• TJX reported a set of lackluster earnings that sent its stock tumbling down by as much as 10%.
• It expects a continued decrease in footfall traffic for coming quarters denting the argument of it being pandemic-proof.
• Inventory still remains high and the company's lesser reliance on digital sales seems to have started to hurt the company.
• TJX is poised for recovery as consumers prefer value during the economic uncertainty along with departmental store closures to act as a tailwind for market share growth.
• Long-term growth story for TJX remains intact as the worst likely seems to be priced in and investors can look to buy on dips.

Introduction

The TJX Companies (NYSE:TJX) has been another player in the retail sector which has been significantly impacted due to COVID-19. Given the customers' preference for staying home and the company's presence primarily based on the offline store model (online forms barely 2% of total revenue), the company likely faced several challenges as it braces through the pandemic. Accordingly, the company has underperformed the broader market index significantly, down 8% compared to S&P 500's 8% rise YTD, however, its performance has been better than the apparel retailers index. Post the recent results, the stock tumbled about 10% as the recovery likely remains slow through Q3 wherein the management expects the revenue to decline by as much as 20%. Despite the near-term hiccup, we believe TJX is poised for the recovery as the off-price retailer stands to benefit on the consumers' preference to value during the period of economic uncertainty as seen during 2009. Its vast expansive network, lower reliance on holiday sales, and the department stores' struggle and store closures could act as tailwinds for further market share growth.

Data by YCharts

Earnings Corner

The company reported a 32% decline in revenues at $6.7bn which was slightly better than what most analysts had pegged at $6.5bn and was also above the management's internal assessments. This was primarily as the stores were closed down for almost a third of the quarter due to COVID-19. Comp sales at opened-only stores declined 3%, led by 20% growth in Home goods with Marmaxx down 6%. Average cart size did grow but it was not enough to offset the losses from extra discounts coupled with lighter store inventory levels to make space and enable social distancing in its stores. Gross margins fell sharply by about 6 percentage points as a result of discount merchandising and inventory clearing. Coupled with incremental COVID-19 related costs, lower sales, and gross margins, the company posted a surprise loss of $212mn or 18 cents per share compared to a profit of 62 cents per share a year ago. While the loss was surprising, TJX's underlined that its growth was fizzling, expecting a decrease in comp sales by as much as 20% denting the argument that T.J. Maxx is more pandemic-proof than its rivals. Visits to the stores rebounded in June, but shoppers did not return throughout the summer and the downward trend continued as the number of cases continues to rise.

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