TJX Is Down on Guidance, But it Here's Why it Could Shine For the Holidays

Credit: The Street
Published 2 weeks ago - Duration: 01:22s

TJX Is Down on Guidance, But it Here's Why it Could Shine For the Holidays

Don't be fooled by the negative market sentiment on TJX .

At least that's what a few analysts are saying, with one of them saying TJX is actually set up well for the holidays, contrary to what guidance would tell you.

TJX shares fell 2.5% to $59.10 Wednesday after the company posted earnings per share in the third quarter of 68 cents.

That beat analysts estimates of 66 cents.

Revenue was $10.32 billion on same-store-sales of 4%, while analysts were looking for $9.8 billion.

But management guided for fourth-quarter -- or holiday quarter -- same-store-sales growth of 2% to 3%, lower than analysts expectation of 3%.

Earnings per share is expected to be 74 cents and 76 cents, below Wall Street's expected 77 cents.

Positively, the guidance included the negative impact of tariffs.

But the quarter and guidance only creates a "setup [that is] positive into holiday as Marmaxx momentum builds," wrote Wedbush Securities analyst Jen Redding in an note.

Marmaxx refers to both Marshalls and the core TJ Maxx business.

"Solid [foot] traffic fueled momentum in 3Q, and TJX started the holiday strong supporting early data reads for 4Q." And there was one nugget of information management touched on in its earnings call, which Redding is encouraged by.

"Management commentary suggests opportunity for pullback in markdowns," Redding said.

Strong pricing is almost always an indicator of demand and future sales strength in retail.

Those are near-term trends for the holidays.

Longer-term, some analysts are calling for margins to start trending positively, helping lift one analyst's price target.

Gross margin for the strong third quarter was 28.8%, a few basis points over both expectations and guidance.

Analysts have been searching for TJX's "inflection point" for margins.

Citing TJX's increased EBIT [earnings-before-interest-and-tax] margin of 10.8%, Morgan Stanley analyst Kimberly Greenberger wrote in a note, "admittedly, one quarter does not make an inflection.

However, TJX last delivered year-over-year EBIT margin expansion in the first quarter 2018 and implied fourth quarter [this year] EBIT guidance suggests a similar rate of flow-through improvement." Greenberger raised her price target to $62 from $57, saying that TJX's combination of positive sales and margin trends and its current valuation makes it attractive.

TJX trades at just over 20 times forward earnings, roughly in line with peers Ross Stores and Burlington .

TJX is a holding in Jim Cramer's Action Alerts PLUS member club.

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