TJX Misses by a Penny

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

The TJX Companies (TJX - commentary - Cramer's Take) missed by a penny and guided down slightly, but considering the difficult retail environment, the outlook was not too bad.

The company reported EPS of 54 cents, a penny light of Street consensus, on revenue of $4.76 billion, also light of the consensus by $80 million. Management made good noises, noting that traffic is up in almost all regions, indicating consumers' desire to shop their stores, and inventory is extremely lean, with purchasing dollars being quickly redeployed to the better selling items.

Notably, shoppers are buying much closer to need and were jubilant that they can still be purchasing in December for Christmas sales! TJX is steeling itself for a competitive holiday season, because the company expects department stores to be very promotional this season, despite having leaner inventories than last year. Management characterized it as a "bloodbath" out there. TJX will use its short buying cycle to aggressively outmaneuver the department stores and specialty shops in providing a more relevant assortment to the customer. Mix will be the company's competitive advantage and drive margin sustainability.

The flagship MarMaxx division missed plan but, nonetheless, performed bravely in posting a flat comp for the third quarter. The 9.1 % operating margin was down year over year and below plan due to fixed-cost de-levering and lower average tickets. Home is comping negatively, but brought down inventory, so that segment is seeing better turns. The group is focusing its open-to-buys in key areas that are working. Meanwhile, TJX opened the second Megashop by Marshalls in Los Angeles and seeing "exceptional" real estate deals that can help accelerate the growth of the concept.

International is holding up quite well, if you don't count the foreign exchange hits. In local currency, Canada comped up 5%, well above plan. Winners is executing "great," according to management, and StyleSense is off to a good start, with two stores open in the Toronto area. The group posted a 19% operating margin, helped by 5 points of gains in inventory hedges.

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At the time of publication, Dvorchak was long/short..., although positions can change at any time.

Gary Dvorchak is a managing partner of Aviance Capital Management, a Sarasota, Fla.-based institutional asset manager that manages $200 million in growth and value equities and fixed income. Dvorchak holds a master's degree in business administration from Northwestern University and a bachelor's degree in computer science from the University of Iowa.