Hard to Find Anything Wrong With TJX

For Gilmartin's preview heading into the TJX conference call, please click here.

The TJX Companies (TJX - commentary - Trade Now) reported a healthy third quarter today as revenue of $5.25 billion rose 10% year over year, with quarterly comps up 7% and EPS of 81 cents beating the analysts' consensus 80-cent estimate by a penny and rising 50% year over year.

Management raised guidance twice during the quarter just reported and raised it again for the fourth quarter, although Wall Street analysts may have gotten ahead of themselves as TJX's current EPS guidance range for the fourth quarter of 66 cents to 71 cents is a few pennies shy at the midpoint of the current 71-cent consensus.

The company is executing on all cylinders as strong customer traffic isn't resulting in significant price-cutting seen at other retail levels. In addition, with this press release, CEO Carol Meyrowitz commented that the record third-quarter results are driven by "comparable-store sales and customer traffic that have continued to accelerate."

TJX's margins were a very positive story as gross margin of 27.5% rose 180 basis points year over year, while the company's pre-tax profit margin rose to 10.8%, up 200 basis points year over year.

The fact that inventory remained flat year over year while revenue rose 10% and margins expanded is a sure sign that a retailing management team is pulling all the right levers to maximize profits.

Cash from operations nearly doubled year over year, from $727 million to $1.3 billion, and with capex at $320 million, there is plenty of free cash, which management put to good use by repurchasing stock. During the third quarter, $304 million was spent retiring 8.2 million shares of stock. (The average cost per share was $37, so as I read this, I did wonder why management waited so long to pull the trigger on the repo.)

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At the time of publication, Gilmartin had no positions in the stocks mentioned, although positions may change at any time.

Brian Gilmartin, CFA, founded Trinity Asset Management (TAM) in 1995, where he is currently a portfolio manager. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Gilmartin appreciates your feedback; click here to send him an email.