TJX Earnings: The First Sign That Retail Doom May Be Hitting Off-Price

Shares for The TJX Companies Inc. are in the red in early-morning trading — down nearly 5 percent as of 10:45 a.m. ET — after the company’s first-quarter earnings report showed signs that sales in the off-price channel could be weakening.

TJX — owner of popular discount chains TJ Maxx and Marshalls — said today that its comp store sales — the likely disappointment for investors selling off the stock — improved just 1 percent during the period, missing analysts’ bets for a comp improvement of 1.5 percent. Overall, Q1 sales gained 3 percent year-over-year, to $7.8 billion, but also missed Wall Street’s estimates for sales of $7.9 billion.

Meanwhile, net income gained 5.5 percent year-over-year, to $536.3 million, or 82 cents per diluted share, during the period. Thanks to an accounting change and a benefit from foreign currency, those results topped Wall Street’s estimate for diluted earnings per share of 79 cents.

Despite missing sales forecasts, TJX president and CEO Ernie Herrman praised the company’s store traffic trends and its off-price retail model.

“We achieved [our first-quarter] results despite the unfavorable weather in parts of the U.S. and Canada compared to last year,” Herrman noted in a statement. “With our disciplined inventory management, our merchandise margin was up, which speaks to the resiliency and flexibility of our off-price retail model.”

Market watchers and retail experts had been singing the praises of TJX’s seemingly shatterproof off-price model for the past year — an apparent bright spot amid turbulent retail times, particularly in the brick-and-mortar channel.

But today’s earnings report — which follows lackluster releases from JCPenney and Macy’s last week — coupled with a weaker-than-expected Q2 outlook, may signal that no part of retail is immune to the current challenges.

TJX said it expects second-quarter diluted EPS in the range of 81 cents to 83 cents, below diluted EPS of 84 cents last year and significantly lower than analysts’ bets for EPS of 92 cents during the period.

Nevertheless, Herrman said he is confident “that we are gaining market share at each of our four major divisions.”

“The second quarter is off to a solid start, and we have excellent liquidity in our inventories,” he said. “This positions us extremely well to capitalize on the plentiful buying opportunities we see for exciting fashions and brands in the marketplace, and bring them to consumers at amazing values.”

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