TJX Companies (NYSE: TJX) Goes Against The Grain

With the retail sector in turmoil following dismal earnings almost across the board in the sector this week, TJX Companies’ NYSE: TJX earnings report on Tuesday will be a breath of fresh air to investors.

As heads were still spinning from Kohls’ and Home Depot’s reports and the 20% and 5% hit their stocks took respectively, TJX bucked the trend with a solid beat on estimates. Revenue, earnings, and sales all topped expectations and management were confident enough to raise their full-year profit outlook.

It was a big improvement on the previous quarters’ numbers and in a sign that brick and mortar stores aren’t dead yet, it was increased footfall and customer traffic that drove the results. Every single division saw a bump in performance. Other retailers may be struggling to keep up with Amazon’s expansion but TJX is clearly doing something right and feel good enough to be opening new stores.

Solid Year and Decade

Shares of TJX are up 33% for 2019 alone and right at all-time highs. This is all the more impressive when you consider how shaky a year this has been for retail. Barney’s of New York and Sears have both filed for Chapter 11. Macy’s shares are down 50% for the year so far and the continuing trade war with China gave a big wobble to consumer sentiment over the summer.

None of this has stopped TJX from chugging along. They raised their dividend 18% after last year’s holiday season and investors will be rubbing their hands at the thought of another bumper performance. Continuing share buybacks are providing a constant source of demand for shares and all the signs are good for their performance to continue.

Funnily enough, while Ralph Lauren NYSE: RL stock is still sitting at 2010 levels, TJX’s success at selling discounted RL products has driven their stock up over 500% in the same time period. Kinda ironic, no?

As competitors flounder or worse, TJX seems to be cementing their market share and are in a prime position to capture any future uptick in consumer sentiment.

Their stock chart shows just how quickly and easily the off-price retailer has gobbled up market share in the past decade. Have they tapped into a new type of retail consumer that the older more established brands have struggled to engage with?

Shares set constant all-time highs throughout most of last year before getting caught up in the broader market selloff that brought 2018 to a close. However, for the believers, this was an unbelievable buying opportunity as it’s been back to setting all-time highs since July and printed fresh digits on the back of Tuesday’s release.

Potential Clouds on the Horizon

There are some gray clouds for bears to focus on, however. The HomeGoods division has not been performing as well as the others, and heavy discounts have been needed elsewhere to drive sales to help make up the difference. If HomeGoods continues to be a drag, there’s only so much more the company can discount their other operations to make up for it.

Tariffs from the trade war are also creating a headwind. They were cited as the main reason TJX reported what Wells Fargo called ‘their worst quarter in two years’ this past August.

Metrics wise, there’s talk their PE ratio is looking a little hot at 20x, and concerns around this will be magnified when you consider that TJX’s longer-term EPS growth estimates have been falling throughout the year.

Technicals

However, most of the fundamentals and technicals look solid and line shares up for a promising holiday season. The stock has been putting in a nice base around the $58 mark which is right around where the 50-day moving average is. To the upside, investors have Tuesday’s $61.70 print to aim for and once the selling dies down in the other retail names, any negative weight from the industry should lift.

It’s worth noting that over the past six months a tightening channel has formed on the march higher and the Bollinger Bands are quite narrow. This suggests that a breakout move to the upside or downside is becoming increasingly likely. However, if you were to pick one retail stock to break out to the upside, you’d be inclined to choose the one that’s up over 100% in the past 6 years while its competitors are struggling to keep their heads above water.