Gross margins fell in the first quarter
TJX Companies’ (TJX) gross margin contracted 40 basis points on a year-over-year basis to ~28.5% in the first quarter of fiscal 2020, which ended on May 4. TJX Companies’ gross margin was adversely affected by higher supply chain costs and a contraction in its merchandise margin mainly due to higher freight costs.
Ross Stores’ gross margin contracted ~90 basis points to 28.8% in the first quarter of fiscal 2019, which ended on May 4. Ross Stores’ gross margin contracted as its higher merchandise margin was more than offset by higher distribution costs, increased freight costs, and a rise in occupancy and buying expenses.
What caused the contraction in operating margins?
TJX Companies’ operating margin contracted 90 basis points to 10.1% in the first quarter of fiscal 2020 due to its lower gross margin and a 50-basis-point increase in its SG&A (selling, general, and administrative) expenses as a percentage of its sales. The increase in its SG&A expense rate was a result of higher store wages, a rise in systems and technology costs, and an unfavorable comparison with the first quarter of fiscal 2019, which included a gain associated with a lease buyout.
Ross Stores’ operating margin contracted 95 basis points to 14.1% in the first quarter due to a lower gross margin and a ten-basis-point increase in SG&A expenses as a percentage of its sales due to higher wages.
Margins might continue to fall
TJX Companies expects a gross margin of ~28.2% in fiscal 2020 (which ends on February 1, 2020) compared to 28.6% in fiscal 2019. The company expects its fiscal 2020 SG&A expense rate to be in the range of 17.8%–17.9% compared to 17.8% in fiscal 2019.
Ross Stores expects its operating margin to continue to contract in the second quarter of fiscal 2019 due to higher wages and freight costs.