Plus, expanding Canadian HomeSense chain to U.S. makes great sense
By Neil Saunders
TJX has kicked off its fiscal year with a good set of numbers on both the top and bottom lines. This includes a solid uplift of 3% in comparable sales across all divisions.
The addition of HomeSense to the U.S. market and the opportunity of opening more stores means that the home division will continue to be a driver of overall growth.
The U.S. group continued its good run of performance with total sales up by 9.2% — some way above the average run rate of the past 12 months. International also made a good contribution to total growth with sales up by 20.2%, bolstered by new store openings and a strong performance from the Australian division.
Apparel sales buck negative hype
Within the U.S., while total sales growth was stronger at HomeGoods, it was the Marmaxx (TJMaxx and Marshalls) business that outperformed in terms of comparables. Here, same-store sales rose 4% to the 2% at HomeGoods. The growth at Marmaxx indicates a number of things.
First, it shows that the view expressed by JCP that apparel sales were poor over the quarter due to the weather is something of a fiction. This had already been suggested by the results from other retailers but given TJX’s size and scale, this is proof that the market did not suffer to any great extent.
Second, it is encouraging that the more mature of TJX’s divisions can still generate growth. This gives us confidence that the brands still have some more runway — especially in terms of capturing new customers — without the need to open more stores or grow digitally.
Third, it is an indication that TJX’s brand philosophy works across all economic conditions. Thanks to tax cuts, bonuses, and refunds, most consumers saw their finances improve over the first quarter. This includes more constrained households. However, this fillip to income did not change the value mindset. Data shows that even those with rising incomes remain value-conscious and are keen to make their dollars stretch as far as they can. This means the game is still being played firmly in TJX’s ballpark.
Fourth, the new marketing and television campaigns are clearly working and are exposing the TJX to a wider audience of customers.
Home division driving overall growth
Although, HomeGoods overall growth up by 13.2%, this was mostly down to new store openings. The underlying same-store growth of 2% remains soft and is a little disappointing. As much as the housing market was choppier over the period, it generally remains robust so this cannot be used as an excuse for underperformance.
Rather, the more sluggish performance is down to a lack of change in the assortment which is reducing visitation and spend. That said, the addition of HomeSense to the U.S. market and the opportunity of opening more stores means that the home division will continue to be a driver of overall growth.
We see TJX’s target of 400 U.S. stores for this format as reasonable, although we would also like to see a clearer strategy for growth at HomeGoods.
Looking ahead, one of the downside risks for many retailers is the potential worsening of consumer finances as the benefits of tax cuts fade and gas prices increase. As much as we do not see these things as favorable, we do not believe they pose as much of a risk to TJX as other retailers. As we have seen before, when times become more challenging TJX’s customer base gets bigger as more consumers seek value. This is one of the reasons we remain optimistic about TJX’s future.
Neil Saunders is managing director of research firm GlobalData Retail.