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Did the Brexit Vote Impact TJX’s International Sales in Fiscal 2Q17?

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International business

TJX Companies’s (TJX) international business includes its TJX Canada segment and the TJX International segment, which comprises Europe and Australia stores. The TJX Canada segment includes stores under the Winners, HomeSense, and Marshalls brands. The TJX International segment operates T.K. Maxx, HomeSense stores, as well as tkmaxx.com in Europe and Trade Secret in Australia.

TJX Companies’s off-price peers Ross Stores (ROST) and Burlington Stores (BURL) currently lack an international presence. Upscale department store Nordstrom (JWN) plans to open its first off-price Rack store in Canada in 2018.

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TJX Canada’s 2Q17 results

TJX Canada delivered an 8.2% growth in its overall sales and a 9% same-store sales growth in fiscal 2Q17. However, the segment’s profit margin, excluding currency headwinds, declined by 150 basis points.

The segment’s margins were negatively impacted by higher supply chain costs associated with a new distribution center and the fall in the Canadian dollar on a year-over-year basis.

Did the Brexit vote impact TJX International in 2Q17?

The fiscal 2Q17 sales of the TJX International segment increased by 7.9% to $1 billion. The same-store sales of the segment grew by 2%. TJX Companies experienced lower sales in the UK due to the impact of Britain’s decision to leave the European Union.

In the fiscal 2Q17 conference call, TJX Companies’s CFO, Scott Goldenberg, disclosed that the UK sales trends were strong up to the Brexit vote. The company experienced strong sales in the other European regions. Goldenberg also disclosed that the same-store sales in the UK have been positive in the beginning of fiscal 3Q17.

TJX International’s adjusted segment profit margin, excluding foreign currency, was down 260 basis points. The integration of Trade Secret in Australia, growth investments, and higher wages adversely impacted the segment’s margins.

The iShares Russell 1000 ETF (IWB) has 0.2% exposure to TJX Companies.

Outlook

TJX Companies anticipates its TJX Canada segment to deliver same-store sales growth of 7%–8% in fiscal 2017 and sales of $3.1 billion–$3.2 billion. The segment delivered sales of $2.9 billion in fiscal 2016. The adjusted segment profit margin, excluding foreign currency, is expected to stand in the 13.5%–13.6% range.

The same-store sales of TJX International segment are expected to rise by 2%–3% on sales of $4.4 billion–$4.5 billion. The segment delivered sales of $4.2 billion in fiscal 2016. The segment’s adjusted profit margin, excluding foreign currency, is expected in the 5.5%–5.6% range.

We’ll discuss the company’s valuation in the next part of this series.

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