Profits up 19.6%, TJX on a global roll
May 13, 2008,
Framingham, Mass. – TJX Companies’ self-described “cash engine” and “what is fueling our growth” – The Marmaxx Group, comprising T.J.Maxx and Marshalls – was the brightest star in a period that boasted many benefits, the company reported during its first-quarter call today.
Net income of $193.8 million was up 19.6% over profit for last year’s first quarter, with diluted earnings per share of $0.43, compared to $0.34 a year ago.
“Marmaxx may be generating low single digit comps, but it consistently performs, has increased merchandise margins, and throws off enormous cash,” said Carol Meyrowitz, president and ceo. “We do not take our eyes off the core business for one moment. We will continue to execute at Marmaxx while we pursue what we see as tremendous growth opportunity internationally.”
Marmaxx’s recipe for success has been “a more eclectic mix” that has triggered quicker turns on reduced inventories, explained Ernie Herrman, senior evp and president of The Marmaxx Group.
“We’re more assorted, we have looks we didn’t have a year ago, and that was one of our problems with execution. So, we’re seeing better turns, obviously on fewer inventories, and that’s the first sign of health that we wanted to see,” he said.
Herrman said he expects to see better comp-store sales results out of the home area “over the next six months-ish.”
Outside the Marmaxx division, the 289-store HomeGoods segment grew quarterly revenues by 9.3% to $364 million, half again as fast as the corporate sales expansion of 6.2%. But 2% comps at HomeGoods lagged the companywide 3% rise.
The Canadian division, which includes Winners and HomeSense, posted an aggregate 4% comp gain.
“The divisions are all working very closely together and that is really terrific shared knowledge, which I think is what is helping Marmaxx get back on track in home,” said Meyrowitz. “At Winners, business is very strong, and at HomeGoods there is a lot going on.”
The new home prototype recently tested at select Marmaxx doors is also thought to be a catalyst. “We tried that in a few stores,” Herrman said. “It’s a little early to read results, but that combined with the [more exciting product] mix seems to be like it’s a positive direction for us so I think we’ll continue on that path.”
Hindering TJX’s home business were continued rising fuel and freight costs during the first quarter. This segment of the business stood – and still stands – to feel these negative impacts more so than TJX’s other divisions from a bottom-line perspective, Meyrowitz pointed out, “because of the higher freight costs for shipping home products.” Plans are in effect to mitigate those costs in the second quarter, particularly for HomeGoods, she said.
“It is important to note that while the weak environment never helps, we do not attribute HomeGoods’ shortfall [in comp gains] to the weak home environment that other retailers are feeling. We continue to offer customers an exciting treasure hunt of unique home décor at compelling values. As we begin the summer selling season, we like the freshness in our stores and the product in our pipeline and are seeing nice momentum in the business.”
On the global store expansion front, Meyrowitz said, “Ultimately we believe that we can grow to more than 4,300 stores with our current portfolio within the countries we currently operate.”
The vision for Marmaxx is to potentially grow that 1,623-store business by 400 additional stores.
HomeGoods this year will increase its store count by 25 new units, and TJX believes the U.S. can accommodate as many as 550 to 600 HomeGoods stores.
Deep-discount A.J. Wright, which is showing signs of new life and is poised as “a major growth vehicle for TJX in the United States, is on course to net five new stores this year – two of which could be in new markets.
In Canada, the company is launching a new store concept later this year. And Europe is the sweet spot. “With population close to that of the U.S., Europe can support thousands of stores and there is no competitor who can offer the value that we provide on the scale upon which we can provide it,” Meyrowitz said. “We’ve built very successful businesses in Canada, U.K. and Ireland, where other retailers have failed. And we are more pleased with the response from the German customer.”
In Germany, TJX’s newest European market, business is “off to an amazing start,” she said “We’re turning the German business as fast as the U.K. business.” TJX has a Germany-based staff of 14, all of whom are buying “predominantly German product,” she said, which is also selling well in the U.K.
“It’s opened many, many doors for us,” Meyrowitz continued, as has the European vendor community, which she described as “excited about us entering that market.”
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