TJX 'left some business on the table' in rare sales miss

Dive Brief:

TJX Companies, which runs TJ Maxx, Marshalls, HomeGoods, HomeSense and Sierra Trading Post, among others, reported on Tuesday that third quarter net sales rose 6% to $8.8 billion, slightly down from last year's 7% increase as hurricanes negatively impacted top- and bottom-line results.
Consolidated same-store sales were flat compared to last year's 5% increase, and consolidated customer traffic and merchandise margin were up, according to a company press release. By segment, the company's Marmaxx apparel unit saw same-store sales decline 1%, compared to a 5% rise in the year-ago quarter, missing the analyst estimate cited by Reuters for a 1.4% rise. HomeGoods in the quarter saw same-store sales rise 3%, compared to a 6% rise a year ago.
Net income for the quarter was $641 million. Diluted earnings rose 20% to $1 per share from 83 cents a year ago and excluding one-time items, earnings of $1 per share met analysts' expectations cited by Reuters.

Dive Insight:

Wall Street punished TJX for its disappointing quarter, sending shares down some 4.7% late Tuesday. But CEO Ernie L. Herrman shrugged that off, saying that, though hurricanes and warmer-than-usual weather hurt apparel sales, much of the trouble came from fashion buying choices that created a problem of its own making.

"We believe we could have done a better job in certain apparel categories in Marmaxx and, therefore, left some business on the table," he said in a conference call with analysts, according to a transcript from Seeking Alpha. It was "absolutely a fashion miss.… this was really, on our own part, a selection issue, and it had nothing to do with availability out there."

The company's business model — which involves close relationships with vendors that swiftly brings high-caliber merchandise into stores means that the retailer will be able to easily correct its mistakes, Herrman said. In fact, increasing online sales by apparel brands and retailers is making even more good inventory available, he noted. "The brands are realizing that they'd be better off liquidating with us than trying to liquidate on their own off their websites," he said.

TJX is looking forward to the holiday, with deep pockets to bring in good merchandise, he also said. In its report the company said it expects holiday-quarter same-store sales growth to land between 1% and 2%.

"We have many initiatives underway to drive sales and traffic this holiday selling season and are in a terrific inventory position," he said. "We have plenty of liquidity to take advantage of a marketplace that is loaded with quality branded merchandise. We are excited about the fourth quarter and we'll be offering great gift selections at compelling off-price values and emphasizing them in our marketing."

Despite department stores like Macy's and Nordstrom boosting their own off-price segments, Herrman doesn't see them presenting much of a challenge, calling it a "non-issue."

The company's move to boost wages has hit the bottom line, and will negatively impact fiscal 2018 earnings growth by about 2%, executives said.

While they also said they are working on reaching younger customers online, especially on mobile, the company remains invested in its brick-and-mortar approach. The company in the quarter opened its 4,000th store, which Herrman called "a proud milestone for our company." "This is a great reflection of our decades of operating expertise, both in the U.S. and internationally, and our disciplined approach to real estate," he said.