TJX’s Value Resonates During Holiday Selling Season

We don’t plan to materially alter our $68 per share fair value estimate for narrow-moat TJX Companies TJX after the fourth-quarter earnings release; we view the shares as overvalued. The negative impact on our intrinsic value from the weaker-than-expected fiscal 2023 profitability (9.3%, hindered by an unplanned 30-basis-point shrink charge) and the firm’s slightly disappointing outlook for fiscal 2024 (pretax profit margin of 10.1%-10.3% versus our 10.5% estimate) is offset by favorable fourth-quarter top-line outperformance (5% sales growth). Against the backdrop of a strong buying environment, we suspect customers reacted favorably to TJX’s value during the holiday selling season, as evidenced by quarterly comparable sales at Marmaxx (up 7%) and HomeGoods (down 7%) that were ahead of our 4% lift and 9% decline estimates, respectively.

With outsize shrink costs expected to remain high through 2025 (according to management), along with an uncertain macroeconomic environment, we expect to nudge our pretax profit margin forecast down toward the guided range. However, benefits from easing freight costs and strategic buying and retailing should support at least 80 basis points of pretax profit improvement from fiscal 2023. Additionally, we were pleased margin pressure has begun to ease at HomeGoods, with a 7.3% fourth-quarter segment profit margin posted, marking a positive contribution to the segment’s 6.3% full-year margin. This segment has now lapped the benefit from heightened home goods demand in fiscal 2022 and is displaying signs of profit improvement momentum. With the firm seeking 2%-3% comparable sales growth and 3% square footage growth in fiscal 2024, we don’t anticipate a significant change to our roughly 2% comparable sales growth estimate but will nudge up our 2% square footage projection. Longer-term, we see no reason to alter our prognosis for the business; we still expect average sales growth of 5% and pretax margins of 11% over the next decade.