TJX Meets, Lifts Outlook - Analyst Blog

The TJX Companies Inc.'s (TJX) fiscal second-quarter GAAP earnings grew 16.6% to $305 million from $262 million in the year-ago period. Excluding special items, adjusted earnings came in at 73 cents per share, matching the Zacks Consensus Estimate, but well ahead of 61 cents posted in the year-ago quarter.

Buoyed by the quarterly results, TJX lifted its adjusted earnings guidance for fiscal 2011 to a range of $3.27 to $3.37 per share from the earlier outlook of $3.24 to $3.33. The revised guidance remains in line with the Zacks Consensus Estimate of $3.36 per share, which edged up a penny over the past week as 3 of 13 covering analysts raised expectations.

Net sales during the quarter grew 7.3% year-over-year to $5,068 million, narrowly missing the Zacks Consensus Estimate of $5,110 million. TJX's consolidated same-store sales increased 3% in the quarter driven by same-store sales growth at Marmaxx (+3%), Home Goods (+8%) and TJX Canada (+6%), partially offset by a decline of 4% in TJX Europe. Same-store sales at A.J. Wright remained flat year-over-year.

TJX's gross profit rose 11.2% year-over-year to $1,349 million, while gross margin expanded 110 basis points (bps) to 26.6%. The growth was primarily driven by strong merchandise margins coupled with leveraging impact of higher sales on buying and occupancy expense.

Selling, general and administrative expenses (SG&A), as a percentage of sales, increased 10 bps to 16.8%, mainly due to expenses related to new store openings. However, higher sales and gross margin more than offset the increase in SG&A. Accordingly, TJX's adjusted operating income (gross profit less SG&A) recorded a growth of 17.2% year-over-year to $495.1 million, while operating margin expanded 90 bps to 9.8%.

TJX exited the quarter with cash and cash equivalents of $1,380 million, compared to $1,427 million in the year-ago period. Quarter-end long-term debt was $774 million, reflecting a capitalization ratio of 20.7%. During the first half of fiscal 2011, the company generated $660 million of cash from operations and deployed $575 million towards share buybacks, $321 million towards capital expenditure and $110 million towards dividend payments.

Moving forward, TJX expects fiscal 2011 third-quarter EPS of 86 to 91 cents based on same-store sales growth of 0% to 2%. The guidance is in line with the Zacks Consensus Estimate of 89 cents per share, which dipped a penny over the past week as 2 of 15 covering analysts lowered expectations.

We currently have a long-term Neutral recommendation and a short-term Zacks #3 Rank ('Hold') rating on TJX.

 
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