Why we’re giving off-price retailer TJX a pass for softness in its biggest division
Retail
TJX Companies shares were dinged Wednesday on softness in the off-price retailer’s largest division and a conservative guide. Still, there was a lot to like about the quarter and what management had to say. Revenue in the company’s fiscal 2027 second quarter increased 5.4% year over year to $15.18 billion, edging out the $15.17 billion consensus estimate, according to LSEG. Earnings per share (EPS) for the July quarter, which actually ended on Aug. 1, increased 10.9% to $1.22, exceeding expectations of $1.19, LSEG data showed. Same-store sales , or what the retail industry also calls comps, increased 4%, ahead of the 3.3% estimate, according to FactSet. TJX YTD mountain TJX Companies YTD TJX traded down more than 3% to around $146 after quarterly sales at the company’s Marmaxx segment, which houses the T.J. Maxx and Marshalls chains in the U.S., gained 3% to $9.11 billion but missed estimates. With shares down 13% since their $168 record close on June 12, the recent weakness is likely an opportunity for patient investors because the Marmaxx issue appears to be already under control, and this management team knows to under-promise on guidance, only to over-deliver when the actual results come through. The stock is down 5% in a year with plenty of ups and downs. Bottom line Another quarter in which TJX Companies demonstrated the power of being able to offer best-in-class value on “good, better, and best” merchandise, combined with a treasure hunt shopping experience that draws shoppers into physical locations, despite the growing adoption of online shopping. Sales came ahead of expectations on the back of better-than-expected overall same-store sales performance. EPS benefited from a better-than-expected gross margin (even after stripping out a 2 percentage point benefit from tariff refunds), while operating cash flow more than doubled expectations. On the post-earnings call, CFO John Klinger said that strong same-store sales growth was the result of an increase in both customer transactions as well as average basket size. Weakness in Marmaxx was more than offset by strength in the company’s other three divisions, HomeGoods, TJX Canada, and TJX International. Recognizing that Marmaxx accounts for more sales than all three of the other divisions combined, a miss is disappointing and warrants further investigation. CEO Ernie Herrman said on the call: “At Marmaxx, we believe we could have executed our store mix better, and by that I mean we could have been sharper on having the right goods in the right stores at the right time. We are convinced that the issues were self-inflicted and within our control, and we have made good progress working through them.” He was adamant that the issues were not a result of competition. Fortunately, the team did note that its current fiscal third quarter is off to a strong start, with the CEO adding that he’s confident of “greater improvement by the holiday selling season.” During the question-and-answer session, Herrman got a bit more granular: “It was pretty obvious to which areas [the issues] are in, where we did not have, I would say, the right mix, merchandise mix, in T.J. Maxx and in Marshalls. And it was really entirely self-inflicted and within our control, to the point that I have been involved, and all teams have been involved in those areas. … I mean, all the way from buyers and planning all the way up to me. Everyone’s involved. We’ve identified them, and I think we’re well on our way to fixing the issues.” The CEO went on to say that with the trend improvement already seen in Marmaxx, he expects the division to get back to a 2% to 3% same-store sales number by the company’s fiscal fourth quarter. Herrman was adamant that this was not a result of competition. Given that management acknowledged the weakness as execution missteps, identified the issues, and already has plans in place to fix the problems in time for the crucial holiday selling season, we are good with giving them a pass on the Marmaxx miss. Great management teams are not those who never mess up. They are those who can accept responsibility for the mistakes and work diligently to fix them before they become a bigger issue. For that reason, Herrman’s comments increase the management team’s credibility. The Street may also have been expecting some weakness. Back on July 8, analysts at Gordon Haskett did call out that they were seeing some deceleration across the various divisions. Should we have sold it then? A trader could argue yes, but that’s not our style to trade short-term, intra-quarter updates — especially when we think the long-term growth outlook looks as bright as it does at TJX Companies. Shares closed that day at $152.79; proceeded to make a recent bottom out around $150.34 on July 14, then rallied to a high of $162.06, before coming back down heading into Wednesday’s earnings release. We don’t pretend that we could have caught the tops and bottoms, accepting that short-term volatility like that provides for greater returns over the long-term. Given the print, management’s outlook and commentary on the call, we have no regrets about sticking with the stock and would be inclined to view further weakness as an opportunity. That’s why we are reiterating our buy-equivalent 1 rating and $180 price target. Backing our positive view, the team did raise its full-year, pre-tax profit margin and EPS outlook. Beyond this year, management also announced its intention to accelerate new store openings to a 4% annual rate of increase beginning next fiscal year. It now targets 7,500 locations worldwide in the countries in which it currently operates. Why we own it The owner of T.J. Maxx, Marshalls, and HomeGoods is well-suited to the current economic environment, offering inflation-weary customers a wide range of merchandise at compelling prices and an in-person “treasure hunt” shopping experience. Competitors : Ross Stores and Burlington Stores Last buy : May 15, 2026 Initiation : Aug. 24, 2022 Commentary Behind the overall comps beat, same-store sales at Marmaxx rose 1%, short of the 3% estimate, according to FactSet. HomeGoods comps increased by 7% versus the 5% expected. TJX Canada and TJX International basically doubled estimates, reporting same-store gains of 6% and 7%, respectively. On the call, Klinger said that Marmaxx’s same-store miss was “entirely driven by a higher average basket, partially offset by a small decrease in customer transactions. While sales were lower than we would have liked, comp sales increased across all regions and income/demographic bands.” At HomeGoods, comps were “primarily driven by higher average basket, and customer transactions were also up,” Klinger said, adding that TJX Canada and TJX International were boosted by increases in customer transactions. TJX said it received tariff refunds of $331 million in its fiscal second quarter. The company expects additional refunds in its current (third) quarter. While it did not disclose the total amount of tariff refunds requested, TJX did say in the earnings release that “refunds received may not equal the full amount of IEEPA-related tariffs paid, and additional refunds remain subject to further legal, regulatory or administrative developments.” Companies are receiving tariff refunds because President Donald Trump’s levies imposed under the International Emergency Economic Powers Act (IEEPA) were ruled unconstitutional by the Supreme Court back in February. Fiscal Q3 guidance Sales for the third quarter are expected to be between $15.6 billion and $15.8 billion, below the $15.9 billion expected. Same-store sales are seen in the range of 2% to 3% growth, below the 3.1% consensus. Pretax profit margin is expected in the range of 12.3% to 12.4% (ex-tariff refunds), below the 12.6% estimate. Adjusted EPS is seen in the range of $1.30 to $1.32 (ex-tariff refunds), below the LSEG consensus estimate of $1.35. Fiscal 2027 guidance Sales for the full year are expected between $63.4 billion and $63.8 billion, below the $63.95 billion expected. Same-store sales are still forecasted to rise 3% to 4%, below the 3.8% estimate at the midpoint. Pretax profit margin outlook (ex-tariff refunds) was revised up to an expected range of 12% to 12.1% from 11.9% to 12%, compared with expectations for 12.1%. EPS forecast (ex-tariff refunds) was revised up to an expected range of $5.15 to $5.20 from $5.08 to $5.15, below the $5.22 per share expected, according to LSEG. (Jim Cramer’s Charitable Trust is long TJX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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Why we’re giving off-price retailer TJX a pass for softness in its biggest division
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