Club holding TJX Companies (TJX) reported stronger-than-expected fiscal third-quarter 2023 earnings and U.S. sales before the opening bell Wednesday, boosting shares of the off-price retailer by nearly 4% to an all-time high. The inventory glut at full-price chains played out as we had expected, proving to be a boon to TJX, whose brands include T.J. Maxx, Marshalls and HomeGoods. Adjusted earnings-per-share of 86 cents beat expectations by 6 cents and were well above management’s own EPS guidance of between 77 to 81 cents due to certain expenses previously expected to be realized during Q3 were pushed out to the fourth (current) quarter. The adjusted number also excluded a 5-cent per share tax benefit related to the divestiture of the company’s minority investment in Russian low-cost apparel retailer Familia. While global revenue dropped 3% year-over-year to $12.17 billion and was a bit short of estimates of $12.3 billion, U.S. sales of $9.4 billion, down 1% annually, exceeded the $9.23 billion expected. Bottom Line It was a solid quarter from TJX, and management was able to reiterate the midpoint of their full year fiscal 2023 guidance range, despite needing to trim the high end of the range due to an estimated currency headwind that had not been previously factored into the forecast. While U.S. customer traffic was down in the quarter, management noted that it improved sequentially and improved throughout the quarter. Moreover, the average basket size in the U.S. increased. Speaking to the inventory glut at full-price retailers, TJX management said on their post-earnings call, “The marketplace is absolutely loaded with quality branded merchandise across good, better and best brands.” As a result, the team added that they believe they’re entering its fourth quarter in a strong position “to take advantage of the tremendous buying environment and to flow fresh exciting assortments to our stores and online this holiday season.” Given those tailwinds, along with TJX being the place to shop for a more price-sensitive consumer due to a slowing economy and normalizing household balance sheets, we’re raising our Club price target on the stock to $84 per share from $74. That reflects roughly 24x fiscal 2024 (calendar year 2023) earnings estimates, a slight premium to the slightly greater than the 22x five-year average multiple. However, that’s a premium we believe is warranted considering how incredibly supportive the operating environment is for TJX’s business model. Q4 guidance Management now expects fourth quarter sales to be in the range of $13.9 billion to $14.1 billion, below the $14.26 billion consensus estimate. EPS for Q4 is expected to be in the range of 85 to 89 cents per share, below the 94 cent consensus and down from the 92- to 96-cent per share range implied by the third quarter and full year guide provided with TJX’s fiscal second quarter earnings back in August. Shortly after that fiscal Q2 release, the Club started a position in TJX…
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