Steady Business At TJ Maxx

Conservative investors interested in retailing exposure and worried about a double-dip recession would be well served to consider TJX Companies (NYSE:TJX). In stark contrast to many rivals, its results have been bolstered by an economic downturn. This trend could easily reverse course if consumers become less price conscious, but TJX remains worthy of consideration despite the macroeconomic climate.
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Second-Quarter Sales Review
Net sales grew 7% to $5.1 billion. Same-store sales improved a respectable 3% at Marmaxx, which combines the results of the flagship TJ Maxx and Marshall's store bases. TJX also operates the HomeGoods and AJ Wright concepts, which sell off-price home fashion and apparel, respectively. These stores reported 8% and flat comps, respectively. The company operates a number of stores in Canada and Europe where comps increased in the mid single digits. Overall, TJX added a net 33 new stores during the quarter.

Management boasted of an ability to grow sales irrespective of the state of the economy and cited increased customer traffic as it kept inventory levels lean. It detailed that consolidated inventories fell 13%, placing the company in a solid position to buy merchandise at appealing prices later in the year. The lowering of inventory levels didn't work out very well for Wal-Mart (NYSE:WMT) during its recent quarter, so it remains to be seen if it will continue to work in TJX's favor.

Profit Recap
Gross margins improved 100 basis points to 26.6% of sales. SG&A expenses rose a modest 0.1 percentage points. This, combined with sales leverage, pushed net income ahead 21.3% to 74 cents per dilutes share, which came in a penny ahead of analyst projections. Reported earnings moved forward nicely but operating cash flow for the first half of TJX's fiscal year fell from $704.7 million to $660.3 million.

Outlook
For the full year, analysts expect sales to grow 7.50% and reach nearly $22 billion. The company plans to increase earnings between 15% and 19% to a range of $3.27 and $3.37 on an operating basis.

Bottom Line
Over the past decade, TJX has been able to grow sales and profits just under 9% annually. In contrast to many retailers, profit expansion has accelerated over the past three years, improving more than 18% each year over this period. It's difficult to see this level of bottom-line growth continuing, but the firm should continue to see steady high digit growth over the long term.

With recent history as a guide, discount firms such as Wal-Mart, TJX, Big Lots (NYSE:BIG), and Stein Mart (Nasdaq:SMRT) tend to outperform other retailer during economic downturns. They could lag during business cycle upturns and appear to be doing so as higher-priced rivals including Nordstrom (NYSE:JWN) and Neiman Marcus are seeing their customers return in masse. (To learn more about stocks that you might see when you go shopping, see Analyzing Retail Stocks.)

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