TJX Drops as Retail Pessimism Overshadows Strong Quarterly Sales

(Bloomberg) -- TJX Cos., which owns the Marshalls and TJ Maxx chains, may be a victim of Wall Street’s growing pessimism surrounding the retail industry. The company’s shares fell in early trading despite reporting healthy third-quarter sales.

  • TJX’s comparable-store sales, one of the most important metrics for retailers, rose 7 percent, outpacing the 4.1 percent average of analysts’ estimates. Margins failed to meet projections, however. That’s a recurring theme for the industry in recent weeks.

Key Insights

  • It’s all about profitability. Gross margin of 28.9 percent missed analysts’ estimates of 29.2 percent. That’s because of higher freight costs, supply chain expenses and an unfavorable annual comparison, TJX said. The company expects margins to continue to be an issue in the next quarter, as well.
  • Inventories were also up 17 percent from a year ago. This may be a cause for concern as retailers try to keep merchandise stocks lean. Higher inventory can also be a sign that the products aren’t resonating with shoppers.
  • Despite these warning signs, TJX is still seeing its sales accelerate. Chief Executive Officer Ernie Herrman said this was “driven by strong customer traffic at every division.” Wall Street’s consensus, however, seems to be that demand is starting to wane and the rising cost of attracting consumers will cause pressure across the industry.

Market Reaction

  • TJX shares fell as much as 8.1 percent to $45 in early trading on Tuesday. The stock has gained about 28 percent so far this year.

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