Even Retail Stalwart TJX Couldn't Meet Expectations Last Quarter

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During the past five years, department stores have faced massive sales challenges. Even top performers like Kohl's Corporation (NYSE: KSS) have posted comp sales declines for most of that period.

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Meanwhile, off-price giant TJX Companies Inc (NYSE: TJX) has continued its run of explosive growth. Comp sales increased by 5% in each of its past two fiscal years, following a 4% increase the year before that.

However, even TJX couldn't manage to post comp sales growth during the third quarter, due to the impact of hurricane-related store closures and unfavorable weather. This makes it all the more impressive that some department store companies, including Kohl's (NYSE: KSS), did manage to eke out comp sales gains last quarter.

An unusual quarter at TJX

TJX has built up a reputation for beating its financial guidance over a period of many years. Yet this trend didn't continue in the third quarter.

Back in August, management projected that comp sales would rise 1% to 2% on a companywide basis in Q3, resulting in earnings per share of $0.98 to $1.00. However, TJX fell short on the top line, with comp sales coming in roughly flat. The company's quarterly revenue of $8.76 billion missed the average analyst estimate by approximately $100 million.

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Most notably, comp sales fell 1% for the "Marmaxx" segment, which consists of the T.J. Maxx and Marshalls chains in the U.S. and accounts for more than 60% of TJX's revenue. The company needed solid comp sales growth at the HomeGoods chain and in its international markets to offset this decline.

On the other hand, TJX posted earnings per share (EPS) of $1 last quarter, reaching the high end of its guidance range. This marked a 10% increase relative to the company's adjusted EPS of $0.91 a year earlier, which is the strongest EPS growth TJX has posted in a long time. It seems that the headwinds of slow GDP growth and currency weakness in Europe and Canada that have dogged TJX for years are finally receding.

The same factors were at play across the retail industry

TJX blamed its relatively disappointing top-line performance on the same issues that hurt other apparel-centric retailers like Kohl's last quarter. Hurricane Harvey and Hurricane Irma disrupted sales in some major markets during late August and early September. Unseasonably warm weather across most of the country then weighed on sales of cold-weather items in September.

On the bright side, sales trends improved at TJX's Marmaxx division after the weather turned colder in October, mimicking the trends reported by Kohl's and other department stores. TJX was also able to lean on its other divisions to power strong EPS growth last quarter, whereas Kohl's saw its profitability come under pressure, with adjusted EPS down by double digits.

No need to worry

Despite the Q3 sales miss, TJX actually raised the lower boundary of its full-year EPS guidance in its earnings report. The company ended Q3 with a clean inventory position, and the fourth quarter is off to a good start. As a result, management expects TJX to deliver a solid 11% to 13% increase in adjusted EPS for the quarter.

Once again, TJX's forecast calls for 1% to 2% comp sales growth in Q4. If the weather continues to cooperate, TJX should be able to meet or exceed the high end of this guidance range -- as it usually does -- and beat its earnings guidance. If the same positive sales trends continue at Kohl's, the No. 2 department store chain could also report surprisingly good results for the quarter.

Looking ahead to 2018, TJX will face fairly easy year-over-year sales comparisons. This puts the company in good position to return to its historical pattern of double-digit EPS growth. Considering that TJX stock has fallen to its cheapest valuation in many years -- just 16 times forward earnings -- now could be a great time for investors to bet on this long-term growth story.

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Adam Levine-Weinberg owns shares of Kohl's and is long January 2018 $60 calls on The TJX Companies and short January 2018 $90 calls on The TJX Companies. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.