with a tough dilemma.

TJX is one of the exceptions. The company has grown its revenues more than 35% in the past five years, from $19 billion in 2009 to more than $25 billion this past year. At the same time, it has grown its profit margin from 4.6% in 2009 to 7.3% in 2012.

The company is printing money at will, with a free cash flow exceeding $2 billion as of the first quarter in 2013. Its strong cash position allows the company flexibility in its capital allocations.

The firm has been a cannibal in terms of share buybacks, eating up a large portion of its shares. In each of the past four years, the company has allocated around $1 billion to its stock repurchase program. This has reduced shares outstanding by nearly 100 million during the time period.

At the same time, the company has consistently raised its dividend. In the past two years alone, the company has paid out close to $600 million in dividends. Additionally, the company has used these funds to reinvest in its own business (capital expenditure exceeding $9 billion this past year) and acquire other companies to expand its operations.

TJX has undertaken several initiatives to grow its customer base and put its products in the hands of more consumers. TJX predominantly caters to women looking for bargains. However, the company recognizes that men, who are a large segment of its clientele, do not have the patience to sift through racks of clothing scouring for bargains.

Instead of partaking in these treasure hunts, the company has initiated targeted advertising at this edgy group. Also, its e-commerce site will allow men to purchase TJX's products without leaving the comfort of their home.

To supplement the in store experience, the company is bringing its strong apparel presence to many homes. By launching an e-commerce site, it can reach a wider audience and continue to offer quality products at competitive prices. It hopes to regain some of its market share lost to Amazon and other online platforms.

TJX acquired Sierra Trading Post, an online retailer, in late 2012 to accelerate its transition to e-commerce. This addition will allow the company to further develop its online strategy and continue to grow its brand.

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