Value-conscious shoppers drive growth at TJX

US-based off-price retailer TJX Companies, which operates TK Maxx in Australia, has reported strong gains on both the top and bottom lines for the quarter ending November 3.

Net sales for the third quarter of fiscal 2019 reached US$9.8 billion ($13.6 billion), a 12 per cent increase, while comparable store sales grew 7 per cent over the same period last year. Net income was US$762 million ($1.1 billion), and diluted earnings per share (EPS) were US$0.61 ($0.86), compared to US$0.50 ($0.69) in the same period last year.

Excluding a US$o.09 ($0.12) benefit due to items related to the 2017 tax cut in the US, and a US$0.02 ($0.03) negative impact from a pension settlement charge, adjusted EPS for the third quarter were US$o.54 ($0.75).

This was below FactSet’s guidance of US$0.61. The retailer also missed analysts’ gross margin estimates of 29.2 per cent, according to Bloomberg, reporting 28.9 per cent gross margin due to higher freight costs. TJX shares fell in the US following the announcement of its results.

Off-price offering hits home

Nevertheless, GlobalData Retail managing director Neil Saunders described the results as “stellar” and said the 0.09 percentage-point drop in gross margin was the only downside.

Saunders attributed TJX’s overall success to its off-price offering. Despite the strong economy and rising disposable incomes, he said consumers still enjoy getting a bargain.

“Even as economic fortunes have improved over the past year, our data shows that the percentage of consumers saying they like to look for bargains to make their money go further has not fallen. However, people have become slightly more aspirational and interested in brands as they look to treat themselves. This dynamic plays squarely into TJX’s hands,” he said.

Saunders added that TJX’s constantly changing assortment helps to drive footfall to stores, since customers have a reason to visit regularly.

“In an environment where core customers have more money to spend, this works particularly well and, as a result, both customer traffic and conversion have risen. This is particularly true at the lower end of the income spectrum, where we believe spending at TJX has risen strongly,” he said.

Nowhere near saturation

As at November 3, TJX had 44 locations in Australia, two more than at the start of the quarter. According to Saunders, the retailer still has room to expand internationally before reaching saturation.

“This should provide a nice upside to TJX’s overall numbers for many years to come,” he said.

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