The TJX Cos. Inc. is eyeing its apparel business as a major market share opportunity—one that will attract a younger customer.
Noting that some of its brick-and-mortar competitors “have not done a good job,” TJX CEO Ernie Herrman said the off-pricer has had a “consistently pretty healthy apparel business” that makes the company feel there is open sky there.
“We’ve already started looking at our apparel plans for the spring season, and identifying which pockets of apparel in which areas [and] in which parts of the country [where] we think have opportunities for us to almost take the market share from items and categories that aren’t being serviced by the competition anymore as much as they used to,” Herrman told investors during a conference call Wednesday morning.
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He declined to disclose the categories, but said there’s a handful that are skewing younger in TJX’s targeted customer range. That’s an opportunity for a “win-win,” Herrman said. TJX has been pulling in more consumers from the Gen Z and millennial demographics.
Herrman said he expects to see a continuation in the availability of excess goods. He explained that most of its competitors are public companies and they “cannot back off trying to push the envelope to grow.” That means that even if they are successful in cutting back on product one season, over the course of several seasons there’s still goods left over due to instability and trends in different retail channels domestically and globally. He also said the volatility in e-commerce over the last 12 months will mean more excess goods should become available, especially in apparel where “forecasts have been way off from where they’re trending.”
Looking ahead, Herrman said the fourth quarter is “off to a strong start” and that offering outstanding value is the top priority for the holiday season. “The marketplace continues to be loaded with quality merchandise. We are set up extremely well to offer a wide range of good, better and best brands to consumers,” he said. “We are confident that shoppers will find an eclectic assortment to choose from for everyone on their list.”
Herrman added that the company will remain focused on being a “gifting destination” throughout the year. He said TJX will bring in fresh product to its stores and online “multiple times a week” throughout the holiday season, a move that Herrman said will differentiate TJX from competitors.
He also said the company is in a good position for the post-holiday period and beyond. As the “largest brick-and-mortar off-price retailer in the world, we leverage our global infrastructure and share best practices across all of our divisions so that we can deliver the best merchandise, values and shopping experience to our customers,” Herrman said.
Other pluses include its flexible business model that allows it to buy close to need and quickly adjust to meet changing consumer preferences, curation of merchandise mix to meet a wide demographic and income range, and “its growing pool of Gen Z and millennial shoppers,” he said.
Noting that the company works with 21,000 vendors in more than 100 countries, Herrman said TJX continues to “have a significant opportunity to grow our global store base,” with the potential to add an additional 1,300-plus stores “with just our current banners and just our current countries.” At the end of the third quarter on Oct. 28, TJX operated 4,934 stores in nine countries that include the U.S., Canada, the U.K., Ireland, Germany, Poland, Austria, the Netherlands and Australia, as well as six e-commerce sites.
As for the quarter just ended, Herrman said sales and profitability exceeded company expectations, with a 6 percent comparable sales increase driven by an increase in customer traffic in all divisions.
Apparel sales in the third quarter at Marmaxx, TJX’s largest division that includes its TJMaxx and Marshalls banners, “remained very strong,” Herrman said, with overall home sales “outstanding, accelerating sequentially versus the second quarter, particularly at HomeGoods.” He said comp sales and traffic also rose at its Canadian and international stores.
In the second quarter, the company shut down its HomeGoods e-commerce operation, which was not a big contributor to the division’s overall sales. The website remains as an informational site.
“Importantly, overall merchandise margin remains very healthy,” Herrman said. TJX said gross profit margin for the quarter was 31.1 percent, helped by a “significant benefit from lower freight costs” and above-plan sales.
For the third quarter, net income rose 12 percent to $1.19 billion, or $1.03 a diluted share, on a 9 percent increase in net sales to $13.3 billion. That compares with net income a year ago of $1.06 billion, or 91 cents, on net sales of $12.17 billion. For the nine months, net income was $3.07 billion, or $2.65 a diluted share, on net sales of $37.81 billion.
For the fourth quarter, TJX forecasted diluted earnings per share in the range of $1.07 to $1.10, with comparable store sales up 3 to 4 percent. The fourth quarter include a 53rd week on the retail calendar. For the full year ending Feb. 3, 2024, the company expects diluted earnings per share between $3.71 to $3.74, with comparable store sales up 4 to 5 percent.
