TJX: Inside the Debate

Our internal process is one that openly encourages debate when we disagree. That’s when our hit ratio goes up… Here’s our take on TJX.  The bottom line is that big cap, liquid quality in a space that will be beating for the next 3-months is not a place to source shorts -- at least at this price.

Keith: Stock looking to be way overbought now fyi… on the news… I like shorting these for a TRADE.

Brian: Yes, TJX gets put in the ‘quality’ bucket in retail. But let’s not forget that margins are at peak, and we’re coming off an 18-month period that helped off-price retailers like TJX and ROST materially. The preannounced comp was a definite positive, but in looking at the 2 and 3-year trend, there is really no change in trend. If anything, it is slightly negative. The gross margin story here will be short-lived, with one more quarter before the financial profile looks less favorable. I’m not going to get too excited about the company’s announcement about an increase in long term unit growth to 4-5% as we’re already looking at a mature company with 2,700 big box stores.  There are other names I’d short before this one, but there will be a time over the next 1-2 quarters where this will make a lot of sense. If it is overbought on this news, then I won’t argue to stay away.

Levine: Recognizing that the incremental data points on TJX are likely to remain positive, I wanted to make a few points before putting the short TRADE on. 

Key factors to look out for over the next 3 months:  1) EPS guidance way too low, but the Street is obviously tuned in to this, 2) they took up the square footage growth rate for next year to 5% from 4%, which is fairly respectable for a company of this size.  I can’t knock them for investing into strength. And 3) the gross margin compares in Q4 are a joke (last year they got caught like the rest of retail with too much inventory).

On the flip side, the 2 year comp is holding steady but not accelerating.  With that said, this is still one of a few retailers with positive 2 year trends. 

Final note here, is that there may be support from other retail/apparel earnings as they begin to trickle out.  We’re now seeing a handful of positive pre-announcements as well which is likely to build momentum.  To the extent you view this is as a negative to being short, it is probably one of the biggest risk factors in the near-term.

Team Conclusion: Hold off at this price. Big cap, liquid quality in a space that will be beating for the next 3-months is not a place to source shorts.

TJX: Inside the Debate - TJX Comp Trends