Can TJX Once Again Impress with Its Q3 Earnings?

TJX Companies (TJX) is scheduled to announce its fiscal 2020 third-quarter earnings results on November 19. Its third quarter ended on November 2. It’s seen higher consumer traffic for 20 consecutive quarters. Off-price retailers attract customers through deep discounts and generally perform well, even amid an uncertain macro environment.

Today, Guggenheim raised its price targets on the stocks of TJX Companies and Ross Stores (ROST). As per The Fly, Guggenheim revised its price target for TJX to $66 from $60. It increased its price estimate for Ross Stores stock to $125 from $120. Guggenheim is positive about the growth prospects of off-price retailers in the current environment.

Recap of TJX Companies’ second-quarter results

TJX Companies was in line with earnings expectations in the second quarter but lagged analysts’ sales forecast. The company’s second-quarter sales rose 4.8% to $9.78 billion. Analysts had been expecting sales of $9.90 billion. The company’s US business generated softer sales growth in the second quarter of fiscal 2020 compared to the previous year.

Unfavorable weather and currency headwinds were a drag on TJX’s second-quarter top line growth. It’s also now facing increased competition, as department stores such as Macy’s are expanding in the off-price space.

TJX Companies’ overall same-store sales growth was 2% in the second quarter of fiscal 2020 compared to 6% in the second quarter of fiscal 2019. In the US, Marmaxx delivered same-store sales growth of 2%, while HomeGoods’ same-store sales were flat. The same-store sales of the TJX Canada and TJX International (Europe and Australia) segments grew 1% and 6%, respectively.

The company’s second-quarter adjusted EPS of $0.62 were in line with analysts’ estimate. Its second-quarter EPS rose 6.9% year-over-year. Apart from higher sales, a lower share count due to share repurchases also boosted its bottom line.

Third-quarter expectations

Keeping in mind tough comparisons with an impressive third quarter in fiscal 2019, TJX expects same-store sales growth of 1%–2% in the third quarter of fiscal 2020. It expects net sales $10.2 billion–$10.3 billion and EPS of $0.63–$0.65. The company reported EPS of $0.61 in the third quarter last year, while its adjusted EPS were $0.63.

Meanwhile, analysts expect TJX Companies’ sales to rise 4.9% to $10.3 billion in the third quarter of fiscal 2020. Analysts expect a 4.7% rise in its adjusted EPS to $0.66.

Full-year outlook

TJX Companies’ 12-month forward PE ratio was 21.5x on November 13, while Ross Stores had a PE of 23.5x. For fiscal 2020, TJX expects EPS growth of 5%–7%. It expects a 4%–7% rise in its fiscal 2020 adjusted EPS compared to $2.45 in fiscal 2019. This guidance is based on a same-store sales growth outlook of 2%–3%.

Analysts expect TJX Companies’ sales to rise 5.6% to $41.1 billion and its adjusted EPS to rise 7.4% to $2.61. With a vast universe of over 21,000 vendors, TJX Companies has huge flexibility to take advantage of buying opportunities in the market. While other retailers are closing their physical stores, TJX is continuing to expand its store network. The company opened 31 stores in the second quarter and ended up with 4,412 stores in the US, Canada, Europe, and Australia.

TJX Companies stock has risen 30.6% so far this year. As of November 13, Ross Stores stock was up 33.9% year-to-date. These off-price retailers have outperformed a 23.4% rise in the S&P 500. With a price target of $61.12, analysts see a 5% upside in TJX Companies over the next 12 months. However, this price target estimate will likely be revised once the company declares its third-quarter results. Investors will be keeping an eye on the company’s guidance for the fourth quarter of fiscal 2020, which includes the holiday shopping season.

Walmart (WMT) also announced its fiscal 2020 third-quarter earnings results today. The company’s third-quarter revenue lagged expectations, but its EPS came in ahead of estimates. Walmart raised its full-year EPS guidance based on its strong results in the first nine months of fiscal 2020. For more on Walmart’s performance, read Why Walmart Stock Could Rise on Q3 Earnings Beat.