It’s Almost Time To Buy The TJX Companies (NYSE:TJX)

The Rebound Is Underway For The TJX Companies

There are three kinds of retail stocks in today's market. There are companies like Target (NYSE:TGT), Tractor Supply (NASDAQ:TSCO), and Home Depot (NYSE:HD) that are all positioned to thrive in the post-pandemic world. There’s companies like Stein Mart (NASDAQ:SMART) and Pier One (OTCMKTS:PIRRQ) that have been forced out of business. And then there are companies that, while not immune to the pandemic, are in a good position to weather the storm and come back fighting. The TJX Companies (NYSE:TJX) are one such company.

At face value the 2Q results look bad and, quite frankly they are. What we need to keep in mind are the mitigating factors, factors associated with the COVID-19 pandemic, and how the company’s reopening is shaping up. In respect to the first half of the year, net revenue is down 58% from 2019 but that’s with the entire chain shut down for 40% of the half including the eCommerce channels. The 2nd half results show improvement but again, were impacted by a complete closure for two-thirds of the quarter. More recently, the company has reopened 4,500 stores worldwide and all the websites and business looks good.

TJX Companies Second Quarter Results Were Better Than Expected

The TJX Companies’ second-quarter results were bad but better than expected, depending on who you ask. The analysts were only meh about the numbers, revenue beat by a slim margin but earnings fell short, but the company was more than pleased. According to them, results were much better than the internal projections and there are pockets of strength. Among the company’s many brands, the Home Goods chain performed best and that is not a surprise. Home improvement is one of the primary trends driving the economy right now.

At the top line, revenue came in at $6.7 billion and down -31.8% from last year but, when adjusted for closures, is a much cooler -3%. The Home Goods chain saw its open-only comps jump 20% to offset weakness in all other brands. Notably, the company reports strong sales of home and home improvement items across all chains and via eCommerce. Results may have been better, though, if not for supply chain issues that prevented optimal use of inventory.

On the bottom line, the company reported an operating loss on a GAAP and non-GAAP basis. GAAP earnings of -$0.18 fell short by $0.08 and equal a loss of $214 million. While not something I like to see, the loss is really not a problem. The company was able to generate $3.48 billion in operating cash flow that it put to good use. And it is well-capitalized.

Over the course of the quarter management paid down the $1.0 credit facility it drew on at the start of the pandemic and increased the cash position. Assuming that cash-burn remains constant (it won’t, it’ll go away next quarter) the TJX Companies $6.6 billion in cash could keep it running for three more decades.

The Technical Outlook: The TJX Companies Is Desperately Seeking Support

The 2Q results did not cheer the market and now shares are down more than -7.5% and looking for support. Price action is likely to maintain its downward bias in the near-term, at least until the retail picture becomes a little clearer. Today’s price action has shares of TJX trading in a no-man’s-land between the top and bottom of a window that formed way back in March.

Support is near $52, resistance near $55, a break of either will be very significant. A move below support could take price action down to $48 or $44, a move above the resistance could go as high as $60 or $64.

Longer-term, the company is certainly in a position to post a solid rebound but it may take time. Supply chain issues are likely to persist, particularly with the Canadian segment of the business, and the eCommerce channels are not as big a focus as they should be. The real trigger though, for me as a bull, will be when TJX management reinstates the dividend and/or resumes the buy-back plan.