TJX Companies Earnings: A Preview

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TJX Companies (NYSE: TJX) is on an impressive retailing win streak, having just closed out its 23rd consecutive year of growth in 2018. The off-price apparel and home goods seller has a knack for maximizing returns from its leadership industry position, its massive sales base, and its efficient selling model.

Those advantages help explain why the stock has outperformed the market so far in 2019, heading into TJX's first-quarter report on May 21. Below, we'll look at a few metrics that could determine whether that rally pushes deeper into the year.

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Market share

The retailer's growth was surprisingly strong last year, both when compared with its own original targets and with rivals like Ross Stores. Comparable-store sales gains landed at 6% in the most recent quarter to comfortably surpass the 5% increase management had predicted. That marked the company's third consecutive beat and put comps at 6% for 2018 versus Ross Stores' 4% increase.

TJX's management back in February highlighted several good reasons for investors to believe that this market share streak will continue into 2019. These include broad-based sales growth across its retailing banners of HomeGoods, T.J. Maxx, and Marshalls, and strong customer traffic in every key market except for Canada. Ross Stores won't report its results until later in the week, but investors will still get a good picture of TJX's market share position by following the comps metric on Tuesday.

Spending and profits

Like most of its peers, TJX is dealing with rising costs in key areas like transportation, shipping, and IT spending. Labor expenses are soaring, too, mainly thanks to its recent wage increases and added benefits for part-time and full-time employees.

So far, these headwinds have been offset by the combination of strong sales growth and healthy pricing trends, but there's no guarantee that the retailer can avoid at least a slight decrease in profitability this year. Thus, keep an eye on gross profit margin for signs of weaker pricing, and on operating margin, which captures bottom-line profitability after accounting for those rising selling expenses. Management wants to keep those figures roughly steady in 2019, and that would count as a solid win given the inflationary cost environment facing most retailers today.

Moving online

TJX is taking a cautious approach to multichannel selling when compared with full-price retailers like Walmart and Target. Part of the appeal for customers is the treasure-hunt aspect of the constantly shifting inventory at T.J. Maxx and Marshalls, and so online shopping remains a relatively tiny portion of the business.

That strategy could change if management sees rivals stealing share through e-commerce channels this year, or if growth slows to below the industry's expansion rate. If that happens, investors might see TJX shift more cash toward investments in the online segment and less toward its goal of reaching 6,000 stores, from 4,300 at the end of 2018.

Yet it's more likely that TJX reports another quarter of solid sales growth on Tuesday that puts it in position to notch its 24th consecutive year of gains in 2019. And if market share and profitability trends hold up, then investors can expect to see more direct cash in the form of dividends and stock buybacks that supplement the chain's higher earnings this year.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.