Market Mad House

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

The Death Spiral

Will the TJX Companies Survive Coronavirus?

Department stores were in deep trouble long before coronavirus. In fact, I think only two of the US department store brands were doing well before the pandemic.

Those brands are the bottom-feeding TJX Companies (NYSE: TJX) and the upscale Nordstrom (NYSE: JWN). TJX became America’s department-store success by selling an eclectic range of merchandise to the working class in messy stores. Nordstrom took the opposite path by marketing to the upwardly mobile through glitzy stores.

Now both department-store brands face the existential crisis of coronavirus. To elaborate, TJX and Nordstrom’s stores are closed and most people are shopping on Amazon (NASDAQ: AMZN).  

How Coronavirus Threatens TJX

Coronavirus threatens TJX because the company centers its business model on brick-and-mortar stores in urban areas.

TJX operates the TJ Maxx, Marshalls, Homegoods, Sierra, Winner, Homesense, and TK. Maxx stores. The stores sell office-price apparel and home furnishings in a bargain atmosphere.

TJX’s marketing relies heavily a bargain basement atmosphere that encourages crowds. Thus, TJX stores could be the perfect coronavirus spreaders and violators of social distancing.

I predict TJX will have a hard time luring many customers back into its stores. In addition, many local and regional governments will be under pressure to close enormous department stores to prevent pandemics from spreading.

Can Coronavirus Kill TJX?

I think TJX (NYSE: TJX) will have a hard time surviving because of limited resources.

For instance, TJX had $3.17 billion in cash and short-term investments on 31 January 2020. Moreover, TJX had $8.89 billion in current assets, $4.873 billion in inventory, and total assets of $24.145 billion on the same day.

However, TJX had $18.197 billion in total liabilities and $10.531 billion in long-term debt on 31 January 2020. Therefore, TJX could find itself in a position where it cannot pay its debts.

Coronavirus could force TJX to restructure its debts, or to borrow more money. This could hurt TJX because the company could have less money for expansion and dividends. Plus, TJX will have less flexibility to adapt to a changing world and discount.

How Coronavirus could Help TJX

Conversely, I think coronavirus could help TJX in two ways. First, TJX could have less competition because COVID-19 could kill many of TJX’s competitors.

For instance, clothing retailer J. Crew declared bankruptcy on 4 May 2020. Plus, the media is speculating Neiman Marcus and JC Penney (NYSE: JCP) could join J. Crew in bankruptcy.

Thus, TJX could find itself the last department standing in many markets. Hence, TJX could have more customers and make more money. Importantly, TJX subsidiaries Marshalls and Home Goods appear on TheRealDeal’s list of retailers still paying rent in April 2020.

Second, TJX brands could move into the stores companies such as JC Penney and Sears leave empty as they die. Therefore, TJX could expand cheaply, because desperate landlords will rent to any retailer with cash.

Unfortunately, TJX could have difficulty borrowing money to finance expansion. To explain, I think many investors and lenders will avoid all retail after coronavirus. Hence, TJX will pay more to borrow less money, which could hurt its ability to make money.

Was TJX Making Money before Coronavirus?

The TJX Companies Inc. (NYSE: TJX) made money before coronavirus. For example, TJX reported quarterly revenues of $12.206 billion on 31 January 2020.

In contrast, TJX reported quarterly revenues of $11.127 billion on 31 January 2019. Thus, TJX’s revenues grew over the last year.

Moreover, TJX reported a $3.464 billion quarterly gross profit on 31 January 2020. Plus, TJX reported a $1.329 billion quarterly operating income and a $985 million quarterly common net income on 31 January 2020.

Plus, TJX reported an operating cash flow of $2.193 billion and an ending cash flow of $1.157 billion for the quarter ending on 31 January 2020. Thus, TJX’s business was generating a lot of cash when it was operating.

Unfortunately, TJX’s stores have been closed and generating no cash for over a month. Yet when it operates, TJX is a cash-rich company.

Is TJX a Good Stock?

I think TJX was a good stock before coronavirus. In particular, TJX was a growing company before the pandemic.

Notably, the TJX Companies Inc. reported a 9.7% revenue growth rate for the quarter ending on 31 January 2020. I think this makes TJX safer because it is growing when technology is disrupting retail beyond recognition.

In addition, TJX generates some cash and keeps some of that cash. Remember the $3.17 billion in cash and short-term investments and the $2.193 billion operating cash flow. Thus, I think TJX was safe for a retailer.

Is TJX a Safe Stock?

I believe TJX (NYSE: TJX) is a safe stock for investors because it retains its value. For instance, Mr. Market paid $48.35 a share for TJX on 8 May 2020. In contrast, Mr. Market paid 15₵ for JC Penney on the same day.

Moreover, TJX paid a 23₵ quarterly dividend on 12 February 2020. In total, TJX offered a 1.90% dividend yield, a 92₵ annualized payout, and a payout ratio of 34.46% on 8May 2020.

Conversely, I do not think TJX will pay that dividend after coronavirus. Hence, TJX is not as safe as it was.

On the other hand, I think TJX is one of the few department stores that could survive coronavirus. Unfortunately, I suspect TJX will not make money again for a long time, possibly over a year.

In the final analysis, The TJX Companies Inc. (NYSE: TJX) is a risky value investment. If you think normalcy will return after coronavirus, TJX could be an excellent investment. If you believe normalcy will not return, you need to avoid TJX.