TJX | Better than Decent Print In A Brutal Retail Tape

The company put up $0.76 per share vs our $0.75, and the Street’s $0.72. Sales were relatively in-line, though on a decelerating growth rate from last quarter, up 3% from up 5%, while the beat came almost entirely from gross margin (+100bps vs -100bps last quarter). The gross margin improvement came from a freight tailwind, which management noted will last throughout the year. Comp store sales for Marmaxx and International were strong, up 5% and 4%, respectively, while Home Goods comped down 7% -- a sequential improvement from last quarter. As it always does, the company took down 2Q slightly, but reaffirmed the year. We were surprised to see inventories down again vs last year, down 8% from down 2% last Q. On the call the company said that it has been in ‘chase mode’, and taking advantage of the good buying environment and expect it to be increasingly beneficial. We like this name long-side, as it does particularly well when other retailers are struggling. We also think that it’s becoming a magnet for higher end brands to clear excess goods (like the Ralph Laurens and Canada Goose’s of the world). This stock is by no means cheap (21x EPS and 15x EBITDA), but we’d pair it against Burlington Stores (BURL – Best Idea Short) as we think that the earnings algos at these companies will further widen this year, as Gross Margins at BURL are likely to take a hit in the upcoming quarters. We still think you can model $5 in EPS power at TJX over a TAIL duration, which is good for a $125 stock. We went long this name at $60, and now its at $78. Will this name make you rich? No. It’s not a multi-bagger. But in a brutal tape and a slowing US Consumer Discretionary environment, we think this is a safe place to hide to protect capital, and hedge against the rest of the retail landscape, that’s clearly slowing and is still over-earning.