TJX Earnings: Despite Winning With Stretched Consumers, Shares Are Far From a Bargain

The market cheered wide-moat TJX Companies' solid second-quarter marks, sending shares up by a high-single-digit percentage. Comparable store sales grew 4% (on top of 6% growth last year), attributable to increased transactions as its differentiated procurement model and distinctive value proposition appeal to a cash-constrained consumer. Impressively, this growth was also met with expanding profitability, as the firm unlocked 50 basis points of pretax margin improvement to 10.9%, due to expense leverage on higher sales and lower freight costs. We surmise its scale in procurement and distribution should afford further margin gains longer term, with our forecast for pretax margins reaching 12% by the end of our 10-year explicit forecast.