TJX is a Quality Company, But Quality Has its Price

Stock (Symbol)

TJX Companies (TJX)

Stock Price


Retail & Travel
Data is as of
October 10, 2016
Expected to Report
Nov 15
Company Description
TJ_Maxx_LogoThe TJX Companies, Inc. (TJX) is an off-price apparel and home fashions. The Company operates through four segments: Marmaxx, HomeGoods, TJX Canada and TJX Europe. The Marmaxx and HomeGoods business offers family apparel, home fashions, accent furniture, lamps, rugs, wall decor, decorative accessories and giftware and other merchandise. The TJX Canada offers jewelry and home fashions. TJX Europe operates the T.K. Maxx and HomeSense chains in Europe. The Company operates approximately 3,461 stores in countries, including the United States, Canada, the United Kingdom, Ireland, Germany, Poland, Austria and Australia. Source: Thomson Financial
Sharek’s Take
David SharekTJX Companies (TJX) grew sales 7% last qtr but profits increased just 5% as higher wages are crimping earnings by 3% this year. TJX is a powerhouse, with 1000 buyers in 10 countries around the world buying from 17,000 vendors in over 100 countries. The company traces its roots back to 1956 when the Zayre discount department store was founded. It opened its first T.J. Maxx in 1976, and eventually sold the Zayre brand to Ames in 1988.  Then the company was renamed to The TJX Companies, Inc and focused on T.J. Maxx. It sees growth opportunity from the current 3500 stores to 5500 stores, and its U.S. brands now include:

  • T.J. Maxx
  • HomeGoods, a chain of home furnishing stores it launched in 1992
  • Marshalls, which doubled TJX’s size when it was acquired in 1995
  • Sierra Trading Post, a off-price outdoor recreation store it launched in 1998.

TJX is the only major international off-price retailer in the world, operating:

  • Since 1976 in the U.S.
  • In Canada since 1990, where its Winners division is the leading off-price family apparel and home fashions retailer.
  • Since 1994 in the UK and Ireland, where its stores are named as T.K. Maxx.
  • Germany in 2007, Poland in 2009 and are launching stores in Austria and the Netherlands.

TJX makes more than $3 billion a year in cash and spends more than half on stock buybacks — and that’s what gets me about the lackluster profit growth. Profits should be growing in the double-digits right now. . Store growth of 5% in addition to mid-single digit same store sales and a solid stock buyback program make it so TJX could grow profits around 10% a year long-term. Tack on the dividend and that’s an estimated 11% total annual return. TJX has increased its dividend every year since 1996 at an average rate of more than 20% a year. The company has my top safety rating and an A+ credit rating from Standard & Poor’s. Profits are expected to grow just 1% and 3% the next couple of qtrs, then 8% growth is expected the following 2 qtrs. The P/E of 21 is high by historical standards, and with slow expected the next couple of qtrs I feel the stock could continue to trend down. I am waiting for a better buying opportunity to get TJX. 

One Year Chart
tjx_2016_q32QtrsAgo TJX had 10% profit growth on 10% sales growth and an impressive 7% gain in same store sales. Then LastQtr the company delivered 5% profit growth on 7% sales growth with 4% SSS. Profit Estimates for the next 4 qtrs are 1%, 3%, 8%, and 8%. TJX has beaten the street the last 4 qtrs by between 1 and 5 cents, so I’m guessing these numbers will get beat too. Last qtr the company was expected to have 1% profit growth and came through with 5% so maybe that happens this qtr. Still, these figures are smaller than the Est. LTG of 11% and with a P/E of 21 I think TJX needs to do better.
Fair Value
tjx_2016_q3_phWhen the company was growing profits in the double-digits earlier in the decade the stock carried a P/E in the teens. Now all of a sudden everyone has hopped on the bandwagon. With profit growth slow right now I think this stock is worth 18x earnings.
Bottom Line
tjx_2016_q3_10yrTJX stock has been great for investors. The stock hovered around $1 from 1985 through 1995, then went to $11 by the end of 2005 after it acquired Marshalls, and is $74 now. Management buys back stock, pays dividend that’s increased every year since 1996. This is one of the worlds finest companies, but with a high P/E and low profit growth I’m on the sidelines for now. TJX needs to drop into the low $60s to get me interested in buying, but once I do I’ll likely hold for many, many years.
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