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Off-price apparel retailer The TJX Companies (NYSE: TJX) is on fire. The company reported a better-than-expected quarterly earnings report on Tuesday, which sent the stock up 7% for the day. At one point TJX shares touched $76.93 – a new record for the stock.
TJX stock has risen 30% in the past year, strongly outperforming the S&P 500, which is up just 5% in the same time period.
TJX reported strong growth in sales, profits and comparable store sales, which measures sales at locations open at least one year. The company also lifted its outlook for the remainder of the year.
Excellent Growth Across Key Metrics
TJX operates the T.J. Maxx, Marshalls and HomeGoods retail stores in the United States and internationally. Last quarter, TJX grew year-over-year revenue and net profit by 6% and 7%, respectively, thanks to 6% growth in comparable sales.
TJX saw broad-based growth, but two areas in particular did the heavy lifting: HomeGoods and the company’s international business.
HomeGoods posted 9% comparable sales growth last quarter, which was well ahead of the total company’s performance. HomeGoods’ same-store sales growth significantly accelerated from the second quarter of last year, in which comparable growth was 6%.
Separately, TJX was boosted significantly by its international stores. Comparable store sales on an organic basis – meaning excluding the effects of foreign exchange – grew 12% in Canada and 5% in Europe, again ahead of the company-wide results.
A Great Year in Store
As if its excellent results last quarter weren’t enough, TJX also surprised investors by raising its full-year earnings guidance. The company now expects full-year earnings to be in the range of $3.24-$3.28 per share in fiscal 2016. This compares to EPS of $3.15 in fiscal 2015.
At the midpoint of its full-year forecast, TJX management expects the company to grow earnings per share by 3.5% year-over-year. While unspectacular, that is an admirable performance considering the tough retail environment and the weak retail earnings reports that have come in lately from a number of retailers, including Wal-Mart (NYSE: WMT) and Kohl’s (NYSE: KSS).
Ringing Up Cash for Shareholders
Thanks to its success, TJX is able to share its cash flow with investors. The company returned $855 million to shareholders through share buybacks over the first half of the year, retiring 12.7 million shares in the process. For the full year, it expects to spend $1.8 billion to $1.9 billion on stock buybacks.
In addition, TJX returns even more cash to shareholders through dividend payments. TJX stock currently yields 1.1%, and is an excellent dividend growth stock. In the past five years, the company has increased its dividend by 22% per year on average.
Earnings growth even at low- to mid-single digits should be more than enough for the company to continue aggressively returning cash to shareholders.
Growth at a Reasonable Price
In terms of valuation, while TJX isn’t the cheapest stock around, investors should be comfortable with paying a higher price for growth. After its pop on earnings, TJX stock trades for about 24 times trailing EPS, and 23 times its full-year earnings guidance.
That is a more expensive multiple than the broader market, but TJX is performing extremely well in a challenging environment. It’s one of the higher-growth retailers in the U.S., meaning there should be enough growth in future quarters to justify its current valuation.
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