TJX | Best In The Business. Best Idea Long.

We’re taking up our estimates for Best Idea Long TJX in the wake of a solid 1Q print. The company is executing, and we think that management was overly conservative in its outlook for the quarter, the year, and the multi-year plan. The company noted specifically that it plans to return to FY (Jan) 2020 pre-tax margins of 10.6% within 3-years, though we think that it gets there a year early. And with how inventories are building in the apparel channel – noting that unit import growth has trended to +30% over the past two months – we think that the buying environment for off price retailers (especially TJX) will be simply exceptional as the year progresses. As such, we think that comps will come in ahead of plan, and take margins with it – particularly as we see margin recovery at Home Goods. In other words, we think that there’s a better chance of hitting the 10.6% level in year 1 than having to wait to year 3. Ultimately we’re coming in at $3.40 for the year vs the Street at $3.18, and then we’re 20% ahead of the Street on a TAIL duration. The secular and cyclical trends are going TJX’s way – and as noted we think estimates will come in well ahead, but the only thing that gives us pause is the relative multiple. While it’s trading near historical trough multiples of 18x pe and 12x EBITDA, the reality is that the broader sector is crashing and ‘historical trough multiples’ are irrelevant. For now, we think that the earnings upside gets you paid until we exit Macro Quad 4, and then we think people will be eying TAIL earnings near $5 per share (’25). When we exit Quad 4, we think that 20-25x earnings is back in play, which gets you a double from where the stock trades today. To be clear, in this consumer tape we think that there are names (like CPRI, RH, CHWY, PLBY – even names like PRPL and BIRD) that are setting up for far more upside than just 2x – so TJX doesn’t sit at the top of our Best Idea Long list. But it’s one of the highest quality retailers on the planet, with earnings upside, strong predictability, and an industrywide inventory trend that is clearly going the company’s way. Not much we’d be long in apparel now – TJX is our top pick.