TJX Companies Continues Strength In Midst Of Retail's Rough Patch

Reviewing TJX Companies Inc TJX's second-quarter results, analysts highlighted the company's continued strength in the midst of retail's rough patch.

Jefferies referred to the second quarter print as refreshing, given most retailers are reporting disappointing results every quarter.

However, Credit Suisse said the deterioration in domestic segment profit margins due to incremental store openings and supply chain initiatives along with a mix shift toward lower ticker categories and continued wage headwinds make it difficult for it to become more constructive on the company.

Jefferies maintains its Hold rating on the shares of Best Buy but lowered its price target from $80 to $75. Meanwhile, Credit Suisse reiterated its Neutral rating but raised its price target from $72 to $74.

Margin Expansion Unlikely In Near- To Mid-Term

Credit Suisse analysts Christian Buss, Sara Shuler, Pallavi Bakshi and Christine Lee noted that the company reported better-than-feared results due to strong results from the HomeGoods segment. The analysts said sourcing environment appeared to remain intact due to the size advantage of the company. Additionally, the firm noted that inventory management remained healthy.

Credit Suisse raised its third-quarter comp estimate from 2.7 percent to 3.3 percent and that for 2017 from 2 percent to 2.9 percent. The firm maintains its gross margin estimate at 28.9 percent and raised its SG&A assumption from 17.7 percent to 17.8 percent.

For the long term, the firm expects a 20–30 basis point increase in SG&A annually due to continued wage and reinvestment headwinds.

The firm upwardly revised its 2017 revenue, comp and earnings per share estimates from $35.318 billion, 2 percent and $3.87 to $35.86 billion, 2.9 percent and $3.93, respectively. The firm also raised its 2018 estimates to $37.836 billion, 2.5 percent and $4.26.

"All in all, we see limited room for upside to shares absent margin expansion which we view as unlikely in the near to mid-term," the firm said.

See also: Retail To Finish Q2 Earnings Season As Challenges Continue

Jefferies Sees Minimal Issues

Jefferies analyst Randal Konik said he sees minimal issues. Though there was SG&A deleverage, analyst said it has been discounted by most people. The analyst also sees the HomeGoods merchandise margins as transitory. The sub-par performance in European sales, according to the analyst, was better than most.

Jefferies noted that total comps, after missing expectations in the first quarter, came in above plan in the second quarter, with the metric remaining solid and being traffic-driven. The firm also pointed to a solid 7-percent comps at HomeGoods.

The firm also noted that the guidance was solid and inventories were controlled. Among the metrics on its watchlist, Jefferies said it would be monitoring the merchandise margins, HomeSense USA and comp composition.

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