Long-Term Outlook Favorable for TJX Despite Headwinds

We plan a low- to mid-single-digit cut for our $48 per share valuation for narrow-moat

Year-to-date revenue rose 12% against a 10.8% pretax profit margin. Management revised its fiscal 2019 EPS target to $2.41 to $2.43 from $2.42 to $2.44 (split-adjusted), versus our $2.47 pre-announcement mark.

Quarterly comparable sales growth was strong across all divisions, with Marmaxx (about 60% of fiscal 2018 sales) leading with a 9% mark. The chain continues to post strong results throughout its apparel offerings, improving on disappointing comparable sales performance in the same period last year (down 1%). We believed last year's shortfall, which management attributed to weather and missed fashion trends, was transitory and are encouraged that Marmaxx has reestablished its strength in fiscal 2019. While TJX is susceptible to the vagaries of fashion trends, we believe its agile buying infrastructure and rapid inventory turnover lends resilience.

HomeGoods (roughly 15% of sales) was similarly strong on the top line, posting 7% comparable sales growth. However, the unit is more susceptible than the rest of the organization to freight costs, which, along with the expense of expanding the new Homesense chain, have led segment margins down a little over 180 basis points thus far in fiscal 2019, to 11%. While we were not surprised by management's indication that cost pressure should continue into fiscal 2020, we expect long-term recovery as Homesense becomes established and the unit leverages its nimble merchandising effort.

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