The TJX Companies Is On Watch For A Break-Out

The Rebound Accelerates At The TJX Companies

 When last I looked at The TJX Companies (NYSE:TJX) the stock was seeking support after a big fall. At the time, the company had just released its understandably bad 2Q results and shares were trading at a multi-month low. Since then, the rebound in share prices has been quite strong on. Retail sales have been good across the broader retail landscape suggesting better-than-expected results from The TJX Companies and others. And they have been. Most major retailers have delivered revenue and earnings far beyond the analyst’s expectations and this is important to note, the consensus estimates have been rising all summer.

The TJX Companies Beat Top And Bottom Line Estimates

The TJX Companies not only beat the company’s own expectations but the analyst’s community at large. The $10.2 billion in revenue is down -3.2% on a YOY basis but up more than 50% from the prior quarter and 777 basis points better than the consensus target. Revenue was driven by traffic at the HomeGoods chain and no surprise, we’re all stuck at home and spending money on the stay-cation versus the vacation. Total comps fell -5% versus the -11.2% consensus and -10% to -20% target set by management.

On a segment basis, the HomeGoods chain of stores saw its open-only comps rise 15%. The open-only comps are a measure of revenue at stores that are open and adjusted for any down-time. Right now there are more than 400 closed locations mostly in the International segment of the business. The TJMaxx chain saw comps fall 10%, the TJMaxx International -6.0% with both sales at both underpinned by eCommerce and homewares. Looking forward, the company is planning to expand its eCommerce offerings and that is a good thing. eCommerce sales are growing by triple-digits in categories The TJX Companies covers.

Moving down the report, the companies margins narrowed but there is a silver lining. The consolidated pre-tax profit margin contracted 70 basis points due to the combined effects of a strong merchandise margin increase that was more than offset by COVID-costs and deleveraging. The silver lining is that, as the company moves forward, the strong merchandise margin gain is expected to stick and deleveraging isn’t. As the companies operations open back up it will regain the benefits of scale.

Bringing your attention to the bottom line, the unexpectedly strong revenue gains carried through to the bottom line despite the impact of narrower margins. The GAAP EPS of $0.71 beat the consensus by $0.31 or nearly 100%. The company was able to generate $4.1 billion in operating cash flow and build its cash position to $10.6 billion or up 52%. The company didn’t give any guidance but it did reinstate the dividend which, to me, is just as good.

The TJX Companies Reinstates The Dividend

The TJX Companies reinstated the dividend to the tune of $0.26 quarterly. That’s a 13% increase compared to the last payment which came out in March. Based on the 3Q results, the payout ratio is running about 36% so no reason to fear provided there are no more widespread lockdowns. Even so, the balance sheet is in great shape and there is ample cash to cover the payment and sustain operations for several quarters. As for debt, the company’s leverage ratio is about 2.25X FCF.

The Technical Outlook: TJX Tests Resistance, Falls Back To Support

Shares of The TJX Companies got a pop earlier this month when the first COVID-19 vaccine news came out. The Q3 earnings report accelerated that move but that may be where the good news ends. The price action hit a wall of resistance at the $64 level that created a Shooting Star Doji. Today’s action has the stock down another 3% confirming the Shooting Star and pointing to lower prices or at least sideways action. If price action can find support at the $59 level it may stabilize or even resume upward movement, if not then price action could fall all the way to $55 and close the gap formed on November, 9th.