Market Mad House

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

Market Wisdom

Why is the TJX Companies Making Money?

The TJX Companies (NYSE: TJX) is doing something extraordinary in the department business. Uniquely, TJX is expanding and making money when competitors are dying.

In fact, TJX is now America’s largest department store operator in terms of revenues. For instance, Macy’s (NYSE: M) reported 3rd Quarter revenues of $5.572 billion on 4 August 2018. Meanwhile, TJX recorded 3rd Quarter revenues of $9.331 billion on the same day.

Moreover, TJX reported a revenue growth rate of 11.65% for 3rd Quarter 2018. Conversely, Macy’s revenues shrank by 1.14% during 3rd Quarter 2018.

Therefore, TJX’s revenues will be twice the size of Macy’s–if the growth continues. Thus, TJX is among the fastest growing brick and mortar retailers in America.

Why TJX Companies Makes Money

TJX makes money by bucking retail trends and ignoring conventional wisdom. For instance, TJX opens stores in areas where competitors; like Walmart (NYSE: WMT), have historically feared to tread.

Notably, TJX Companies is opening stores in gentrifying inner city areas such as Manhattan. Additionally, TJX is expanding in decaying suburbs, and in the income-inequality belt of the Midwest.

Furthermore, TJX is expanding in its brick and mortar footprint in the age of Amazon (NASDAQ: AMZN).  For example, TJX is aggressively expanding its discount home furnishing small box brand HomeGoods.

Additionally, TJX operates varieties of stores other retailers are writing off. Its’ fleet of stores is heavy with storefronts in suburban strip malls and multilevel urban department stores.

How TJX Companies Makes Money

TJX’s business model is delightfully old-fashioned. In detail, TJX buys lots of unique high-quality items and sells them at low prices.

To attract customers, TJX Companies sells well-known brands at discounts of 20% to 60%. Therefore, TJX is operating an old-fashioned bargain basement in the 21st Century.

That gives TJX a unique business model with few direct competitors. In fact, its closest rivals in the sphere are Big Lots (NYSE: BIG), Nordstrom Rack, and (NASDAQ: OSTK).

I consider Nordstrom (NYSE: JWN) TJX’s most dangerous direct competitor because of the Rack and Last Chance stores. In detail, Rack and Last Chance sell overstock and unsold goods from Nordstrom department stores at lower prices.

TJX Companies vs Nordstrom

The difference is that Nordstrom is ashamed of discounting while TJX is not.

Opening day at Marshalls in Santa Barbara Aug 4, 2011

To explain, Nordstrom hides its Rack and Last Chance stores in distant exurbs; in the hope affluent customers will not see them. TJX, on the other hand, is a proud discounter openly operating discount stores in some of America’s most affluent communities. There is a Marshall’s store in Manhattan’s Tribeca, for instance.

Thus, TJX attracts customers from all income levels. Both the welfare mother and the investment banker; and their money, are welcome in TJX stores. Conversely, Nordstrom tries to hide its discounting.

An advantage to TJX’s model is that its stores are a short bus ride; or drive, from most customers’ homes. Whereas, Nordstrom’s Chicagoland Last Chance store is located in the distant outer suburb of Lombard, Illinois.

Hence, a grave threat to TJX is Nordstrom opening smaller discount stores in urban areas. Nordstrom is testing Nordstrom Local stores; which combine ship-to-store for online orders and services such as tailoring, in Los Angeles.

How much money is TJX Companies making?

The lack of pretense is paying off big time at TJX Companies . For example TJX recorded a $2.695 billion gross profit, an operating income of $999.59 million, and a net income of $739.63 million on August 4, 2018.

In the second place, TJX generated an operating cash flow of $835.78 million, investing cash flow of $149.43 million, and a free cash flow of $526.82 million. Markedly, TJX recorded $2.872 billion in cash and short-term investments on 4 August 2018.

Thus, TJX Companies had more money in the bank than Target (NYSE: TGT). For the record, Target recorded cash and equivalents of $1.18 billion, revenues of $17.776 billion, and a gross profit of $5.537 billion on 4 August 2018. Hence, TJX could be more profitable than the larger and better-known Target.

The TJX Companies at a Glance

The TJX Companies is far larger than you think; it operates over 4,000 stores in nine countries. In addition, TJX operates three e-commerce sites.

TJX brands include T.J. Maxx, Marshalls, Marmaxx, HomeGoods, Sierra Trading Post, Homsense, HomeGoods, and Winners. The strategy is paying off because TJX claims to have delivered 22 straight years of store sales increases.

To supply its stores TJX works with 20,000 vendors in 100 countries. Therefore, TJX has built an impressive ecosystem it can easily expand online.

An obvious opportunity for TJX is to add an existing online discounter; like eBay (NASDAQ: EBAY), Alibaba (NYSE: BABA), or (NASDAQ: OSTK), to its ecosystem. Importantly, TJX is offering to ship-to-store for items ordered through Sierra Trading Post.

Impressively, Business Insider lists the TJX Companies (NYSE: TJX) as the “number one clothing company” in the United States. Notably, TJX is thriving while mall brands like The Gap (NYSE: GAP) are struggling. Thus, one reason for TJX’s success is its’ refusal to follow competitors into the mall.

TJX Companies is a Good Dividend Stock

In the final analysis, TJX Companies is a superb dividend stock. For example it offered a dividend yield of 0.72%, a payout ratio of 15.9%, and annualized payout of 78¢ on 29 October 2018.

Best of all the TJX Companies has delivered 21 years of dividend growth. For instance, TJX paid a dividend of 39¢ on 6 September 2018. That was up from 31.3¢ paid on 8 March 2018.

However, TJX’s dividend is shrinking. Shareholders will receive a payout of 19.5¢ on 6 December 2018. Hence, the 21 years of straight dividend growth is ending.

Conversely, TJX is still a good company that is growing and making money. Therefore, the dividend shrinkage is an opportunity for growth investors.

TJX Companies is a Good Value Investment

The TJX Companies dividend shrinkage is a good thing because it shows a responsible management. To explain, the management is more interested in stocking up on cash than inflating the share price with a high dividend.

I consider TJX a value investment in retail at the $109.46 share price reported on 2 November 2018. The 11.65% revenue growth rate justifies that price.

The TJX Companies (NYSE: TJX) is a value investment in retail that offers high growth potential and a respectable dividend. Hence, I advise both growth and value investors to investigate TJX.