A T.J. Maxx store in Tinley Park, Illinois
Daniel Acker/Bloomberg
TJX stock is falling again on Thursday, a day after slumping on its worse-than-expected fourth quarter. Gordon Haskett warns that the off-price retailer’s troubles may be just beginning.
Analyst Chuck Grom cut his rating on TJX (ticker: TJX) to Hold from Buy, and lowered his price target to $68 from $76 on the heels of the report. While the company will see a sales recovery throughout the year, as more shoppers are vaccinated, he thinks that investors should be selective about when to buy, and now may not be such an opportunity: “[W]with shares of TJX close to 10% higher than pre-Covid levels we think the stock is likely rangebound in the near-to-medium term.”
There was good and bad news in the results, Grom writes. First the good news: In Australia, where lowercase counts mean that consumers have returned to more-normal patterns, TJX stock has bounced back to pre-pandemic levels. While that country is obviously a smaller portion of its business than the U.S., it could be a blueprint for how the situation improves domestically with mass vaccination.
On the down side, he notes that the company’s higher concentration in home goods than some peers—both at its HomeGoods and Marmaxx brands—served it well during the pandemic, when consumers were pouring money into their houses as they spent more time there. Yet these categories carry lower margins than apparel, which could weigh on earnings before interest and taxes (Ebit) this year to the tune of 50 to 100 basis points. “While this indeed may be a transitory factor…we don’t believe it’s accurately handicapped in Street estimates.”
Yet that’s not the only pressure TJX faces: Labor is getting more costly with higher wages at peers and a potential increase in the federal minimum wage, shipping-freight prices are higher, Covid-related costs may linger, and the company is dealing with the costs of mandated store closures in Europe and Canada.
That leads Grom to think that the company may only deliver Ebit growth of 7.7% this year, down from 10.6% in 2019, and adds to his conviction that the shares may struggle to make more headway from here.
TJX stock is down 2.6% to $68.04 in recent trading. The shares have gained 13.1% in the latest 12 months, and are down 0.4% year to date.
Write to Teresa Rivas at [email protected]
