Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


TJX Shrinks and Makes More Money at the Same Time

The TJX Companies (NYSE: TJX) exposes the confusion in brick and mortar retail. To explain, TJX is making more money as its revenue growth shrinks.

In particular, TJX’s revenue growth rate fell by -6.08% in the quarter ending on 2 November 2019. Notably, that was the second quarter of falling revenue growth at TJX; TJX’s revenue growth rate fell by -0.45% in the previous quarter.

However, TJX’s quarterly revenues grew from $9.781 billion on 3 August 2019 to $10.451 billion on 2 November 2019. In addition, TJX’s quarterly operating income grew from $1.024 billion on 3 August 2019 to $1.25 billion on 2 November 2019.

Plus, TJX’s quarterly net income grew from $785.26 million on 3 August 2019 to $828.26 million three months later. Finally, TJX’s quarterly gross profit grew from $2.756 billion in August 2019 to $3.011 billion in November 2019. Therefore, TJX is making more money as its growth rate collapses.

How much Cash is TJX Generating?

Meanwhile, TJX’s operating cash flow grew from $750 million on 3 August 2019 to $974.28 million three months later. In addition, TJX’s free cash flow grew from $488.9 million to $559.59 million in the same period.

Importantly, TJX reported a negative quarterly cash flow of -$695.47 million and a free cash flow of -$417.54 million on 2 November 2019. To explain, that means TJX did not borrow money to finance its operations in that period.

Conversely, TJX’s cash and equivalents fell slightly from $2.186 billion in August to $2.06 billion in November. However, TJX’s total assets grew from $24.855 billion in August to $24.89 billion in November.

Therefore, TJX’s book value grew last quarter but its cash supply shrank last quarter.  TJX’s department stores are gaining value but generating less cash.

Can TJX Survive the attack of the Cyber Sales?

The greatest danger to The TJX Companies (NYSE: TJX) is the fast growth of mobile shopping. Cyber sales threaten TJX because it operates brick and mortar shopping stores such as TJX Maxx, Home Goods, and Marshalls.

Currently, things look bad for TJX on the cyber front. For instance, Cyber Monday Gross Merchandise Volume (GMV) grew by 26% between 2018 and 2019, Big Commerce estimates. In contrast, Cyber Monday GMV by 14% between 2017 and 2018. To clarify, Gross Merchandise Volume is the amount of goods sold online.

Therefore, the amount of merchandise sold online is growing. Moreover, Americans are spending more money online. For example, the average Cyber Monday online order size grew from $109.60 in 2018 to $119.60 in 2019, Big Commerce estimates.

Finally, same-store sales grew by 21% between Cyber Week 2018 and Cyber Week 2019. Plus, the Cyber Week average order value (AOV) grew by 10% between and 2018 and 2019.

Does TJX have a Future?

Hence, American shopping is moving online. That threatens TJX (NYSE: TJX) which operates old-fashioned department stores.

Currently, TJX operates over 4,300 stores in nine countries and three e-commerce sites. Hence, expensive brick and mortar infrastructure  comprises much of TJX’s value. To operate that interstructure, TJX claims to employ over 270,000 people worldwide.

In detail, TJX owns the T.J. Maxx, Marshalls, Homegoods, Sierra, and Homesense chains in the USA. Furthermore, TJX operates Winners, Homesense, and Canada. Additionally, TJX operates T.K. Maxx and Homesense in Europe and T.K. Maxx in Australia.

However, TJX has the resources to become a big player in e-commerce. For example, TJX claims to buy products from over 21,000 vendors in over 100 countries. In addition, TJX claims to have 1,100 buying associates.

Why TJX needs Overstock

Therefore, TJX could sell massive amounts of merchandise online if it wants. Consequently, I think TJX needs to buy a smaller e-commerce platform such as Overstock (NASDAQ: OSTK).

Overstock is cheap now. Its shares were trading at $7.05 on 11 December 2019. In addition, Overstock had a market capitalization of $249 million on the same day.

To clarify, I do not think TJX could survive and grow without a strong e-commerce brand. Overstock is a strong e-commerce brand that is cheap and has limited resources. For instance, Overstock reported quarterly revenues of $347.1 million on 30 September 2019. In addition, overstock had just $86 million in cash on hand, on 1 October 2019, Macrotrends, estimates.

Is TJX a Value Investment?

TJX could be a value investment because Mr. Market was paying $60.11 for it on 11 December 2019. In addition, TJX had a Market Capitalization of $72 billion on the same day. Yet it is a huge company with some cash.

Additionally, I think TJX is a good income stock because it reports it offers 22 years of dividend growth. TJX (NYSE: TJX) shareholders received a dividend of 23₵ on 13 November 2019.

Plus, TJX has scheduled a 23₵ dividend for 12 February 2020. Overall, TJX shares offered a dividend yield of 1.52%, an annualized payout of 92₵, and a payout ratio of 37.55% on 6 December 2019.

In the final analysis, I believe TJX is a good dividend, income, and value stock that Mr. Market cannot appreciate. I think TJX is in a good position to make money from brick and mortar stores and profit from e-commerce.

Those seeking a value investment in retail need to investigate The TJX Companies (NYSE: TJX).