2 Reasons To Keep Aiming To Own Shares Of TJX

On Tuesday, TJX Companies Inc TJX reported Q2 earnings per share and revenues above analyst consensus, however, management reported forecasts for Q3 were below analyst estimates. In addition, same-store sales came up short sending shares down after the report.

BMO Capital’s John Morris remained optimistic on TJX despite the market’s recent negative reaction. Among the reasoning behind Morris’ hopeful outlook was a lean inventory leading to future gross margin expansion and TJX’s strategic positioning amidst Macy’s 100 store closings.

Related Link: TJX's 'Underlying Sales Momentum Is Humming,' According To Goldman

Macy’s Store Closings Present Opportunity

“TJX is a key beneficiary from Macy's M decision to close 100 stores. The customer that typically shops these lower-tier Macy's is far more likely to pivot to a TJX offering than another full price channel,” stated Morris. Additionally, vendors including TJX can buy inventory from Macy’s closed stores that are priced for exposure.

The store closings will also position TJX companies better to bolster vendor relationships as competition declines according to the analyst.

Lean Inventory

“Based on recent inventory-to-sales data points, which we confirmed with our department store analyst, Wayne Hood, we believe that department store inventory is lean heading into the fall season,” stated the BMO analyst. Lean inventory will lead the store channel to pull back on promotions while widening the value differential resulting in gross margin expansion, according to Morris.

Morris maintained his Outperform Rating and $85 price target.