The TJX Cos., Inc. (TJX)

Thematic evaluation

September 06, 2024

Compared to: Ross Stores, Inc. (ROST) | Burlington Stores, Inc. (BURL) | Consumer Discretionary Select Sector SPDR Fund (XLY)

Our reasoning

TJX's strong financial performance, market leadership in off-price retail, and global expansion prospects support its current valuation. While some metrics suggest overvaluation (e.g., EV/EBITDA), others indicate undervaluation (e.g., profitability ratios). The company's proven business model and growth opportunities balance out the premium valuation, leading to a fair value assessment.

Key takeaways

TJX Companies is a financially strong and profitable company with a proven track record of growth and a conservative capital structure.
The company's off-price business model continues to resonate with consumers, driving consistent revenue growth and strong comparable store sales.
TJX has a strong liquidity position and generates significant cash flow from its operations, providing it with the financial flexibility to fund growth initiatives and return capital to shareholders.
The company's global expansion strategy, including recent investments in Mexico and the Middle East, presents both opportunities and risks, but demonstrates its commitment to leveraging its off-price expertise in new markets.
TJX's ability to manage its costs effectively and adapt to evolving consumer preferences and market conditions will be critical to maintaining its profitability and growth trajectory in the future.
While TJX's valuation metrics are generally in line with its peers, the company's strong financial performance and growth prospects suggest that it may be undervalued.
TJX's stock price has consistently outperformed the benchmark XLY over the past three years, indicating that TJX has been a stronger performer than the broader consumer discretionary sector.
Overall, TJX Companies is a financially healthy company with a bright future, well-positioned to continue capturing market share and delivering value to shareholders.

