The Tjx Companies Inc

Transcription

1 February 26, 2015 The Tjx Companies Inc Current Recommendation Prior Recommendation Underperform Date of Last Change 04/29/2010 Current Price (02/25/15) $69.38 Target Price $73.00 NEUTRAL SUMMARY (TJX-NYSE) TJX Companies fourth-quarter fiscal 2015 earnings of $0.90 per share, up 15% year over year, beat the Zacks Consensus Estimate by 3.33%. Sales increased 6% year over year to $8.3 billion backed by higher comps but came in line with the Zacks Consensus Estimate. We are encouraged by the company s strong fundamentals and strategic initiatives to improve its retail business in North America, Europe and Canada. Moreover, we commend the company s focus on e- Commerce and aggressive marketing strategies. The company s low-priced products work well in the challenging macroeconomic environment. However, rising input costs and lack of international presence prompt us to remain on the sidelines. SUMMARY DATA 52-Week High $ Week Low $52.23 One-Year Return (%) Beta 0.67 Average Daily Volume (sh) 3,190,390 Shares Outstanding (mil) 689 Market Capitalization ($mil) $47,796 Short Interest Ratio (days) 1.76 Institutional Ownership (%) 90 Insider Ownership (%) 1 Annual Cash Dividend $0.70 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) 7.7 Earnings Per Share (%) 17.7 Dividend (%) 24.4 using TTM EPS 21.9 using 2016 Estimate 21.2 using 2017 Estimate 17.6 Zacks Rank *: Short Term 1 3 months outlook 3 - Hold * Definition / Disclosure on last page Risk Level * Low, Type of Stock Large-Growth Industry Retail-Discount Zacks Industry Rank * 85 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Apr) (Jul) (Oct) (Jan) (Jan) ,190 A 6,442 A 6,982 A 7,809 A 27,423 A ,491 A 6,917 A 7,366 A 8,304 A 20,777 A ,849 E 7,354 E 7,859 E 8,879 E 30,883 E ,855 E Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Apr) (Jul) (Oct) (Jan) (Jan) 2014 $0.62 A $0.66 A $0.75 A $0.81 A $2.83 A 2015 $0.64 A $0.75 A $0.85 A $0.93 A $3.16 A 2016 $0.65 E $0.83 E $0.94 E $1.02 E $3.27 E 2017 $3.94 E Projected EPS Growth - Next 5 Years % Zacks Investment Research, All Rights reserved S. Riverside Plaza, Chicago IL 60606

2 RECENT NEWS TJX Beats Q4 Earnings, Revenues In Line; Initiates FY16 View February 25, 2015 The TJX Companies reported earnings of $0.93 per share in the fourth quarter of fiscal 2015, beating the Zacks Consensus Estimate of $0.90 by 3.33%. Earnings rose 15% from the year-ago results backed by higher consumer traffic, improved margins and solid comparable-store sales growth in consecutive months. Quarterly Details Net sales increased 6% year over year to $8.3 billion backed by higher comps but came in line with the Zacks Consensus Estimate. TJX Companies' consolidated comparable-store sales increased 4%, better than the 3% rise in the yearago quarter. The improvement was backed by 3%, 11%, 7% and 2% year-over-year increase in samestore sales at Marmaxx, Home Goods, TJX Canada and TJX Europe, respectively. TJX Companies' pre-tax profit margin inflated 0.4 percentage points (pp) from the prior-year quarter to 12.4% of sales. Gross margin also inflated 0.6 pp year over year to 28.2% mainly driven by higher merchandise margins as well as comps. Selling, general and administrative costs, as a percentage of sales, went up 0.1 pp to 15.7% due to increased promotions. Fiscal 2015 Results Earnings of $3.16 per share in fiscal 2015 beat the Zacks Consensus Estimate of $3.13 per share by 9.5%. Earnings also improved 12% from the year-ago results backed by higher consumer traffic, better margins and solid comparable-store sales growth in consecutive months. Net sales increased 6% year over year to $29.1 billion backed by higher comps. Net sales were in line with the Zacks Consensus Estimate. Share Repurchase and Dividend During the fourth quarter of 2015, the leading off price retailer spent a total of $407 million to repurchase 6.2 million common shares. The company also announced its plan to repurchase approximately $1.8 to $1.9 billion of common stocks during fiscal It also announced plans to hike dividend by 20% to be declared in Mar 2015 and payable in June. Outlook TJX Companies issued fiscal 2016 guidance. It expects earnings in the range of $3.17 to $3.25 versus $3.15 in the previous year. Comparable-store sales are expected to grow in the range of 1 2%. For the first quarter of fiscal 2016, the company expects comparable-store sales growth of 2 3%. The company issued earnings per share outlook in the range of $0.64 to $0.66, up 0% to 3% from the yearago results. Equity Research TJX Page 2

3 VALUATION TJX current trailing 12-month earnings multiple is 21.9x, which is a 31.9% discount to the industry average of 32.2x. Over the last five years, TJX s shares have traded in the range of 12.1x to 22.5x trailing 12-month earnings. Based on 2015 earnings estimate of $3.27, the stock is trading at 21.2x, which is at 17.5% discount to the industry average of 25.7x. Currently, the P/B multiple of the stock was approximately 10.4x, compared to the industry average of 6.0x. Overall, the stock valuation is fair given a trailing 12-month ROE of 50.4%, which is ahead of the industry average of 8.3%. Our target price of $73.00 is based on approximately 22.3x our 2015 earnings estimate. On a P/B basis, the price target is based on a P/B multiple of approximately 11.3x. Key Indicators F1 F2 Est. 5-Yr EPS Gr% P/CF 5-Yr High 5-Yr Low TJX COS INC NEW (TJX) Industry Average S&P WAL-MART MX-ADR (WMMVY) SEARS HLDG CP (SHLD) DOLLAR GENERAL (DG) ROSS STORES (ROST) TTM is trailing 12 months; F1 is 2016 and F2 is 2017, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA TJX COS INC NEW (TJX) Industry Average S&P Equity Research TJX Page 3

