Is TJX Companies Running Out of Steam or Taking a Breather?

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For the first time in eight years, TJX Companies (NYSE: TJX) failed to report higher comparable sales. Although it reported higher sales and profits companywide, the discount retailer's stock was still punished as worries rose that the malaise afflicting the rest of the retail industry is finally catching up to TJX.

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With shares of the retailer leader down 12% from recent highs, let's take a closer look at whether TJX Companies is running out of steam or just taking a breather.

Let no good deed go unpunished

On the surface, TJX's third-quarter earnings report doesn't seem all that bad. Sales were up 6% from last year to $8.8 billion and net earnings of $641 million were nearly 17% higher. And even though comps failed to register a gain for the first time since 2009, they also weren't negative: They came in flat from last year's third quarter when the retailer posted a 5% gain.

Considering retailers like Kohl's (NYSE: KSS) were massively cheered for posting a meager 0.1% gain in same-store sales, it seems particularly harsh that TJX Companies would be taken down for merely treading water after years of rip-roaring gains. While that could lend credence to the belief that the retailer is taking a breather, there were certain factors at play that caused TJX's troubles.

The hurricanes that ripped through the Caribbean and the south played a large role in TJX's underperformance this quarter. For example, the retailer's 37 stores in Puerto Rico remain closed nearly two months after Category 4 Hurricane Maria made landfall on Sept. 20 and knocked out all power to the island. While TJX didn't include the Puerto Rican stores in its comp calculations, it does continue to pay all of its employees there.

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The buck stops here

To its credit, however, TJX wasn't content to place blame for the weaker-than-expected quarter at the feet of the hurricanes, or even the warmer weather, which it noted did hurt apparel sales. Instead, CEO Ernie Herrman placed blame squarely on the company's shoulders for what was "absolutely a fashion miss," telling analysts on the earnings conference call, "We believe we could have done a better job in certain apparel categories in Marmaxx and, therefore, left some business on the table."

Marmaxx is TJX's Marshalls and T.J. Maxx stores, the primary discount retail outlets it operates, which account for 60% of company revenues. While sales were up about 1% for the quarter to $5.8 billion, comps fell 1%.

Although retailers like Kohl's, Macy's, Nordstrom, and Stage Stores have all entered the off-price arena -- with Macy's and Nordstrom, in particular, ramping up their discount chains -- TJX doesn't see them as competitive threats and dismisses them as a "non-issue." Herman once again said it was TJX's own missteps for the shortfall and "we don't really see any indicators" to suggest it was anything but that.

A one-off performance

The rest of TJX Companies businesses appear to be doing quite well with the HomeGoods chain enjoying a 3% rise in comps and its Canadian operations seeing same-store sales increase 4%.

Moreover, it expects the Christmas shopping season help fourth-quarter sales rebound, and anticipates companywide comps will be 1% to 2% higher over last year. Customer traffic was reportedly already strong and up at every major division, and because it has "many initiatives underway to drive sales and traffic" it fully expects to achieve the goals it set out for this year, if not surpass them.

In a fickle industry like fashion, TJX Companies' consistent performance has been remarkable. Although there were several external causes for the off-price leader's rare miss, it is admirable that it was willing to accept the blame. So we can chalk up the retailer's pause here as taking a breather (if even that), and not that it's running out of steam.

Further, because TJX Companies is trading at very reasonable valuations, investors may want to consider using the opportunity of the pullback to establish or add to their position.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends Nordstrom and The TJX Companies. The Motley Fool has a disclosure policy.