Fairly valued

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Evaluation summary

Company Overview:
- TJX Companies, Inc. is a leading off-price retailer of apparel and home fashions, operating over 5,000 stores globally. The company's business model is based on acquiring excess inventory from brand-name manufacturers at discounted prices and selling it to consumers at 20-60% below regular retail prices. This strategy allows TJX to offer a rapidly changing assortment of merchandise at attractive prices, appealing to value-conscious consumers.
- TJX operates through four main segments: Marmaxx (TJ Maxx and Marshalls), HomeGoods, TJX Canada, and TJX International. Marmaxx is the largest segment, accounting for the majority of the company's revenue. The company's product offerings include family apparel, home fashions, footwear, accessories, and other merchandise.
- TJX targets a broad range of consumers seeking value and variety in their shopping experience. The company's off-price model appeals to both price-sensitive and brand-conscious shoppers, allowing it to capture a significant market share in the apparel and home fashions retail industry.
- For comparative analysis, we will be using the Consumer Discretionary Select Sector SPDR Fund (XLY) as a benchmark and Burlington Stores, Inc. (BURL) and Ross Stores, Inc. (ROST) as industry peers.
Financial Performance:
- TJX has consistently demonstrated strong financial performance, with revenue growth driven by comparable store sales increases and expansion into new markets. The company's net income has been steadily increasing, reflecting its ability to manage costs effectively and generate high profit margins.
- TJX's profitability is robust, as evidenced by its high return on assets (ROA), return on equity (ROE), and return on invested capital (ROIC). The company's net profit margin is significantly higher than the industry average, indicating its ability to generate a higher profit margin on its sales.
- Compared to its peers, TJX has generally outperformed ROST in terms of profitability and revenue growth, but has underperformed BURL, particularly in the short term. This suggests that TJX may be a more stable investment with a longer-term growth potential, while BURL may offer higher returns in the short term but with greater volatility.
Operational Efficiency:
- TJX maintains a strong liquidity position, with high levels of cash and short-term investments. The company's current ratio is slightly below the industry average, but still considered healthy. TJX has a strong short-term liquidity position, as evidenced by its consistently increasing operating cash flow.
- TJX has a conservative capital structure, with low levels of debt and high levels of equity. The company's debt-to-equity ratio is significantly lower than the industry average, indicating a conservative approach to financing.
- TJX's asset utilization efficiency is strong, as evidenced by its high ROA and ROE. The company's ability to generate profits from its assets is a key driver of its financial success.
- TJX has been investing heavily in capital expenditures, primarily in new stores and distribution centers, to support its growth strategy. The company's free cash flow has been consistently increasing, providing it with the financial flexibility to fund these investments and return capital to shareholders through dividends and share repurchases.
- Compared to its peers, TJX has shown a more stable and less volatile performance, with a consistent track record of generating higher returns than ROST. However, BURL has shown higher returns in the short term, suggesting that it may be a better choice for investors with a higher risk tolerance.
Growth Opportunities:
- TJX is pursuing a global expansion strategy, with recent investments in Mexico and the Middle East. These investments demonstrate the company's commitment to leveraging its off-price expertise in new markets with significant growth potential.
- The company's focus on expanding its global footprint, coupled with its strong financial position and proven track record of successful acquisitions, suggests that TJX is well-positioned to capitalize on future M&A opportunities.
- TJX is continuously adapting its merchandise mix and pricing strategies to meet evolving consumer preferences and market conditions. The company's ability to identify and respond to trends in the apparel and home fashions industry is a key driver of its growth.
- TJX's management has a history of successfully executing strategic plans, as evidenced by the company's consistent financial performance and growth trajectory. The company's commitment to innovation and its ability to adapt to changing market conditions suggest that it is well-positioned to continue its growth trajectory in the future.
Risks and Threats:
- TJX faces several risks, including competition from other retailers, both brick-and-mortar and e-commerce, as well as potential disruptions to its global supply chain. The company's ability to manage these risks effectively will be critical to its future success.
- The retail industry is highly competitive, with evolving consumer preferences and shopping behaviors. TJX's ability to identify and respond to these trends will be crucial to maintaining its market share and profitability.
- The macroeconomic environment can significantly impact consumer spending patterns, which could affect TJX's sales and profitability. The company's ability to navigate these economic headwinds will be important to its future performance.
- TJX is subject to various legal proceedings, lawsuits, and claims in the ordinary course of business. The company's ability to manage these legal risks effectively will be important to its financial stability.
Valuation Analysis:
- TJX's valuation metrics, such as its price-to-earnings (P/E) ratio and enterprise value-to-EBITDA (EV/EBITDA) ratio, are generally in line with its peers. However, the company's strong financial performance and growth prospects suggest that it may be undervalued relative to its peers.
- TJX's strong cash flow generation and its conservative capital structure provide it with the financial flexibility to pursue growth initiatives and return capital to shareholders. This suggests that the company has the potential to create significant value for its investors in the future.
Price Performance:
- TJX's stock price has consistently outperformed the benchmark XLY over the past three years, indicating that TJX has been a stronger performer than the broader consumer discretionary sector. This outperformance is particularly notable over longer periods, suggesting that TJX's business model and strategies have been effective in generating consistent returns.
- Compared to its peers, TJX has generally outperformed ROST over the past three years, particularly in the longer timeframes. However, TJX has underperformed BURL, especially in the shorter timeframes. This suggests that TJX may be a more stable investment with a longer-term growth potential, while BURL may offer higher returns in the short term but with greater volatility.
Future Outlook:
- TJX's management has expressed confidence in the company's ability to navigate the evolving retail landscape and continue its growth trajectory. The company's strong financial position, its flexible off-price business model, and its commitment to innovation suggest that it is well-positioned to capitalize on future growth opportunities.
- Analyst estimates for TJX's future earnings and revenue growth are generally positive, reflecting the company's strong track record and its potential for continued expansion.
Summary:
- TJX Companies is a financially healthy company with a strong track record of revenue growth and a conservative capital structure. The company's off-price business model continues to resonate with consumers, as evidenced by its consistent revenue growth and strong comparable store sales.
- TJX has a strong liquidity position and is able to generate significant cash flow from its operations. The company is investing heavily in capital expenditures, which is a sign of its commitment to growth.
- TJX is returning capital to shareholders through dividends and share repurchases, demonstrating its commitment to shareholder returns. The company's expansion into new markets, such as Mexico and the Middle East, presents both opportunities and risks.
- TJX's ability to manage its costs effectively will be critical to maintaining its profitability in the future. Overall, TJX Companies is a financially healthy company with a bright future.
- TJX's valuation metrics are generally in line with its peers, but the company's strong financial performance and growth prospects suggest that it may be undervalued. The company's strong cash flow generation and its conservative capital structure provide it with the financial flexibility to pursue growth initiatives and return capital to shareholders.
- TJX's stock price has consistently outperformed the benchmark XLY over the past three years, indicating that TJX has been a stronger performer than the broader consumer discretionary sector. Compared to its peers, TJX has generally outperformed ROST over the past three years, particularly in the longer timeframes. However, TJX has underperformed BURL, especially in the shorter timeframes.
- TJX's management has expressed confidence in the company's ability to navigate the evolving retail landscape and continue its growth trajectory. Analyst estimates for TJX's future earnings and revenue growth are generally positive, reflecting the company's strong track record and its potential for continued expansion.