4 Earnings Surprise and Estimate Revision History NOTE THIS IS A NEWS-ONLY UPDATE; THE REST OF THIS REPORT HAS NOT BEEN UPDATED YET. Equity Research TJX Page 4

5 OVERVIEW Based in Framingham, MA, The TJX Companies, Inc. is a leading off-price retailer of apparel and home fashions in the U.S. and worldwide. The TJX Companies operates through four business segments: In the U.S., it operates through two segments, namely, Marmaxx (through stores under the names of T.J. Maxx and Marshalls) and HomeGoods. Marmaxx divisions sell family apparel (including footwear and accessories), home fashions (including home basics, accent furniture, lamps, rugs, wall décor, decorative accessories and giftware) and other merchandise. HomeGoods chain offers home basics, giftware, accent furniture, lamps, rugs, wall décor and decorative accessories from around the world, seasonal and other merchandise. In Canada, it operates through TJX Canada (through stores under the names of Winners, Marshalls and HomeSense) and in Europe, it operates through TJX Europe (through stores under the names of T.K. Maxx and HomeSense). REASONS TO BUY Strong Business Momentum and Aggressive Growth Outlook: TJX has witnessed strong momentum in its business backed by rising store traffic that boosted comps by 5% over the past five years. Earnings per share increased 24% from fiscal 2009 to fiscal TJX has an optimistic outlook for the near term. It has undertaken a three-year model program outlining its growth plan. By 2017, the company plans to deliver earnings per share growth of 10% to 13% annually. Product and Geographic Diversity: TJX offers a wide array of products ranging from family apparels to home décor, gift items and furniture. This acts as a buffer to the company s sales and margins if one category fails, the other category can make up. Similarly, the company is stretched over a vast geographical expanse in North America, Canada and Europe which helps it to maintain sales and margins. For example, the unusually cold weather condition during Jan and Feb 2014 affected sales for several retailers. However, the diversity of TJX s product mix helped the company as improved sales in HomeGoods offset the soft apparel sales TJX has recently expanded its sourcing machinery. The company now sources from approximately 16,000 vendors in over 75 countries compared to only domestic sourcing previously. TJX keeps adding new vendors all over the world which helps it to present newest fashion. Aggressive Store Expansion: We are encouraged by TJX s aggressive store opening strategy. The company is regularly opening stores and expanding fast across the U.S., Europe and Canada. Total number of stores grew from 2,905 in fiscal 2012 to 3,400 in fiscal During the second-quarter conference call, management raised its Marmaxx store target by 400 stores to 3,000, representing 50% growth from the current store base, while the Home Goods target was raised to 825 (from earlier), suggesting the brand could nearly double its square footage over time. Equity Research TJX Page 5

6 In Europe, TJX plans to open 875 stores by 2016 more than double its current store count of 400. TJX Europe plans to step into another European country, Austria, by first half of In Canada, the company plans to open 450 stores over the long term, representing 30% growth from the current store count. In North America, TJX operates over 2,900 stores and has the potential to add more than 1,300 stores. Foray into e-commerce and Solid Marketing Initiative to Boost Sales: An increasing number of retailers are focusing on online businesses to reach a greater number of customers. TJX also has a strong potential in its e-commerce business. The company has undertaken several initiatives to boost online sales by recruiting an experienced Internet management team. In Dec 2012, it acquired the e-commerce business of Sierra Trading Post to boost its online presence. TJX launched its official website tjmaxx.com in Sep 2013, which gained instant popularity. The website, which is accessible from tablets and smartphones, appeals to the young generation the company s main target consumers. TJX plans to add more categories to the online shopping site and invest categorically in it to differentiate it from its brick-and-mortar stores. Moreover, in fiscal 2015, management took up aggressive marketing and advertising campaigns through multiple mediums (TV, radio and social media) versus the last year. Additionally, during the third quarter, it undertook gift giving initiatives, unique among off price retailers. This has helped the company boost sales during the holiday season. TJX s loyalty card program, which offers consumers a non-credit card choice and soft benefits, such as early shopping hours, boosted traffic by increasing customer engagement. Better-than-Peer Performance in Europe and North America: The company has reported positive sales and earnings growth in both Europe and North America for several consecutive quarters despite severe economic challenges in these regions. The huge popularity of the HomeGoods brand in these regions fuelled growth. Being the only off-price retailer in the European region, TJX does not face any competition. While many retailers are shutting down their businesses in Europe, TJX Europe is geared to expand into untapped markets. Moreover, TJX Europe plans to open 40 stores in % more than that in fiscal REASONS TO SELL Pressure on Margins: TJX provides goods at discounted prices. Despite rising product costs, TJX, being an off-price retailer, cannot increase the price of its products, thereby putting margins under pressure. Lack of Exposure in Emerging Markets: TJX does not have any presence in the developing markets which deprives it of the benefits of high growth opportunities of the developing nations like China, Brazil, India, Mexico, Russia and Southeast Asia. Since the developed markets of Europe, America and Canada are already saturated, most of the U.S. companies are looking toward the emerging ones, which offer great growth opportunity owing to the growing population and affluent middle class. TJX, however, does not have any plans to open stores in any of these markets. Equity Research TJX Page 6

7 DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of TJX. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1126 companies covered: Outperform %, Neutral %, Underperform 8.2%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Equity Research TJX Page 7