Off-price retailer TJX Companies (TJX), one of our best performing stocks since late summer, is set to report earnings this week Big picture We started our position in the parent of TJ Maxx and Marshalls on Aug. 24, which has proved to be a well-timed buy. From the close on Aug. 23 through Friday, TJX shares have rose 15.7% compared with a roughly 3% decline for the S & P 500 . During this stretch, TJX has been the fourth-best performing stock in the Jim Cramer’s Charitable Trust, the portfolio we use for the Club — trailed by troubled Bausch Health (BHC), which rose 41.8%; Wynn Resorts (WYNN), which has advanced 26.8%; and Halliburton (HAL), which has climbed 24.1%. TJX’s upside move has come alongside some favorable coverage from Wall Street analysts who believe conditions such as inventory gluts and a slowing economy are ripe for off-price retailers to thrive. A few weeks ago, JPMorgan’s closely followed retail analyst Matt Boss added to TJX to his “focus list,” meaning it’s one of his favorite ideas in the sector. On Nov. 7, Morgan Stanley said off-price retailers continue to have the “most compelling” set up in the fourth quarter and next year. Overall, 77% of the 26 analysts who cover TJX rate the stock the equivalent of a buy, according to FactSet. The remaining 23% have the equivalent of a hold rating. FactSet lists no sell ratings on the stock. Two big earnings themes When TJX releases fiscal 2023 third-quarter results after Wednesday’s closing bell, it’ll mark the first time the company will report earnings as a CNBC Investing Club name. We think there are two primary themes to be aware of heading into the print: (1) the inventory environment and (2) pretax margins. The inventory component is foundational to our thesis, so we’re curious whether management still sees “extraordinary off-price buying opportunities,” in the words of TJX CEO Ernie Herrman on the company’s second-quarter earnings call, in August. As noted earlier, the retail industry is awash in excess inventory after supply chains that were clogged up during the Covid pandemic started to ease around the time consumers started to spend more on services. Those dynamics combined to leave retailers with too much stuff — or, in some cases, out-of-season stuff — relative to demand. While that’s bad for the likes of Target (TGT) and Macy’s (M), it plays directly into the hands of TJX and its competitors, like Burlington Stores (BURL) and Ross Stores (ROST). One man’s trash is another man’s treasure. In general, there’s always some excess inventory laying around that the TJXs of the world can buy and put on their shelves, creating a “treasure-hunting” experience its loyal customers love. But depending on the broader retail environment, it can vary in quality and the price at which the company acquires it. What has made this particular moment sweet for TJX is that a lot of retailers have goods they want to offload, allowing TJX to acquire it at very favorable prices, which…
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