Peer fundamentals

Fundamentals

Insights

TJX Companies is a highly profitable company with a strong track record of revenue growth and a conservative capital structure.
The company's off-price business model continues to resonate with consumers, as evidenced by its consistent revenue growth and strong comparable store sales.
TJX has a strong liquidity position and is able to generate significant cash flow from its operations.
The company is investing heavily in capital expenditures, which is a sign of its commitment to growth.
TJX is returning capital to shareholders through dividends and share repurchases, demonstrating its commitment to shareholder returns.
The company's expansion into new markets, such as Mexico and the Middle East, presents both opportunities and risks.
TJX's ability to manage its costs effectively will be critical to maintaining its profitability in the future.
Overall, TJX Companies is a financially healthy company with a bright future.

Analysis

Revenue - TJX's revenue has been consistently increasing, driven by its strong comparable store sales growth and its expansion into new markets. - The company's off-price business model continues to resonate with consumers, as evidenced by its consistent revenue growth. - The company's recent investments in Mexico and the Middle East are likely contributing to its revenue growth. - The company's decision to close its HomeGoods e-commerce business in Q3 FY2024 could be contributing to the decline in its gross profit margin.
- Profitability
  - TJX is a highly profitable company, as evidenced by its consistently increasing net income.
  - The company's profitability is strong, as evidenced by its high return on assets, return on equity, and return on invested capital.
  - The company's net profit margin is also significantly higher than the industry average, indicating that it is able to generate a higher profit margin on its sales.
  - The company's ability to manage its costs effectively, as evidenced by the slower growth rate of its cost of goods sold and operating expenses compared to its revenue growth, is a key driver of its profitability.
- Liquidity
  - TJX has a strong liquidity position, as evidenced by its high levels of cash and short-term investments.
  - The company's current ratio is slightly below the industry average, but it is still considered healthy.
  - TJX has a strong short-term liquidity position, as evidenced by its consistently increasing operating cash flow.
- Solvency
  - TJX has a strong long-term solvency position, as evidenced by its low levels of debt and its high levels of equity.
  - The company's debt-to-equity ratio is significantly lower than the industry average, indicating a conservative capital structure.
  - The company's debt-to-EBITDA ratio is also significantly lower than the industry average, indicating that it has a low level of financial leverage.
  - TJX has a strong long-term solvency position, as evidenced by its consistently increasing free cash flow.
- Operational Efficiency
  - TJX's asset utilization efficiency is strong, as evidenced by its high return on assets and return on equity.
  - The company's ability to generate profits from its assets is a key driver of its financial success.
- Cash Flow Analysis
  - TJX's operating cash flow has been consistently increasing, driven by strong profitability and effective working capital management.
  - The company's ability to generate cash from its core business operations is a key strength.
  - TJX has been investing heavily in capital expenditures, which is a sign of its commitment to growth.
  - The company's investments in new stores and distribution centers are likely contributing to this trend.
  - TJX has been returning capital to shareholders through dividends and share repurchases.
  - The company's dividend growth has been consistent, and its share repurchase program has been active in recent quarters.
- Risk Factors
  - TJX's reliance on non-cash items to boost its earnings could be a potential risk factor.
  - The company's decision to close its HomeGoods e-commerce business could impact its future growth prospects.
  - The company's expansion into new markets could pose challenges, such as navigating different regulatory environments and consumer preferences.
  - The company's ability to manage its costs effectively will be critical to maintaining its profitability in the future.
- Future Outlook
  - TJX is well-positioned for continued growth, driven by its strong comparable store sales growth, its expansion into new markets, and its ability to manage its costs effectively.
  - The company's strong cash flow generation and its conservative capital structure give it the financial flexibility to pursue these growth initiatives.
  - TJX's off-price business model continues to resonate with consumers, and the company is well-positioned to capitalize on the growing demand for value-oriented retail.

