Off-price retail is as popular as ever thanks to social media, in particular, spreading the word on bargains. It has also benefited from customers feeling the pinch of inflation in their pocketbooks, which is leading consumers to choose discounted clothing options.
The industry itself has transformed a lot from just old and damaged products as well as outdated styles to great deals on luxury items.
TJX (NYSE:TJX) is among the best operators in the space and a fan favorite among eagle-eyed shoppers. Over the past five years, the company’s stock has gained more than 90% and even over the past nine months it is up by close to 25%.
With off-price retail in the midst of a transformative shift, the company is scaling new heights but what does the next decade hold for TJX shareholders? Can the bullish momentum continue?
What Is Going On With The Off-Price Retail Industry?
Gone are the days when off-price retail was filled with outdated fashion, low quality, and/or damaged goods. The off-price retailers now offer premium fashion at low prices. There are a couple of factors that are aiding this growth.
First of all, brands are looking for ways to offload their excess inventories. Under the threat of inflation, consumers are looking for value (even the high-end ones). The high-income consumer is willing to spend, but the value has to be there. In response, the “cheap chic” retailers have pushed into their private label portfolio and cut prices.
Next, consumers are willing and happy to get premium clothing options at lower prices. Even high-end consumers are willing to trade down. So, this has created a synergy where brands are finding channels to offload products while the off-price retailers are increasingly selling luxury goods.
Retailers like TJ Maxx are increasingly showcasing premium brand products and creating a win-win situation for shareholders by delivering higher top line results thanks to higher price points as well as consumers who receive branded higher-end products at cheaper price points.
The convergence of these two means that off-price retail is here to stay because the younger population has begun to view it as a normal way of shopping rather than to scavenger hunt.
TJX Companies Is Bigger Than You Might Think
The off-price retailer behind popular names like Marshalls, HomeGoods, and TJ Maxx operates over 5,000 stores in several countries. Right now, it seems like the company’s efforts are centered around expanding its international footprint.
The company is seeing higher footfall at the moment thanks to the amalgamation of apparel, home fashion, and other merchandise under one storefront at prices generally 20% to 60% below full-price retailers (like Macy’s and Kohl’s). Notably, the company is seeing a lot of interest from younger consumers who don’t see buying stuff at lower prices as some sort of stigma.
TJX last reported quarterly results for the third quarter of fiscal 2025 and management announced a 6% jump in its sales from the prior year’s period to $14.06 billion. There were at first some doubts that sales would be impacted by warmer-than-expected weather because off-price retailers tend to be more affected by weather patterns than traditional retailers. But fortunately for shareholders, this did not happen.
Comparable store sales are seeing some weakness. For Q3 2024, they grew by 6% year-over-year, whereas over the last reported quarter, they grew by 3% from their year-ago level. Comparable store sales were largely driven by higher customer transactions, an indication that the company’s treasure hunt shopping experience is still appealing to a lot of customers.
If we look at the regional division, TJX Companies’ international segments are outperforming the rest. CEO Ernie Herrman actually gave a shout-out to the European team for the 7% growth in comparable store sales in the international division.
The top line gains did translate into bottom-line wins as well. Net income went up by 9% year-over-year to $1.30 billion. Pretax profit margin came in at 12.3%, up 0.3 percentage points compared to the 12.0% recorded in the third quarter of the last fiscal year.
With profits came cash, and the company generated $1 billion of operating cash flow and ended the quarter with $4.70 billion in cash. TJX Companies returned a total of $997 million to shareholders, $574 million in the form of TJX stock (retiring 5 million shares), and $423 million in the form of shareholder dividends during the quarter.
Where Will TJX Companies Stock Be in 10 Years?
A 10 year discounted cash flow forecast implies that TJX shareholders are likely to see a ceiling in share price of $108 per share, suggesting that much of the good news has already been priced in.
Among analysts, there is a little more optimism up to $130 per share, but that suggests less than 10% upside opportunity from current price levels.
In the short-term, given that management was satisfied with the most recent results, particularly its ability to bolster margins, it decided to raise its guidance for pre-tax profit margin (at 11.3%) and earnings per share ($4.15 to $4.17) for FY 2025. Consolidated comparable sales growth is fixed at the 3% level posted in Q3.
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