A strong dollar and lower sales in the company’s homegoods business hurt TJX Companies’ fiscal third-quarter results, the parent of T.J. Maxx, Marshalls and HomeGoods reported Thursday. Third-quarter net income fell 4% to $538 million, or $1.42 per share, from $555 million, or $1.45 per share, a year earlier, the Framingham, Mass.-based company said in a statement.
The Problem: Strong Dollar and Weakening Homegoods Division
In the most recent quarter, TJX’s net sales declined to $8.1 billion from $8.3 billion in the same period a year ago.
Homegoods sales fell 5% in the quarter, on top of a 7% decline in the second quarter.
The strong dollar and weakness in its homegoods division are weighing on results for TJX, which is also trying to keep up with rising labor costs at home as well as abroad.
The company has recently opened stores within existing retail centers and a new store location next to an existing mall space to improve visibility and accessibility, but this strategy has not yet translated into improved sales.
As such, we maintain our Hold rating. At the time of writing, T.J. Maxx shares were trading lower by 1%.
The Solution: Focus on International Expansion
International expansion is one way to help a company combat the adverse effects of the strong dollar.
TJX Cos. is an example of a company that has struggled with the strong dollar due to its large presence in the U.S. and Canada, both countries where residents buy more goods from abroad than those in other industrialized nations.
The retailer’s quarterly report revealed lower sales for its fiscal third quarter as the strong U.S. dollar and weakness in its U.S. homegoods division weighed on results.
Net income for the period was $1.04 billion, or $1 per share, down from $1.2 billion, or $1.27 per share a year earlier.
Comparable-store sales were down 1% at TJ Maxx, Marshalls and HomeGoods stores open at least 12 months; this follows a 0.5% increase during the same period last year.
While we are disappointed with our third-quarter performance, CEO Ernie Herrman said in prepared remarks we are making solid progress against many initiatives designed to create sustainable shareholder value.
He cited gains in average unit prices and margins, along with higher conversion rates in store for items sold.
He also pointed out that management is looking into new ways to improve customer experience and expand international reach.
These include tapping into e-commerce opportunities, leveraging the popular Black Friday tradition overseas, expanding internationally through joint ventures or minority investments and developing new brands within the international marketplace.
We’re confident these efforts will provide a significant boost over time, he concluded.
In addition to cutting costs, chief executive Ernie Herrman noted in his prepared remarks that it would explore new ways to improve customer experience and expand international reach.
These include tapping into e-commerce opportunities, leveraging the popular Black Friday tradition overseas, expanding internationally through joint ventures or minority investments and developing new brands within the international marketplace.
What This Means for TJX Going Forward
With the strong U.S. dollar and weakness in its U.S. homegoods division, it’s not a surprise that TJX Cos.’s third-quarter sales came in below expectations.
The company said net income for the quarter ended Aug. 31 fell to $237 million, or $1.18 per diluted share, from $263 million, or $1.30 per diluted share, a year earlier because of unfavorable currency translation effects of about 4%. The figures compare with analysts’ average forecast for earnings of $1.21 per share on revenue of $4 billion.
In North America, where more than two thirds of total sales are generated, revenue decreased 7% as comp store sales fell 2%. Meanwhile, international segment revenues rose 14%, but were dampened by adverse exchange rate movements against the euro.
Overall we’re pleased with our performance despite weaker results in some regions, CEO Ernie Herrman said in a statement.
Sales in Europe improved sequentially as we continue to make progress on our turnaround plan.
Comp store sales increased 7% at stores open greater than one year and comparable online business grew 12%.
The Company also continued its investment into Asia, which continues to grow rapidly, posting positive sequential growth in each region.
We believe that all three segments will contribute meaningfully going forward. We also see opportunities to improve profitability through changes in operations as well as technology investments such as digitization of product offerings and mobile platforms .
As part of this strategy, we intend to close approximately 100 underperforming Marshalls and HomeGoods stores globally over the next few years.
Going forward, we remain confident in our plans to deliver market-leading value both domestically and internationally.
The Results: Lower Sales for the Fiscal Third Quarter
With a strengthening dollar and weakening in their U.S. homegoods division, their results are low. TJX Cos. posted lower sales for the fiscal third quarter as a result of strong US dollar, which was worse than expected, and weakness in its U.S. homegoods division, where sales were softer than anticipated.
The company said net income for the quarter ended on September 30 was $104 million, or $0.31 per diluted share, compared with $159 million or $0.50 per diluted share in last year’s third quarter .
The stronger dollar reduced our margins outside of North America, Chief Executive Officer Ernie Herrman said on an earnings call Thursday morning.
In spite of this headwind, we remain confident that our long-term growth strategy is sound.
The drop in same-store sales reflects a number of factors including the slowdown in demand from international tourists to the U.S., lower traffic from Florida because Hurricane Irma impacted travel to many stores along Florida’s west coast during hurricane season, and store closures.
Sales at stores open more than one year fell 1% excluding currency effects and benefits from store closures.
That compares with a 0.8% increase over the same period last year. Sales at stores open more than one year fell 1% excluding currency effects and benefits from store closures, which compares to 0.8% increase over the same period last year .
We had a great start to the back-to-school shopping season, he added.
Traffic improved steadily throughout September and October, indicating consumer confidence remained high. Still, currency pressures will continue to pressure gross margin performance and affect earnings going forward.