TJX Proves It's the Right Retailer for the Times

In a marketplace where consumers are looking for discounts, The TJX Companies (TJX) has the advantage of being a retailer that provides nothing but discounts, and it’s paying off.

Comparable store sales, those in locations open for at least a year, were up 10 percent for October, seven percent for the third quarter and five percent for the year. So the company’s store performance has improved throughout 2009, and the early recovery hasn’t driven customers back to the conventional and recovering retail chains stores that are the source of its merchandise.

As an off-pricer, TJX sells excess inventory it purchases from retailers and their suppliers. Through a range of stores, from the more up market T.J. Maxx to the mass-market oriented A.J. Wright to domestics and décor specialist HomeGoods, the company provides brands found in conventional retailers but at discounted, sometimes heavily discounted, prices. The stores aren’t fancy and customers have to search through racks full of widely varying goods to find something they like. Yet, for those who can be a little flexible, product quality for the price can be exceptional. And no one has to wait for a sale.

That formula has suited consumers in the recession. Not only is TJX selling more, it’s doing it at a growing profit. The company raised its third quarter earnings estimate to between 77 and 79 cents recently and, when announcing sales for the period last week, said profits would come in at or above that range.

But the comparable store sales are impressive in themselves. Unlike some retail chains that are reporting better comps this month, TJX’s October ’08 wasn’t a disaster. When foreign currency rates are taken out of the equation – the company has major operations in Canada and Europe – comparable store sales were down only one percent. So TJX’s comparable stores are performing substantially better then they were in 2007 before the recession started to take its toll. In contrast, Target (TGT), which basically had a flat comp last month after a year of negatives, had an almost five percent drop in comparable store sales in October of last year, meaning its locations are lagging well behind 2007. Even Kohl’s (KSS), which made gains in the recession and reported a comparable store sales gain of just over one percent in October, still is climbing out of a hole given the nine percent negative comparable store sales it posted in the month last year.

Unlike a lot of other retailers, TJX has managed to make gains without having to make significant adjustments to its business. Early on, the recession probably helped the company in more ways than one as consumer concerns about spending took them out of other retailers and sent them to TJX. The situation created excess inventory at those stores that TJX could snap up at distressed prices. Sometimes, a retailer doesn’t have to change because a change in the marketplace directs shoppers right to its doors. Given that its sales remain strong in the opening of the recovery, TJX looks to be among those bargain retailers who will hang on to customers it won in the recession.