Friday, May 22, 2020

Investors Bullish About TJX Despite Q1 Miss

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News shaping
the markets today

     

What’s happening: Shares of TJX Companies climbed on Thursday despite the discount department store chain reporting downbeat results for the first quarter.

What happened: Along with other retailers, TJX had to shut down its stores as the covid-19 pandemic swept the US in mid-March.

The owner of TJ Maxx and Marshalls also closed its online operations in March to protect its employees from the coronavirus infection. With its stores and online operations closed for almost half the quarter, TJX recorded a much wider than expected loss for the first quarter. Despite this, investors were optimistic about the company’s prospects, as TJX is considered one of the better positioned retailers and is expected to make a stronger comeback this quarter.

How were the results: The TJ Maxx parent suffered a significant decline in revenues and swung to a loss in the first quarter.

  • TJX reported a net loss of $887.5 million, or 74 cents per share, versus a profit of $700.2 million, or 57 cents per share, in the same quarter last year. The figure missed the consensus estimate of a loss of 7 cents per share.
  • Revenue tumbled to $4.41 billion, from $9.28 billion, falling short of expectations of $5.46 billion.

Why it matters: TJX announced that its gross margins had turned negative during the quarter due to store closure. The company also burned a significant amount of cash due to the pandemic, but was able to lower its operating costs. Management also indicated that there is sufficient liquidity for the Framingham, Massachusetts-based company to continue for the rest of the year.

TJX has so far reopened 1,600 of its over 4,500 stores and expect to open almost all stores by the end of June. The company said it is witnessing a strong rise in sales at the stores reopened so far.

“Although it’s still early and the retail environment remains uncertain, we have been encouraged with the very strong sales we have seen with our initial re-openings,” TJX CEO Ernie Herrman said.

TJX is an off-price retailer, which buys inventories from retailers that are considering dumping their merchandise and resells this at an attractive discount to customers. Apparel retailers being hit hard by the pandemic, with a 78.8% decline in overall sales in April, unleashes a big opportunity for massive discounts for TJX and other off-price retailers.

To preserve liquidity for the crisis, the company has suspended its share buyback program. TJX also froze its dividend for the first quarter and is unlikely to make pay-outs in the current quarter.

The company also withdrew its guidance for the full year citing coronavirus-related uncertainties.

How the shares responded: Shares of TJX climbed 6.8% during the regular session on Thursday and rose again by 0.4% in after-hours trading. The company’s shares have gained 18% over the past month, but is still down around 14% in the last three-month period.

What to watch: With the retailer witnessing strong growth trends at its recently-reopened stores, investors expect TJX to make a strong comeback this quarter. Markets are also hopeful of the company reopening its remaining stores soon.

The Markets Today

     

Investors will be focusing on the Canadian dollar today, ahead of retail sales data from the country.

Context: The Canadian dollar slipped versus the greenback on Thursday, with rising tensions between the US and China affecting overall market sentiment.

Details: Canada is one of the biggest exporters of oil in the world, which is why the loonie is highly sensitive to the overall global economic outlook. The US dollar also gained strength as Wall Street stocks fell, following rising Sino-US tensions and mixed earnings from retailers.

The price of oil climbed to its strongest level since March, following a decline in crude inventories and some rebound in demand for the commodity. WTI (West Texas intermediate) crude oil prices gained 2.7% to reach $34.4 per barrel in the previous session.

While the rise in oil prices supports the Canadian dollar, data released by the country grabbed more attention. Efforts to limit the spread of coronavirus resulting in economic activity coming to a standstill. Amid this, Canada lost 226,700 nonfarm payroll jobs in April, according to payroll services provider ADP. The country also lost 2 million jobs in April, according to earlier data from the national statistical agency.

The loonie, which rose around 1.4% this week, slipped 0.3% to 1.3944 versus the greenback, or 71.72 US cents, in the previous session.

What to watch: Markets await the retail sales report from Canada, which is likely to affect the currency’s performance in the upcoming session. Retail sales in Canada, which rose 0.3% in February, are expected to decline 10% in March.

Investors also continue to focus on the coronavirus graph, with the number of infections globally surging past 5 million. Canada has confirmed over 82,740 covid-19 cases with around 6,260 deaths.

Other Markets: US indices closed lower on Thursday, with the Dow, S&P 500 and Nasdaq 100 down by 0.41%, 0.78% and 0.97%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

UK’s retail sales and public sector net borrowing, Spain’s industrial new orders, Turkey’s business confidence, capacity utilization and tourist arrivals, Indonesia’s loan growth, Mexico’s retail sales, India’s deposit growth, foreign exchange reserves and bank loan growth, Russia’s producer prices as well as the US Baker Hughes crude oil rigs.