TJX Looks Headed for a Very Merry Christmas and a Big Holiday Quarter

Discount retailer TJX reported another great quarter -- and it is the best-positioned retailer heading into the holidays.
By Chris Laudani ,

This week, TJX (TJX) - Get Report reported another great quarter, and it now looks like the best-positioned retailer heading into the holidays.

On Monday, TJX reported a strong fiscal 2016 third quarter. The company reported 86 cents a share in earnings on sales of $7.75 billion. Comparable sales grew 5% -- double the company's forecast of 2.5%, and above the 3.9% consensus figure. This was the fourth consecutive quarter that increased store traffic and same-store sales, and the 27th consecutive quarter of comp-store sales growth.

On the conference call, management told investors it didn't have any complaints about warm weather or a slowdown in foreign tourists, like other retailers. In fact, TJX absorbed a 7% foreign currency hit and a 4% increase in wages and stillbeat the consensus estimate.

Management said inventory grew 6% in the quarter and the company would continue to buy more inventory right up until Christmas. The aggressive inventory plan means the company is going to take advantage of the flood of unsold merchandise coming from all those full-price retailers that missed their quarters. Their loss is TJX's gain. The unseasonably warm weather will likely play into TJX's hands over the next few quarters.

Management raised the low end of its fiscal 2016 fourth-quarter guidance by 2 cents to $3.26 to $3.28. The outlook reflects a 9% unfavorable hit to the quarter from foreign currency, incremental investments in infrastructure and associate wage increases. The company is moving towards paying its associates $10 per hour, so many analysts will need to cut a few cents out of their fiscal 2017 estimates. Management will provide more details on the wage hikes during the year-end call in February.

TJX is the best-positioned retailer going into the holiday season. Its customers are benefiting from lower gas prices and an improved job market, while high-end retailers are stuck catering to fewer tourists.

It may be optimistic, but I think TJX can make its way to $80 per share over the next year. Because of the company's long track record of delivering superior results through every economic environment, the stock should trade at a premium to other retailers. If you go out to fiscal 2017, TJX could earn over $3.70. If you used a 22 or 23 multiple on the stock, instead of the typical 18 times multiple that investors use for other retailers, it's easy to see the stock trade higher.

If I'm right, it will be a very merry Christmas for TJX investors.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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