Stock Wars: Burlington Stores Vs. TJX Companies

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector, with the goal of determining which company is the better investment.

This week, the duel is between two department store chains: Burlington Stores Inc BURL and The TJX Companies Inc TJX.

The Case For Burlington Stores: In 1972, Monroe Millstein, a second-generation coat wholesaler, was heavily influenced by his wife Henrietta Millstein to purchase a vacant factory in Burlington, New Jersey, as a retail outlet for his unsold inventory. Mrs. Millstein was so strongly convinced this was a great idea that she contributed $75,000 from her personal savings for the down payment on the property. The Millsteins added additional apparel and other merchandise to their retail outlet, which quickly became a hit.

By 1983, the Millsteins were operating 31 stores in their chain and took the company public. Bain Capital Partners purchased the company in 2014 for $2.06 billion and took it private. It became publicly traded again in October 2013. As of this writing, the company operates 792 stores in 45 states and Puerto Rico.

In its most recent earnings report, the second quarter data published on Aug. 26, Burlington Stores reported total revenue of $2.2 billion, up from $1 billion one year earlier, as well as a net income of $102.5 million compared to a $46.7 million net loss in the previous year’s second quarter.

The company’s adjusted earnings per share (EPS) of $1.94 was a marked improvement from the -56 cents of the previous year, while its diluted net income per common share of $1.50 was significantly stronger than the -71 cents recorded one year earlier.

Despite a vibrant second quarter, the company opted not to offer sales or earnings guidance for the fiscal year 2021, citing “the uncertainty surrounding the pace of the recovery of consumer demand and the ongoing COVID-19 pandemic.”

“The environment remains uncertain, and the trend is difficult to predict,” said CEO Michael O’Sullivan. “We will continue to manage our business flexibly so we can chase the trend or pull back if necessary. In addition, we are seeing a huge imbalance between supply and demand in global logistics systems. This is driving up freight and supply chain expenses and it will put significant pressure on our margins for the balance of the year.”

Nonetheless, O’Sullivan also highlighted the company’s “34% total sales growth year-to-date,” adding that he believed “many of the prevailing expense headwinds are being driven by short-term market conditions. We continue to expect significant margin expansion, as these conditions normalize, over the next few years.”

Burlington Stores closed for trading on Wednesday at $296.73, sandwiched between its 52-week range of $190 and $357.34.

Related Link: The complete Stock Wars series

The Case For The TJX Companies: This company can trace its origins to the 1977 opening of the T.J. Maxx store opened in Auburn, Massachusetts, as an off-shoot of the Zayre Corp.’s discount department store chain. Within 10 years, the Zayre brand was suffering financially while the expansion of the T.J. Maxx chains under the subsidiary banner of The TJX Companies was showing vibrancy. By October 1988, Zayre Corp. jettisoned its eponymous stores for $431.1 million to concentrate on TJX, which went public one year later.

Over the years, TJX expanded under different brands: HomeGoods, Marshall’s and A.J. Wright joined T.J. Maxx in the national U.S. market and Bob’s Stores served the New England region, while British and Irish shoppers frequented T.K. Maxx and Canadians and British consumers shopped at HomeSense. The company would later sell Bob’s Stores and shutter the A.J. Wright chain while purchasing a 25% stake in the Russian retailer Familia.

In its most recent quarterly data, the second quarter was published Aug. 18, TJX reported net sales of $12 billion, up from $6.6 billion one year earlier when stores were closed for approximately 31% of the quarter due to the pandemic. The second-quarter net income of $785.6 million was up from the $214.2 million net loss in the previous year.

The second quarter's diluted earnings per share of 64 cents fared better than the previous year’s -18 cents. As with Burlington, TJX did not offer guidance.

“Sales are very strong as we start the third quarter, with overall open-only comp store sales up mid-teens,” said President and CEO Ernie Herman. “While the environment remains uncertain, particularly with the delta variant, we are convinced that TJX is in a position of strength.

“We see numerous opportunities to continue to gain market share and improve our profitability in the medium to longer term. We are confident in our ability to reach our long-term strategic vision of TJX becoming a $60 billion company.”

TJX closed for trading on Wednesday at $69.53, sandwiched between its 52-week range of $50.06 and $76.16.

The Verdict: TJX deserves kudos for a year-over-year bounce back. As an international company, it was dealing with geographically uneven pandemic impacts during the second quarter of 2020, while its U.S. stores were open for the entire second quarter, stores in Canada were closed for approximately 22% of the second quarter, Australian stores were closed for about 18% of the quarter and stores in Europe were closed for approximately 2% of the quarter.

One striking thing about the second-quarter earnings reports was that the leaders of both companies were frank and honest assessments of the challenges facing their sector. It would have been too easy to accentuate the positive, especially when one considers the third quarter's back-to-school shopping push and the fourth quarter's holiday season opportunities. The absence of guidance from either company displayed a degree of honesty that deserves respect.

At this point in time, it might make sense to keep an eye on both Burlington and TJX to see how they fare after the third quarter runs its course. Both companies appear to be on solid ground, their respective stocks are holding steady and it seems unlikely there will be lost opportunities if investors keep these stocks on the proverbial back burner for a couple of additional weeks.

Photos: Top photo by Q K from Pixabay; Burlington photo by Nicholas Eckhart / Flickr Creative Commons; TJ Maxx photo by Mike Mozart / Flickr Creative Commons.