Forward valuation

TJX Companies’ (TJX) 12-month forward PE multiple of 19.5x was lower than Ross Stores’ (ROST) forward PE of 21.3x on June 11. Both off-price retailers were trading at higher multiples than the S&P 500’s forward PE of 17.9x.

Last month, TJX Companies reported its results for the first quarter of fiscal 2020, which ended on May 4. TJX Companies’ adjusted EPS rose 1.8% to $0.57 in the first quarter driven by higher sales, lower interest expenses, and a lower share count as a result of share buybacks. TJX Companies raised its EPS outlook for fiscal 2020 (which ends on February 1, 2020) to the range of $2.56–$2.61 compared to its previous guidance of $2.55–$2.60. The company’s fiscal 2019 EPS were $2.43 on a reported basis and $2.45 excluding the impact of a $0.02 pension settlement charge.

Comparing TJX Companies’ and Ross Stores’ Valuations

Ross Stores’ EPS increased 3.6% to $1.15 in the first quarter of fiscal 2019, which ended on May 4. Ross Stores’ first-quarter EPS included a $0.02 benefit resulting from the favorable timing of expenses. This benefit is likely to reverse in the remainder of fiscal 2019. Ross Stores raised its EPS guidance for fiscal 2019 (which ends on February 1, 2020) following its first-quarter results. Ross Stores raised its fiscal 2019 EPS guidance to the range of $4.38–$4.52 from its previous guidance range of $4.30–$4.50. Ross Stores’ EPS were $4.26 on a reported basis in fiscal 2018.

Analysts’ expectations 

Analysts expect TJX Companies’ sales to rise 6.1% to $41.3 billion and its adjusted EPS to rise 7.8% to $2.62 in fiscal 2020. Analysts expect Ross Stores’ sales to increase 6.1% to $15.9 billion in fiscal 2019. Analysts expect Ross Stores’ fiscal 2019 adjusted EPS to rise 7.9% to $4.52.

Higher store wages and freight costs are expected to put pressure on the profitabilities of both TJX Companies and Ross Stores.

Amazon and other online retailers have intensified the competition in the retail market, leading to the bankruptcies of many brick-and-mortar players. But low-cost models, efficient inventory management, and the ability to take advantage of buying opportunities have helped TJX Companies and Ross Stores thrive in the challenging retail market.

Both these off-price retailers are experiencing higher customer traffic as they continue to offer bargains on attractive merchandise.

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