Most recent earnings report

Financial statements

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Comparative Analysis

Benchmarks (as of 2024-08-09)

Consumer Discretionary Select Sector SPDR Fund (XLY)

Performance Comparison:
- TJX has consistently outperformed XLY over all the periods analyzed, indicating that TJX has been a stronger performer than the broader consumer discretionary sector. This outperformance is particularly notable over longer periods, such as the 2-year and 3-year periods, suggesting that TJX's business model and strategies have been effective in generating consistent returns.
Risk and Return Analysis:
- TJX has provided higher annualized returns than XLY over all the periods analyzed, indicating that TJX has been a more profitable investment. However, TJX has also exhibited higher annualized volatility than XLY, suggesting that TJX is a more volatile investment.
- TJX's maximum drawdown of 27.68% in Q2 2022 is lower than XLY's maximum drawdown of 39.67% in Q4 2022. This suggests that TJX has been more resilient to market downturns, despite its higher volatility.
Risk-Adjusted Performance:
- TJX has consistently offered a better risk-adjusted return than XLY, as evidenced by its higher Sharpe Ratio. This indicates that TJX has been able to generate higher returns for the level of risk taken.
- TJX's beta, which is generally below 1, suggests that it is less sensitive to market movements than XLY. This indicates that TJX is a less risky investment than XLY, as its price is less likely to fluctuate as much as XLY's price in response to market movements.
Overall Assessment:
- TJX has consistently outperformed XLY in terms of both absolute and risk-adjusted returns. This suggests that TJX is a strong investment with a solid business model and effective strategies. While TJX is more volatile than XLY, its lower maximum drawdown and higher Sharpe Ratio indicate that it is a more resilient investment with a better risk-reward profile.
- TJX's lower beta suggests that it is a less risky investment than XLY, making it a potentially attractive option for investors seeking to reduce their portfolio volatility.
- Overall, TJX appears to be a strong investment with a solid track record of outperformance and a favorable risk-reward profile.

Peers Price History(as of 2024-09-04)

Ross Stores, Inc. (ROST)Burlington Stores, Inc. (BURL)

Performance Comparison: TJX has generally outperformed ROST over the past three years, particularly in the longer timeframes. However, TJX has underperformed BURL, especially in the shorter timeframes. This suggests that TJX may be a more stable investment with a longer-term growth potential, while BURL may offer higher returns in the short term but with greater volatility.
Risk and Return Analysis: TJX has consistently provided higher annualized returns than ROST over the past three years, indicating a stronger growth potential. However, TJX has shown lower annualized returns than BURL, suggesting that BURL may offer higher returns but with greater risk. TJX has exhibited lower annualized volatility than BURL, indicating a more stable investment. ROST has shown similar volatility to TJX. The drawdown figures highlight that BURL has experienced the largest maximum drawdown, indicating a higher risk profile. TJX and ROST have shown more resilience to market downturns.
Risk-Adjusted Performance: TJX has generally offered a better risk-adjusted return than BURL and ROST, as indicated by its higher Sharpe ratio. This suggests that TJX has been able to generate higher returns for the level of risk taken. However, BURL has shown periods of outperformance on a risk-adjusted basis, indicating that it may be a better choice for investors seeking higher returns with a higher risk tolerance.
Overall Assessment: TJX appears to be a more stable and less volatile investment than BURL, with a consistent track record of generating higher returns than ROST. However, BURL has shown higher returns in the short term, suggesting that it may be a better choice for investors with a higher risk tolerance. Investors seeking a more stable and less volatile investment with a longer-term growth potential may prefer TJX.

