Will TJX Companies Q4 Earnings Grow Despite High Costs?

The TJX Companies, Inc. TJX is slated to release fourth-quarter fiscal 2018 results on Feb 28. While the company posted in-line earnings in the last quarter, the off-price retailer has outperformed the Zacks Consensus Estimate by an average of 2% in the trailing four quarters. The company has been gaining from its robust efforts to attract traffic and drive sales, which have also helped it overcome hurdles related to escalated wage costs. Let's see what's in store this time.

Factors Driving the Quarter

TJX Companies has been witnessing year-over-year growth in both top and bottom lines for over a year now. Notably, the top-line growth can be largely attributed to solid customer traffic, which is backed by the company's impressive merchandise mix, along with the other sales-driving efforts. Further, strong merchandise margins reflect the company's disciplined inventory management and strength of its off-price business model.

Among the company's sales driving efforts, we commend its focus on store expansion, e-commerce as well as marketing initiatives. During the third quarter, the company opened 139 stores, taking its total count to 4,052 stores as of Oct 28, 2017. Also, management remains encouraged by the initial response to its recently opened 3 HomeSense outlets in the United States and its first TK Maxx outlet in Australia. TJX Companies has also undertaken several initiatives to boost online sales by recruiting an experienced internet management team. The company's e-commerce business Sierra Trading Post is also working toward growing its business. Moreover, TJX's official website tjmaxx.com, accessible from tablets and smartphones, appeals to the young generation — the company's main target consumers. TJX Companies plans to add more categories to the online shopping site and invest categorically in it to differentiate it from brick-and-mortar stores.

Further, TJX Companies' aggressive marketing and advertising campaigns through multiple mediums (TV, radio and social media) have been boosting traffic at stores. Its gift-giving initiatives, unique among off-price retailers and loyalty card program (which offers consumers a non-credit card choice and soft benefits such as early shopping hours) also help the company to improve customer engagement. Further, in order to encourage more frequent visits and cross-shopping of brands, the company is expanding its loyalty programs in the U.S. and Canada. Together, these factors are likely to drive the company in the fourth quarter. Incidentally, during its third-quarter conference call, management stated that it began the fourth quarter on a strong note, with a solid inventory position and other sales-driving efforts keeping it well placed for the holiday season.

Increased Costs Pose Concerns

High wage costs have been a hurdle for TJX Companies for a while now. In third-quarter fiscal 2018, higher wages dented the company's bottom line growth by 1%, with its pre-tax margin going down by 10 basis points. Further, wage increases are expected to negatively impact earnings growth by 2% in fiscal 2018, which also remains a threat to the upcoming results.

Final Thoughts & Q4 Expectations

Nevertheless, TJX Companies' robust sales-boosting initiatives are likely to help the company overcome these hurdles and fuel growth. For fourth-quarter fiscal 2018, the company expects adjusted earnings (excluding a nearly 11 cents benefit from an additional week in the quarter) in the range of $1.14-$1.16 per share, reflecting 11-13% increase from the year-ago period earnings. Wage increases are expected to hurt bottom-line growth by 1%, while currency is likely to positively impact earnings growth by 1%. The company expects consolidated comps growth of 1-2% in the fourth quarter.

The current Zacks Consensus Estimate for the quarter under review is pegged at $1.28, which shows a 24.3% surge from $1.03 recorded in the year-ago period. In fact, the company's earnings estimate was revised upward in the last seven days. Further, analysts polled by Zacks expect revenues of $10,821 million, up 14.3% from the year-ago quarter.

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