Inorganic growth

In the previous part of this series, we discussed The TJX Companies’ (TJX) acquisition of Australia-based off-price retailer Trade Secret. This acquisition marks the company’s presence in its eighth country and third continent. Trade Secret’s off-price business is closely aligned with The TJX Companies’ business model.

The TJX Companies: Benefiting from International Presence?

The TJX Companies’ performance so far

In 1H16 ended August 1, 2015, TJX Canada’s net sales rose by 1.2% to $1.3 billion on a year-over-year basis, despite the significant impact of foreign currency headwinds. Adverse foreign currency movements had a 14-percentage-point impact on 1H16 sales growth. Sales growth in 1H16 was driven by higher customer traffic. Segment profit of TJX Canada rose by 18.6% to $164.9 million due to higher sales and improved segment profit margins.

TJX Europe’s net sales fell by 0.7% to $1.8 billion in 1H16, as the benefit of higher consumer traffic was offset by the 13-percentage-point impact of currency headwinds on sales growth. Segment profit in 1H16 fell by 17.7% to $77.2 million due to growth investment and increased transactional foreign currency losses related to euro-denominated transactions.

The net sales of the company’s US business, which includes the Marmaxx Group and HomeGoods stores, rose by 8% to $11.1 billion, and segment profit rose by 6.6% to $1.6 billion in 1H16. Overall, The TJX Companies’s net sales rose by 6.1% to $14.2 billion in 1H16. Currency headwinds had a 3% impact on the company’s net sales in 1H16. Net Ross Stores’ (ROST), Burlington Stores’ (BURL), and Nordstrom’s (JWN) net sales rose by 9.2%, 7.1%, and 9.4%, respectively, in the first six months of the comparable fiscal year.

The TJX Companies is one of the few retailers that have profitably expanded into international markets. Though currency fluctuations are now adversely impacting the company’s international business, the long-term growth prospects look promising given the strength of The TJX Companies’ off-price business model. The TJX Companies makes up 0.3% of the iShares S&P 500 Growth ETF (IVW) and 2.1% of the Consumer Discretionary Select Sector SPDR ETF (XLY).

New store plans

For the current fiscal year, the company plans to add 20 new stores in Canada and 50 stores in Europe. In the long term, the company sees potential to reach 975 stores in Europe and 500 stores in Canada. As of the end of 2Q16 ended August 1, 2015, The TJX Companies had 456 stores in Europe and 376 stores in Canada.

For more updates, visit our Consumer Discretionary and Retail page.

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