Peers Fundamentals(as of 2024-07-31)

Ross Stores, Inc. (ROST)Burlington Stores, Inc. (BURL)

Market Position and Size:
- TJX is the largest company in the off-price retail sector, with a market capitalization significantly larger than its peers, Burlington Stores (BURL) and Ross Stores (ROST).
- TJX's market cap is strongly correlated with its revenue, EBITDA, and net income, reflecting its dominant market position and scale.
- TJX's size and market dominance establish it as a market leader in the off-price retail sector.
Profitability and Efficiency:
- TJX demonstrates a mixed profitability profile, with a lower Gross Profit Margin than the industry average but significantly higher EBITDA Margin and Net Profit Margin.
- TJX's high EBITDA Margin and Net Profit Margin indicate efficient cost management and strong earnings power.
- TJX exhibits superior returns on assets, equity, and invested capital, demonstrating its ability to generate high returns for its shareholders.
Financial Health and Stability:
- TJX's financial health is considered healthy, supported by its strong profitability, efficient returns generation, and robust cash flow generation.
- TJX's conservative debt strategy, with lower debt levels compared to its peers, further enhances its financial stability.
- Despite some weaknesses in its short-term liquidity, TJX's overall financial health is strong.
Valuation and Market Perception:
- TJX's valuation metrics are generally higher than its peers and the industry average, reflecting its strong financial performance, market dominance, and growth prospects.
- Its lower P/E ratio might reflect investor sentiment or expectations for future earnings growth.
- Overall, TJX's valuation is generally in line with its market cap, peer group, and industry standards.
Cash Flow and Capital Management:
- TJX generates significantly higher Net Operating Cash Flow and Free Cash Flow compared to its peers, demonstrating its strong cash flow generation capabilities.
- Its significant capital expenditure reflects its investment in growth and expansion.
- TJX's ability to generate substantial free cash flow positions it well for future growth and shareholder value creation.
Growth and Future Prospects:
- TJX consistently demonstrates higher growth in sales, EBITDA, net income, basic earnings per share, and free cash flow compared to the peer group average.
- Its growth has been accelerating in recent years, indicating a positive momentum and potential for continued outperformance.
- TJX's growth profile is strong and sustainable, with consistent growth across key metrics and accelerating trends in recent years.
Potential for Investment:
- TJX's strong financial performance, robust cash flow generation, and consistent growth trajectory make it an attractive investment opportunity.
- Its dominant market position, efficient operations, and conservative debt strategy provide a solid foundation for future growth and shareholder value creation.
- However, investors should carefully assess its cost structure and potential sensitivity to market conditions before making any investment decisions.
Key Risks and Considerations:
- TJX's lower Gross Profit Margin might indicate potential inefficiencies in its cost structure.
- Fluctuating growth in certain metrics suggests potential sensitivity to cyclical factors or market conditions.
- Its lower Current Ratio and Quick Ratio indicate a slightly weaker ability to meet its short-term obligations.
Overall Assessment:
- TJX is a financially strong and well-positioned company in the off-price retail sector.
- Its dominant market position, superior financial performance, and consistent growth trajectory make it a leader in the industry.
- While some risks and considerations exist, TJX's overall financial health and future prospects are positive.