The TJX Companies Inc: A Good Pick for 2023?

Key Points

• The TJX Companies Inc. had a solid quarter and raised guidance. 
• The company benefits from the same trends cutting into the outlook for Target. 
• Even so, risks exist that the second half won't be as good as expected, which might cap gains over the summer. 

The shifting consumer environment has affected the TJX Companies Inc. NYSE: TJX. Consumers have shifted from discretionary items to staples, trading down from higher-tier retailers to low-price and off-price names like TJMaxx. Target reports consumers shifting to dailies and consumables and away from discretionary items. TJX Companies reports solid sales in all channels and strength in apparel and accessories, which means an increase in the guidance, but the news could be better. 

The TJX Companies expects the same second-quarter weakness as indicated by the Target Co. NYSE: TGT results which means the second half may not be as good as execs think it will be. 

"We are pleased that the second quarter is off to a good start, and we are seeing phenomenal off-price buying opportunities in the marketplace," said CEO Ernie Herman. 

The TJX Companies Has Mixed Quarter, Guides Higher 

The TJX companies reported a mixed quarter, but the bad news isn't all that bad, and the good news is what counts; bottom-line earnings. The revenue came in at $11.78, up 3.2% compared to last year, which fell short of the Marketbeat.com consensus by a slim margin. The growth was driven by strength in Marmaxx, TJX Canada and TJX Europe, offset by a 7% decline at Homegoods. The Homegoods decline compares to a 40% gain in the prior year, so not the bad news it could be. Marmaxx, the core segment at 62% of revenue, grew by 7%, and margins were better than expected. 

The company reports a 90-basis point improvement in pre-tax margin compared to last year's adjusted results. That put the margin above target and left the GAAP EPS at 76 cents, a nickel above consensus. The strength increased the full-year guidance despite the expected second-quarter weakness, which is better than what Target guided. Target's guidance was only maintained for the full year, and execs did not sound confident about the second half.

The concerns include increased shrinkage, leading to margin impairment and increased security spending. It's also a sign of tightened consumer spending conditions that could lead shoppers to TJX Companies. The TJX Companies did not mention shrinkage in its report; this is at least the second consecutive TGT report to mention the issue. Target thinks theft could cut $500 million off its bottom line. 

The Analysts Might Cap Gains for the TJX Companies 

The chart of TJX is favorable to higher prices, but the analysts might cap gains. As good as the guidance is, there is a growing risk the second half will not be a good time for the retailer. While the analysts have been supporting the price action in 2023 and see it trading at a new all-time high, there haven't been any updates since February. The first quarter report may spark a round of revisions, but the news may not be enough to drive the consensus target higher. 

The price action is up following the news, but significant resistance exists. The early gain of 3.5% was more than halved by midday, and there is a chance the market will close off of the high. In that scenario, this stock is already range-bound and likely to move sideways for the remainder of the year. The top of the range is near $83; a move above there would be bullish but is not expected without analysts' support or until later when results confirm the guidance.