Market Mad House

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


Why are The TJX Companies Making Money?

I ask why are The TJX Companies making money, because TJX operates in an ailing industry. In fact, many of TJX’s competitors are dead or near collapse.

In fact, the stock of one competitor; Pier 1 Imports (NYSE: PIR) was trading at 61₵ a share on 24 April 2019. Significantly, Pier 1 is a direct competitor to TJX’s HomeGoods, Sierra, and HomeSense brands.

Thus bothTJX (NYSE: TJX) and Pier 1 are box retailers that sell high-quality home furnishings and other merchandise at a deep discount. In addition, both stores cater to lower and middle-class women in suburban and urban areas.

However, Pier 1 could close 145 stores while HomeGoods is expanding so fast TJX is building new fulfillment centers for it. Specifically, TJX will build a HomeGoods distribution center on 290 acres in Lordstown, Ohio, WKYC 3 reports.

Nor is it just, Pier 1 Imports, Bed Bath & Beyond (NYSE: BBY) is closing 40 stores, USA Today reports. Bed Bath & Beyond operates large home furnishings stores similar to TJX’s TJX and Marshalls discount department stores. Concurrently, BBY shares were trading at $16.89 on 24 April 2019.

Why is TJX Making Money?

In contrast, TJX Companies (NYSE: TJX) shares were trading at $55.75 on the same day. It is easy to see why TJX reports a gross profit of $3.093 billion on revenues of $11.127 billion for 1st Quarter 2019.

Meanwhile, Bed Bath & Beyond reports a gross profit of $2.028 billion on revenues of $3.032 billion for 4th Quarter 2018. On the other hand, Pier 1 Imports records a gross profit of $130.49 million on revenues of $413.23 million.

Thus, TJX makes money in a very difficult market where historic retail legends like Sears and JC Penney (NYSE: JCP) are dying fast. But what is The TJX Companies and why does it make money in the Age of Amazon?

Is TJX the Biggest Retailer you have never heard of?

The TJX Companies could be the biggest retailer you have never heard of; because it operates over 4,000 stores, in nine countries. Moreover, TJX reports revenues of $38.973 billion and a gross profit of $11.142 billion for 2018.

In essence, the TJX Companies is a discounter that uses a well-connected supply chain to offer large volumes of high-fashion, brand-name, unique, and high-quality merchandise at low prices. In particular, TJX often sells clearance items other retailers cannot move.

In addition, TJX keeps overhead low by operating simple, and often disorderly stores. The TJX Maxx stores I have been in are reminiscent of an old-fashioned bargain basement.

Importantly, this environment is attractive to price-conscious shoppers. Not surprisingly, the TJX stores are big hits in countries plagued with income inequality, wage stagnation, and technological unemployment, like the United States and the United Kingdom.

Thus, a typical TJX shopper is a middle-aged soccer mom who needs to keep up appearances for her office job. However, the woman has not had a raise in years and worries about job loss. Hence, the woman shops at the cheapest places possible such as TJX brands and thrift stores.

Why is TJX Successful?

Moreover, TJX sticks to a simple business plan of selling a few lines of merchandise; clothing, home furnishings, etc, at low prices. Hence, TJX does not need the elaborate infrastructure Sears or Walmart (NYSE: WMT) requires.

Thus, the supply chain is simple which keeps expenses low. In addition, TJX only sells merchandise in its stores. There are no services available at TJX store beyond cash registers and returns.

Sticking to such a simple, and relatively foolproof business model prevents crises and complications. Additionally, the Keep it Simple Stupid (KISS) philosophy allows TJX to operate successfully with the cheapest employees. Hence, TJX can keep salaries low.

How Much Money is TJX Making?

Simplicity is paying off at TJX in the form of a $4.183 billion operating income and a $3.059 billion net income for 1st Quarter 2019. Moreover, TJX records an operating cash flow of $4.088 billion and a free cash flow of $2.963 billion for the same period.

