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The overlay of a luxury retailer, a traditional department store, and the world’s largest off-pricer yields an interesting observation.  Inventory management relative to sales momentum is still very well controlled in the mall while the y/y improvement at TJX has been sequentially decelerating.  Being in-market buying goods at year-end is definitely a factor here, but the multi-year run of taking inventory out of the system and improving turns is going to be incrementally less impactful for TJX in 2011.

Both SKS and DDS still have room to go given both are still in mean reversion mode in their efforts to return to prior peak margins. 

Additional TJX thoughts:

  • Similar to ROST, TJX mentioned that they are taking advantage of buying opportunities in the marketplace. Specifically, a 4% increase in in-store inventory levels at year end was the direct result of “much larger available quantities of end-of-season branded products”.  We continue to believe supply disruptions, lack of clarity on pricing, and cost-induced strategy changes for branded vendors will ultimately result in further advantageous buying opportunities for the off price community.
  • Despite an expectation for a pick-up in “disruption” in the apparel space from a sales/margin perspective, we also believe we may see a pick-up in special make up product in 2011.  With units generally planned down for most first-cost retailers, it’s likely that excess factory capacity could lead to some planned buys for the off-pricers.  Even if factories are willing run production at lower margins, it still nets profit dollars against fixed costs that would otherwise go unused.  Expect to hear more about this as the year progresses.
  • Unlike M and VFC, TJX remains very conservative with its forecasting coming off of a record year of sales and profits.  In fact, TJX has reported positive comps in 32 of the last 33 months (Jan ’09 was the only negative).  As such, the outlook for 2011 calls for just a 1-2% increase.  Overall inventory per store expected to be down again for 2011.

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