Retailing Doesn’t Suck – Just Most Retailers: This Stock Gets Better Results Through Better Mgmt
TJX (TJX) is a company made for recessions. When shoppers were worried to a frenzied point about their jobs and budgets, TJX coined a new term, “Maxxinista,” to refer to designer-oriented shoppers on a budget. TJX convinced shoppers to hit its stores like TJX’s TJ Maxx, Marshalls and HomeGoods to get high-class items for low prices.
Now that the doom and gloom appears to be lifting somewhat, some shoppers might feel ready to move on. If you’ve got some extra money, there are better things to do than hunt through racks and bins at discounters. And TJX’s revenue growth has reflected this mood.
But even when revenue has grown more slowly, TJX earnings have continued to climb.
And that has helped its PE climb.
And really, this is all you need to see -- it's one of the best-performing stocks around.
How does it do that? TJX has leverage, meaning it gets bigger increases in profit out of smaller increases in revenue. Chief Carol Meyrowitz laid it out this way on the most recent earnings call: “It's about lean in-store inventories, freshness, exciting merchandise and faster turns, which help drive stronger sales and margins.”
It’s lean: last quarter same store sales were up 7% vs 4% a year earlier, and net sales were up 9% vs 4%. But cost of sales improved to 71.9% of net sales. Selling, general and administrative expenses also dropped to 16.5% of net sales. It keeps inventories moving, inventory levels were down 12% last quarter.
Low inventories contribute to that “freshness” Meyrowitz referenced. The store changes its mix of products constantly, catering to browsers who return again and again, for whom deal-shopping is a pastime. It can do this because it has 15,000 vendors restocking its shelves, and that permits it to make changes based on the weather or consumer whims. And yet unlike, say, Wal-Mart (WMT), it hasn’t squeezed all the juice out of its vendors – which is why TJX is investing in its supply chain system. It can become more efficient.
It’s also taking advantage of the economic times, not just by relying on penny-pinching customers but by planning for the inevitable better economic days. With real estate prices low, it’s snapping up some vacant properties, installing flexible stores. Rather than cut costs and let store shelves accumulate dust, it’s remodeling TJ Maxx and Marshall’s stores. And while it’s known for drawing in people with mid-to-lower incomes, it’s striving to draw in everyone, rich or poor.
TJX throws off cash and uses some of it to buy back stock.
That helps achieve this.