Importantly, the KISS strategy allowed TJX to accumulate $3.03 billion in cash and equivalents on 2 February 2019. Therefore, TJX has more cash than competitors which allows the company to expand without high lending costs.

Furthermore, the cash enables TJX to take advantage of the collapse of its competitors. For instance, TJX can buy empty Sears, Pier 1 Imports, Bed Bath & Beyond, and JC Penney locations for new HomeGoods, or Marshalls’ stores.

Consequently, TJX grows it footprint at a low cost because of the retail apocalypse. Therefore, I can argue that Amazon’s growth is fueling TJX’s growth. To elaborate TJX expands as Amazon (NASDAQ: AMZN) drives more traditional department store operators out of business.

Can TJX’s Success Continue in the Age of Amazon?

Under these circumstances, we need to ask how long can TJX’s success last? In particular, Amazon and online bargain basements like Alibaba (NYSE: BABA), eBay (NASDAQ: EBAY), Overstock (NASDAQ: OTSK), and Wayfair (NYSE: W) pose direct threats to The TJX Companies.

Specifically, online discounters offer low prices and a far more convenient shopping experience than a HomeGoods or TJ Maxx store. For example, nobody has to go to a crowded store and pick through piles of merchandise at Amazon or Wayfair.

Instead, Amazon or Wayfair will ship the merchandise you want straight to your door. Moreover, Amazon Prime can ship items to your home in a few hours if you live in some cities.

Therefore, TJX will have a hard time reaching all the people who hate to shop. Contrary to popular belief, there are vast numbers of women who hate shopping as much as men do.

The Danger to The TJX Companies

The danger for The TJX Companies is that a large percentage of the population will never set foot in its stores. Notably, why should younger women go to TJ Maxx when Amazon lets them shop and stay home at play Fortnite at the same time?

However, there are ways The TJX Companies can cash in on changing lifestyles. For example, TJX could up its delivery game by working with Instacart or Ocado.

To explain, Instacart offers grocery delivery in the United States, and Ocado delivers groceries in the United Kingdom. Importantly, Instacart is delivering other merchandise like Staples office supply in Canada.

The TJX Companies are Scalable

Hence, TJX could offer a same-day delivery option without building a delivery service. In addition, TJX could sell through Amazon and leverage Amazon’s growing delivery network.

An obvious advantage to TJX’s simple business model is that they can easily integrate it with other companies. Another form of integration TJX could investigate is joint retail operations with other brands.

An obvious advantage to TJX’s simple business model is that they can easily integrate it with other companies. Another form of integration TJX could investigate is joint retail operations with other brands.

Finally, TJX could simply buy discount websites like Overstock or Wayfair and fold them into its operations. Therefore, TJX’s operations are very scalable which makes TJX a good value investment for the platform economy.

To explain, TJX is a platform a network of stores and fulfillment centers that connects over 20,000 vendors with shoppers. However, they can easily expand that network through online platforms like TJX’s websites; delivery services like Ocado, and ecosystems like Amazon and Alibaba.

Is The TJX Companies a Value Investment for the 21st Century?

Consequently, the TJX Companies (NYSE: TJX) could be a 21st Century value investment. Notably, TJX stock is cheap and it makes money. Additionally, TJX is growing and many of its competitors are collapsing.

Moreover, pays a modest but unstable dividend. For instance, the TJX dividend will grow from 19.5₵ on 7 March 2019 to 23₵ on 6 June 2019. However, TJX’s dividend fell from 39₵ on 6 September 2019 to 19.5₵ on 6 December 2019.

Therefore, TJX is not a reliable dividend stock despite the 22 years of dividend growth credits it with. On the other hand, TJX shareholders receive a dividend yield of 1.66%, an annualized payout of 92₵ and a payout ratio of 18.7% on 24 April 2019.

In summary, The TJX Companies is an interesting stock in a very unstable industry. Hence, I advise value investors to investigate TJX.