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TJX Companies

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					January 2008                                TJX Companies                                               Price: $29
                                          Research Report by
                            Peter Hughes, Check Capital Management

The Business

TJX dominates the market for                                       Growth in EPS
off-price apparel.       The
company owns the two largest            $1.80
discount retail chains in the           $1.60
U.S.,     TJ    Maxx      and           $1.40
Marshall’s. These two brands            $1.20
have over 1600 stores. TJX              $1.00
                                        $0.80
also owns Winners and TK
                                        $0.60
Maxx, the largest off-price
                                        $0.40
retailers in Canada and the             $0.20
U.K., respectively. Finally               $-
the firm has four smaller                        1997 98    99     00   01   02   03      04      05   06   07*
chains.      Altogether, the
company has over 2600 total
stores.

TJX thrives by offering name brand clothes at substantial discounts to department stores and
other retailers. The company buys clothing that is on sale, such as stock overruns or
discontinued lines, and passes these savings on to consumers. TJX has a large “buying”
department, which stays in constant contact with manufacturers so that they can take advantage
of unexpected opportunities. The company benefits manufacturers by taking large quantities of
unwanted merchandise off their hands, and helps consumers by selling quality apparel at 25% or
more below retail price.

TJX’s competitors include Target, Kohl’s and department stores themselves when they have
sales.     The most direct
competitor is Ross Stores,                        Number of Stores
which has about the same
number of U.S. stores as        3000
Marshall’s.      TJX’s size
                                2500
gives it clout with sellers
and economies of scale in       2000
other     areas    such     as
                                1500
transportation           costs.
Furthermore, because the        1000
firm has a broad range of
                                 500
products and isn’t focused
as much on the latest trends,      0
it carries very little fashion       1997 98   99  00  01   02   03  04  05  06 07*
risk.
      1     Check Capital Management Inc.       Costa Mesa, CA.        (714) 641-3579        (800) 710-5777
One long-term problem facing TJX is that the U.S. market may be nearing saturation. The firm
is still opening stores, but it is becoming increasingly difficult to find locations with good
demographics which don’t cannibalize on existing stores. As the graph shows, the total number
of stores has grown 150% over the past ten years. These figures include stores outside the U.S.
and the smaller chains, but it does suggest that the relatively easy, high-growth roll out of stores
in America is probably over. The company hopes to replicates its success abroad, as it already
has in Canada and the U.K.

As its two largest chains have slowed, TJX has diversified with four smaller chains:
     HomeGoods and HomeSense sell home fashions such as furniture, lamps and accessories
        in the U.S. and Canada, respectively.
     A.J. Wright is a discount apparel retailer targeting lower-income customers.
     Bob’s Stores operates larger apparel stores targeting higher-income customers.

Unfortunately, A.J. Wright and Bob’s Stores are not helping the company. These two chains
often lose money and are a drag on the company’s financial resources and management’s time.
Unless these two chains can begin to earn a consistent and reasonable rate of return, TJX would
be better off closing them.

In late 2006 it was reported that computer hackers had exploited weaknesses in TJX’ computer
security systems and stolen the personal data, including credit card numbers, of millions of
customers. Although many of the stolen accounts were expired, the security breach created
much negative publicity and many lawsuits against the company. Recently TJX announced that
it has reached an agreement which settles these lawsuits, at an after-tax cost of $128M.

Current Market Environment

Currently there is a great deal of fear that the U.S. is on the brink of (or perhaps already in) a
recession. Many retailers have recently reported slowing sales, probably because consumers are
cutting back on discretionary spending. It is impossible to know how bad this economic
downturn might become, how long it may last, or how it will affect TJX. The off-price
categories tend to be more
insulated from the economy                            Shares Outstanding
than the rest of the retail-
apparel industry, because it is      700
a more economical option for         600
consumers when money is              500
tight.                               400
                                         300
So far, TJX’s results have
                                         200
remained solid.      In the
                                         100
September quarter, EPS rose
                                             0
13%.       Furthermore, the
company’s December same-                             1997 98    99   00   01    02   03   04    05   06 07*
store-sales rose 3%, while

       2     Check Capital Management Inc.            Costa Mesa, CA.        (714) 641-3579   (800) 710-5777
many retailers experienced declines. CEO Carol Meyrowitz noted at the same time that TJX
was likely to beat earnings estimates in the December quarter.

Financial Metrics

TJX is financially strong. The firm’s debt is reasonable at 30% of total capitalization. The
company’s cashflow is solid, giving management the opportunity to redeploy capital in search of
additional growth. Although TJX’s forays into other retail brands have not proven very
successful, management’s consistent and large repurchases of outstanding stock have greatly
increased shareholder value. As the graph on the prior page shows, buybacks have reduced TJX
share count by 31% since 1998, greatly increasing earnings per share. Management continues
this practice, spending $639M to repurchase stock in the first three quarters of 2007.

TJX is consistently profitable. The company hasn’t reported an annual loss in over twenty years,
and has only reported annual earnings declines four times in that period. Although its margins
are low, its ROE has averaged well over 30% for the last decade, due to high inventory turnover
and good capital allocation.

 Debt/Cap. Net               ROE       10-Yr. EPS 5-Year              EPS Proj. 5-Year EPS P/E Ratio
           Margin                      Gr.        Gr.                     Gr.
 30%       4.5%              33%       23%        13%                     13%               16

Valuation
The market seems to be pricing a $35
recession and declining earnings                  Price
into TJX stock, but there is no $30
                                                  16 times Earnings Per Share
indication that TJX has yet been $25
hurt. In the last two recessions,
                                   $20
TJX performed fairly well. EPS
fell 15% from 1990 to 1992. In the $15
2001 recession, income was flat, $10
but EPS rose due to a huge share
repurchase. In 1991 the P/E fell    $5
all the way to nine; in 2001, it    $0
went down to 14. During the            90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
recent market selloff TJX fell as
much as 20% below its 52-week high. It has rebounded somewhat and, at $29, trades at 16x
earnings.

TJX is a proven winner. It operates a relatively simple business model which benefits consumers
and manufacturers alike. Its size gives it economic power and makes it difficult for newcomers
to encroach on its turf. CEO Carol Meyrowitz has been with the company for 20 years (although
only as CEO for one year) and is focused on increasing shareholder value. TJX should be able to
reinvest capital and increase earnings at a moderate rate for the foreseeable future. The recent
stock market decline creates an opportunity to buy excellent corporate merchandise at a
substantially discounted price.
       3    Check Capital Management Inc.      Costa Mesa, CA.        (714) 641-3579   (800) 710-5777
CCM Research Reports are for informational purposes only and are not an offer to sell or a solicitation to buy.
They are not personal recommendations for any particular investor and do not take into account the financial
circumstances of any individual investor. Check Capital, or one of its officers, may have a position in the securities
discussed and may purchase or sell such securities from time to time. CCM Research Reports are created using
third-party data. While Check Capital believes such third-party information is reliable, we do not guarantee its
accuracy, timeliness or completeness.




        4      Check Capital Management Inc.        Costa Mesa, CA.        (714) 641-3579   (800) 710-5777

				
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