Earnings preview: Traffic growth to drive TJX Companies Q4 results

E-Commerce continued to dominate the brick-and-mortar stores. Also, the most recent US Census Bureau data showed that the seasonally adjusted retail sales declined 1.2% in December. Investors were disappointed with the data but the clothing and accessories category posted solid sales growth. This bodes well for TJX Companies (TJX) ahead of the off-price apparel retailer’s fourth-quarter earnings on Wednesday.

Certain merchandise categories saw sharp sales drops in December while sales at clothing and clothing accessories stores jumped 4.7% in December, according to the Census Bureau data. Following the data, most analysts remained most cautious on department stores and mall-based specialty retailers while their stance turned selective on the off-price and discount apparel retailers.

TJX Companies entered the holiday period with strong momentum and posted a 7% jump in comparable sales in the third quarter. Along with this, the rapid pace of stores opening could aid in a sharp growth of customer traffic, which in turn could help in sales growth for the company.

Analysts expect TJX Companies to report earnings of $0.68 per share on revenue of $11.02 billion for the fourth quarter. In comparison, during the previous year quarter, the company had posted a profit of $0.65 per share on revenue of $10.96 billion. Majority of the analysts recommended a “strong buy” or “buy” rating while expecting the stock to reach $54.54 per share in the next 52 weeks.

However, the changes in foreign currency exchange rates could hurt the translation of sales and earnings of the company’s international businesses into US dollars. The gross margin could fall due to an increase in freight costs, supply chain expenses, and an unfavorable comparison related to its inventory hedges.

For the third quarter, the company posted an 18.6% jump in earnings as customer traffic was the primary driver of the comp sales increases at every division. Net sales grew 12% year-over-year and comparable store sales increased 7%. During the quarter, the company raised its store count by 102 stores to a total of 4,296 stores.

Earnings calendar for Feb 25 to March 1 week

For the fourth quarter, TJX Companies expected earnings in the range of $0.66 to $0.67 per share and adjusted earnings in the range of $0.56 to $0.57 per share, with estimated consolidated comparable store sales growth of 2% to 3%. For the full year 2019, the company had predicted earnings of $2.41 to $2.43 per share and adjusted earnings of $2.08 to $2.09 per share, with estimated comparable store sales growth of 5% on a consolidated basis and 6% at Marmaxx.

In 2019, the opportunities have been mounting for TJX both on the supply and on the demand sides as the company primarily sells merchandise in stores. The store traffic trends could be robust for the year as the company offers an ever-changing merchandise selection.

Shares of TJX Companies opened higher on Monday and is trading in the green territory. The stock has risen over 29% in the past year and over 9% in the past three months.

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