Strong track record

TJX Companies (TJX) exceeded its earnings estimates for the seventh consecutive quarter in fiscal 2Q17. The company delivered adjusted EPS (earnings per share) of $0.84 in fiscal 2Q17, which ended on July 30, 2016. The consensus analysts’ estimate for fiscal 2Q17 EPS was $0.81.

Can TJX Companies Sustain Its Earnings Growth after Fiscal 2Q17?

What drove 2Q17 earnings?

TJX Companies’s fiscal 2Q17 adjusted EPS increased by 5.4% on a year-over-year basis. This compares to a growth rate of 10.1% in 1Q17 and 6.7% in 2Q16. TJX Companies’s earnings growth in 2Q17 was driven by higher sales, partially offset by wage increases and growth investments.

TJX Companies’s EPS growth in 2Q17 was adversely impacted by ~3% due to wage increases. Currency headwinds had a neutral impact on its fiscal 2Q17 EPS growth compared to the company’s expectation of a 2% negative impact. TJX Companies constitutes 1.4% of the iShares Global Consumer Discretionary ETF (RXI).

Rival Ross Stores (ROST) delivered adjusted EPS growth of 12.7% in the comparable second quarter. This strong growth was driven by higher sales and an enhanced operating margin. Nordstrom’s (JWN) adjusted EPS fell by 28% to $0.67 in 2Q16.

Burlington Stores (BURL) is expected to report its second quarter results on August 25. Analysts expect Burlington Stores’s adjusted EPS to rise by ~56% to $0.30.

Earnings outlook

Following the strong results in fiscal 2Q17, TJX Companies raised its earnings outlook for fiscal 2017. TJX expects its fiscal 2017 EPS to be in the $3.39–$3.43 range. This reflects a 2%–3% growth compared to EPS of $3.33 in fiscal 2016. The company’s previous EPS guidance was in the $3.35–$3.42 range. The company expects wage increases and currency headwinds to have a negative impact of 3% each on fiscal 2017 EPS growth.

The above guidance excludes the potential adverse impact of about $0.03–$0.05 on fiscal 2017 EPS due to its pension payout. This payout will result from the company’s offer to its eligible former associates of an opportunity to receive a voluntary lump-sum payout of their vested pension benefit.

The next part of this series will discuss the company’s sales.

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