TK Maxx owner posts soft quarterly sales

TK MaxxOff-price retailer of apparel and home fashions, TJX, has announced a weak outlook which overshadowed its rise in quarterly profit. 

The TJX chain, which operates TK Maxx, Home Sense and Marshalls, reported a 3.2 per cent net sales increase for the first quarter of FY 2018 to $7.78 billion and consolidated comparable store sales increased one per cent over last year’s seven per cent increase. The one per cent sales year-on-year sales growth was the slowest the retailer has posted since 2014.

Profit for the first quarter rose 5.5 per cent to $536.3 million and diluted earnings per share were $.82 versus the prior year’s $.76.

Ernie Herrman, company CEO, said the disappointing results were partly due to bad weather in some parts of the US and Canada and sales had picked up at the end of the quarter.

“We were pleased to see sales trends pick up as the quarter progressed,” Herrman said. “With our disciplined inventory management, our merchandise margin was up, which speaks to the resiliency and flexibility of our off-price retail model. Further, we are confident that we are gaining market share at each of our four major divisions.

Herrman said the company’s second quarter is off to a solid start and they have excellent liquidity in our inventories.

“This positions us extremely well to capitalize on the plentiful buying opportunities we see for exciting fashions and brands in the marketplace and bring them to consumers at amazing values. As always, we will strive to surpass our goals and we have great confidence in the continued, successful growth of TJX,” he said.

TJX, which has more than 3,800 stores worldwide, however, announced its profits would decline in the current quarter.

Neil Saunders, managing director of GlobalData Retail, said they have noted in the last quarter that TJX would start its fiscal year with a slightly softer set of numbers, which he said proved to be the case.

The 3.2 per cent total growth is respectable, but some way down on that posted over the last year,” Saunders said. “The same holds true for the comparable sales figures which only just nudged into positive territory.”

Saunders said most of the downswing in growth is the result of a very tough prior year comparative which saw total sales rise by almost 10 per cent and comparable sales by seven per cent. “Given the exceptional nature of this increase, it was always unrealistic to expect TJX to post stellar numbers. The strong dollar exacerbated this situation, diluting overall sales growth by two percentage points thanks to an unfavorable rate of exchange on foreign turnover.”

He said as much as all of these factors hampered sales growth, they do not tell the whole story.

“In our view, some of the slowdown is also due to significant challenges in the apparel market across the first quarter. This partly explains the uncharacteristically weak performances from Marshalls and TJMaxx within the US, both businesses which usually post robust same-store sales increases but which, this time around, were flat over the prior year.”

According to Saunders, while neither Marshalls nor TJX has fallen out of favor with consumers, the amount of discounting and markdown activity across the apparel sector resulted in the customers of both chains shopping more widely than usual. At the same time, interest in and demand for apparel waned, especially during the early part of the quarter.

“Both of these factors made it tough for TJX to increase its share of wallet from existing customers, and to attract new consumers, in the way it usually does,” he said.

“The home category was nowhere near as challenged as apparel and, overall, the market grew at a robust pace,” he added.

Sauncers said looking ahead, the rest of this fiscal will become a bit easier for TJX.

“It is up against softer prior year comparatives, and the turmoil in the apparel market should start to ease,” he said. “However, there is no denying that the general trading backdrop will remain challenging. More retailers are getting into off-price, the dollar will remain elevated, and the maturity of certain parts of TJX’s business mean they cannot be relied upon to boost numbers in the way they once did.”

He said as a result of all this, they believe that the year will be a softer one for TJX with comparable growth well below last year, likely coming in at around the two per cent mark.

“In the near-term earnings will also weaken, but thanks to strong operating discipline these should bounce back by year end. Ultimately, TJX will remain a winner in both apparel and home, but the days of easy growth are now firmly behind it.”

TK Maxx has officially begun its assault on the Australian market, after opening its first stores in Melbourne and Queensland last month, followed by a raft of Sydney locations.

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