Discount retailers TJX (TJX) - Get Report and Ross Stores (ROST) - Get Report both recently announced earnings and while TJX's stock popped during early morning trading following its release, Ross's shares tanked.
A one-day move shouldn't change a long-term investor's mind about a stock, but heavy trading and price fluctuations following an earnings release may provide an opportunity to make money. More importantly, such moves can give long-term investors insight into what the overall market thinks about a company.
In this case, the two retailers' share performance underscore TJX's superior positioning. TJX has more stores and has registered more significant growth, including same store sales increases. Among TJX holdings are the popular Marshalls and T.J. Maxx chains.
To be sure, retail stocks have been suffering. TheSPDR S&P Retail Exchange Traded Fund has posted a decline of nearly 1% over the last five days and a decline of 4.85% year to date, compared to gains of 0.08% and 0.66%, respectively, for the S&P 500.
But TJX offers better prospects than many other retailers partly because of its low prices and the quality of some of its merchandise. Consider the comparison between TJX and Ross below:
Earnings Per Share
Comparable Store Sales Growth
Full Year EPS Guidance
$3.35 - $3.42
$2.63 - $2.72
EPS Guidance Implied Growth
0.6% - 2.7%
4.7% - 8.3%
Next Quarter Comparable Store Sales Guidance
2% - 3%
1% - 2%
*Growth results based on results reported for the same quarter the previous year
Clearly based on the winner's column TJX is the better looking company. TJX beat Ross in all but one metric, EPS guidance implied growth. TJX believes it will see lower earnings in the coming quarter compared to last year. But that will be due to higher employee wages, which will negatively impact EPS by 3%.
TJX also has 3,661 stores while Ross currently operates 1,473 locations. Furthermore, TJX's Chief Executive Ernie Herrman announced he is considering opening about 2000 new stores worldwide. During the earnings call, Herrman told analysts: "Long term, we see potential to grow to 5,600 stores with just our current chains in just our current markets alone."
Both companies are trading at similar price to earnings ratios, 22.19 times past earnings for TJX and 21.07 times earnings for Ross. But, TJX offers a slightly higher dividend yield of 1.38% compared to 0.99%.
While TJX has $1.62 billion in debt compared to just $396 million for Ross, it also has a larger cash reserve of $2.35 billion compared to $763 million, giving each company a similar debt to cash ratio of 1.6 and 1.48 respectively.
While I don't believe either company is in any real danger, TJX clearly appears to be better positioned at this time. Long-term investors should lean toward TJX instead of Ross.
For short-term traders, based on recent performance, Ross is more of a roller-coaster.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.