Near-term sales face headwinds outside the United States, with ongoing store closures in Europe and Canada (roughly 300 units as of May 1). However, we still believe TJX and its peers benefit from durable advantages over full-price apparel and home décor sellers, with strong brands, store experiences, and scale working to keep returns on invested capital high (high-20s average over the next decade).

TJX’s value proposition should resonate even as retail competition intensifies. While digital retailers are a factor (particularly if the pandemic durably increases e-commerce adoption), we see the off-price channel as relatively well protected, as the low-frills buying experience and 20%-60% discounts relative to the full-price channel result in competitive prices and superior economics after considering shipping and return costs. Vendors’ desire for discretion also favors physical stores that can discreetly sell merchandise without diluting top brands’ cachet.

With a global presence, TJX leverages an extensive merchandising operation and proprietary inventory management system to maintain a fast-changing assortment at significant discounts. We believe TJX’s ability to deliver a high-value lineup while maintaining strong returns is driven by its difficult-to-replicate sourcing and distribution agility. By accepting incomplete assortments without return privileges, paying promptly, and stocking brands discreetly (preserving labels’ conventional-channel pricing power by avoiding the stigma of a consistent discount presence), TJX is a valued partner for its more than 21,000 vendors, in our view. As a result, TJX can opportunistically offer a fast-changing, high-value assortment in a treasure-hunt format that is hard to replicate digitally.         

Financial Strength

TJX’s financial health is sound, and we expect it to weather the COVID-19 crisis. The firm drew $1 billion from its revolver and subsequently issued $4 billion in long-dated notes to bridge the crisis, and, with the worst of the pandemic seemingly passed, has since repaid the revolver and nearly $3 billion of other indebtedness. The firm has a historically conservative approach to debt that we do not expect to change. Management states that its maximum store count potential is 3,000 units at Marmaxx (from 2,450 at the end of fiscal 2021), 1,500 at HomeGoods (from 855), 650 in Canada (from 525), and 1,125 in its existing other international markets (from 742).

Bulls Say

• With an agile merchandising and distribution network, TJX keeps store inventory fresh, spurring traffic while minimizing risks associated with fashion trends and freeing capital.

• We believe digital retailers will have a more difficult time in encroaching on the off-price channel, particularly given the sector’s already-low prices and vendors’ demand for discretion.

• TJX’s international operations should offer ample runway for growth and associated incremental cost leverage, with the store banners and off-price concept translating well abroad.

Company Profile

TJX is a leading off-price retailer of apparel, home fashions, and other merchandise. It sells a variety of branded goods, opportunistically buying inventory from a network of over 21,000 vendors worldwide. TJX targets undercutting conventional retailers’ regular prices by 20%-60%, capitalizing on a flexible merchandising network, relatively low-frills stores, and a treasure-hunt shopping experience to drive margins and inventory turnover. TJX derived 79% of fiscal 2021 revenue from the United States, with 11% from Europe (mostly the United Kingdom and Germany), 9% from Canada, and the remainder from Australia. The company operated 4,572 stores at the end of fiscal 2021 under the T.J. Maxx, T.K. Maxx, Marshalls, HomeGoods, Winners, Homesense, Winners, and Sierra banners.

(Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.