Shop for Value at TJX Companies

09/30/2019 5:00 am EST

Focus: CONSUMER

Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

TJX Companies (TJX) is a well-managed high-quality business with strong brand loyalty, outstanding cash flows, steadily growing dividends and substantial share repurchases, notes money manager Ingrid Hendershot, editor of Hendershot Investments.

TJX traces its roots back to 1976 when Ben Cammarata, general merchandising manager of Marshalls, was recruited to develop and lead the launch of a new off-price chain selling family apparel and home fashions. Under Ben’s leadership, T.J. Maxx was born, with its first two stores opening in Massachusetts during 1977. TJX has continued to grow steadily over the years, opening stores in new markets, countries and continents. TJX is also launching new chains and acquiring other retailers to bring its popular off-price model to an even wider network of customers. In 1990, TJX acquired a five-store chain called Winners, which has grown into a winner by becoming Canada’s leading off-price retailer. In 1992, HomeGoods was introduced to expand TJX’s presence in the booming home fashions market.

T.K. Maxx was launched in 1994 and introduced the off-price concept to the United Kingdom. In 1995, TJX acquired Marshalls, which doubled the company’s size. The newest divisions include HomeSense and Sierra Trading Post, an online retailer rebranded as Sierra. TJX launched its e-commerce site in 2013 and opened its 4,000th store in 2017. TJX delivers a rapidly changing assortment of quality, brand name merchandise at prices 20%-60% less than department and specialty store regular prices. TJX can offer these savings because of its opportunistic buying strategies. As the largest off-price retailer, TJX has tremendous buying power and solid relationships with more than 21,000 merchandise vendors in 100 countries. This retail recipe engenders strong brand loyalty from consumers of all ages.

Over the past five years, TJX has grown sales at a spiffy 8% annual rate. During the same period, earnings and EPS compounded at 8% and 12% annual rates, respectively. TJX’s return on equity averaged a highly fashionable and profitable 53% during the past five years. In fiscal 2019, TJX rang up $39 billion in sales, more than double its sales a decade ago and up 9% over last year on a 6% comparable store sales increase. Same store sales have increased each year for 23 consecutive years. The company has reported only one year with a decline in same store sales over its 40-plus year history, a truly remarkable retail achievement.

During fiscal 2019, TJX grew total square footage by 4%, adding a net total of 236 stores, and ending the fiscal year with 4,306 stores. This is a terrific feat particularly during another year with thousands of retail store closings. Return on equity in fiscal 2019 was a fancy 61%. Second fiscal quarter revenues rose 5% to $9.8 billion driven by 2% same sales growth with comp sales growth in all four major divisions due primarily to customer traffic increases. Net earnings increased 3% to $759 million, impacted by higher wage and freight costs, with EPS up 7% to $.62 on lower shares outstanding. With the third quarter off to a solid start, management reaffirmed its full year EPS outlook to a range of $2.56 to $2.61, representing 5% to 7% growth, with same store sales growth of 2% to 3% anticipated.

During the first half, the company paid $517 million in dividends and repurchased 12.3 million shares of its common stock for $650 million at an average price of $52.85 per share. As part of its disciplined capital allocation policy, TJX increased its fiscal 2020 dividend by 18% to $.92 per share marking the 23rd consecutive year of dividend increases. During this period, the dividend has grown at a 22% compound annual rate. TJX expects to repurchase $1.75 billion of stock for the full fiscal 2020 year. TJX ended the first half with $2.2 billion in cash and investments, reflecting the company’s strong cash flow generation and financial flexibility. Long-term investors shopping for a bargain should consider The TJX Companies Buy.

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