Will TJX Companies (TJX) Disappoint This Earnings Season? - Analyst Blog

The TJX Companies Inc. TJX is set to report first-quarter 2014 results on May 20, before the opening bell. Last quarter, the company posted 2.4% negative earnings surprise. Let's see how things are shaping up for this announcement.

Factors to Consider This Quarter

TJX has been posting modest top- and bottom-line results for the past few quarters backed by higher consumer traffic, improved margins and solid comparable-store sales growth.

However, the stock is not immune to the macro challenges that have impacted retailers since the beginning of calendar 2014. The inclement weather that gripped northern U.S. in Jan 2014 caused by ice storms that hit the coasts of the U.S. resulted in unusual cold weather for Feb and Mar 2014 – the first two months of the first quarter. This has disrupted usual shopping trends and is expected to affect the company's top line in the first quarter.

Moreover, TJX faced rising inventory in the first two months of the quarter due to lower traffic. The company offered heavy discounts to clear off the higher-than-expected stock piling. Although this enabled the company to maintain leaner inventories, this is expected to negatively affect margins in the upcoming quarter.

Management has also provided a conservative margin outlook for the upcoming quarter and expects pretax profit margins to be down 30 to 20 basis points versus the prior year.

Earnings Whispers?

Our proven model does not conclusively show that TJX is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimate. However, that is not the case here due to the following factors:

Positive Zacks ESP: ESP for TJX is 2.99%. This is because the Most Accurate estimate stands at a loss of 69 cents a share, while the Zacks Consensus Estimate is pegged at a loss of 67 cents.

Zacks Rank: TJX currently has a Zacks Rank #4 (Sell). We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies that investors may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Sanderson Farms Inc. SAFM, with Earnings ESP of +2.44% and a Zacks Rank #1 (Strong Buy).

Best Buy Inc. BBY, with Earnings ESP of +5.00% and a Zacks Rank #2 (Buy).

Gap Inc. GPS, with Earnings ESP of +1.79% and a Zacks Rank #3 (Hold).

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