MKM Previews TJX Companies Q4, Says Company Is 'Looking For A Good Print, But Could See Cautious Guidance Given Adverse FX'

In a report published Monday, MKM Partners Managing Director Patrick McKeever looked into TJX Companies Inc TJX ahead of earnings, scheduled for Wednesday. The firm maintained a Buy and a $74 12-month price target on the stock, expecting strong results and some upside potential. However, analysts are a “little reserved from a NT trading standpoint with the stock just off an all time high and given the potential for cautious guidance because of adverse foreign exchange,” since the company derives about ¼ of its revenue from outside the U.S. (Canada, the U.K. and other European countries), all of which have currencies that have been falling in value in relation to the U.S. Dollar.

MKM continues to “expect a consolidated comp of 2.0% (guidance was up 1%-2%), including a 1.5% increase at Marmaxx. We believe strong momentum continued at HomeGoods (modeling a 5% comp) and that TJX Europe saw some sequential improvement despite a tough comparison (up 9% LY). We expect another solid comp from TJX Canada. We believe Marmaxx's performance was fairly consistent through the quarter.”

The report points out some other factors to take into account:

• "Slowdown at West Coast Ports Should Yield Incremental Buying Opportunities."
• "Winter Storms in New England Could Pose Some Risk to 1Q15."
• "Still a Good Margin Expansion Story. We continue to expect 4Q14 EPS of $0.89, up 10% y/y, a penny below the Street and the high-end of a guided range of $0.86-$0.90. We expect a $0.02 hit from FX and look for another $0.02 in incremental investment spending on the supply chain, in-store marketing and in Europe as TJX prepares to open its first stores in Austria in 2015. We're modeling an operating margin of 12.3%, up 20 bps y/y, and for the year we continue to expect slight margin expansion, driven by modest SG&A leverage and a slightly lower gross margin."
• "FY15 Outlook Likely to Be Tempered by FX Headwinds."

In order to better reflect these FX headwinds, the firm is trimming EPS estimates for fiscal 2015, from $3.60 to $3.48. For fiscal 2016, earnings are projected at $4.00 per share.