TJX Companies’ Outlook: Wage and Currency Headwinds Ahead?



TJX Companies’ sales guidance

TJX Companies (TJX) issued a cautious outlook for fiscal 2017, which ends January 28, 2017. TJX Companies expects its overall same-store sales to rise by 1%–2%. The company assumes overall fiscal 2017 sales in the $32.2–$32.5 billion range, reflecting a 4%–5% increase over the previous year. This outlook assumes a negative impact of 1% on revenue due to currency headwinds and wages.

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Earnings outlook

TJX Companies expects its diluted EPS (earnings per share) to come in the $3.29–$3.38 range. This reflects a between 1% decline and 2% increase compared to fiscal 2016 EPS of $3.33. Currency headwinds are expected to impact fiscal 2017 EPS growth by ~4%.

TJX Companies’ outlook assumes higher wages to impact fiscal 2017 EPS growth by 4%. Notably, the SPDR S&P Retail ETF (XRT) has 1.3% exposure to TJX Companies.

Segmental outlook

The company expects same-store sales growth of 1% to 2% for its Marmaxx segment. The company is anticipating this segment’s profit margin to be in the 13.6%–13.8% range. The HomeGoods segment’s same-store sales are expected to rise by 3%–4% and for the segment’s profit margin to be in the 12.9%–13.1% range in fiscal 2017.

The company expects TJX Canada same-store sales to rise by 3%–4% in fiscal 2017. The adjusted segment profit margin, excluding foreign currency, is expected to be in the 12.1%–12.3% range. The same-store sales of TJX International are expected to rise by 2%–3% in fiscal 2017 and adjusted pre-tax margin, excluding foreign currency, to be in the 5.6%–5.8% range.

TJX Companies’ valuation

As of February 24, TJX Companies was trading at a forward PE (price-to-earnings) ratio of 21.3x. The company’s valuation multiple increased by 5.4% on February 24 over the previous day, following its strong 4Q16 results. By comparison, Ross Stores (ROST), Burlington Stores (BURL), and Nordstrom (JWN) were trading at forward PE’s of 20.4x, 20.5x, and 15.9x, respectively, as of February 24.

Notably, TJX Companies is trading at a higher valuation multiple than the S&P 500 Consumer Discretionary Index, whose forward PE is 17.1x, and the S&P 500 Index, whose forward PE is 16.0x. TJX’s higher valuation is justified by its consistent performance and the strength of its off-price business model.

For more updates, visit Market Realist’s Consumer Discretionary page.


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