What TJX Companies Wants You to Know

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TJX Companies (NYSE: TJX) is on a roll. In fiscal third-quarter earnings results announced last week, the off-price retailer revealed healthy demand trends across its TJ Maxx, Marshall's, and Home Goods franchises that position the company well heading into the holiday shopping season.

In a conference call with Wall Street analysts, CEO Ernie Herrman and his management team added context to those headline results and explained why TJX is likely to end 2018 on a high note.

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Below are the key highlights from that presentation.

Speeding up growth and winning market share

Rather than slowing, as management had predicted it would, sales growth sped up to a 7% rate during the quarter, with gains accelerating to a blistering 9% in the core Marshall's and TJ Maxx segment. Rival Ross Stores grew at 3% rate, which adds weight to management's claim that the company is stealing market share today.

TJX's growth was powered by healthy customer traffic and continued positive momentum in its apparel business.

Costs are rising

The retailer's merchandise margins were healthy, implying solid pricing trends. However, costs spiked higher around inventory transportation.

The rising expenses led to reduced bottom-line profitability as operating profit declined to 12.4% of sales from 12.8%. Executives believe the costs trends will stay elevated at least into next quarter, but they're trying to minimize the negative impact these expenses have on 2018 earnings. It helps that TJX has a flexible business model that allows it to quickly change its product lineup at a given location. Still, rising costs threaten to reduce profit margins, just as they have at many of its retailing peers.

Looking ahead to a solid holiday season

With plenty of cash, a light inventory position, and robust customer traffic, TJX has all the things necessary for a strong holiday season. Of course, execution will be key to translating those assets into market share wins over the next few weeks, especially as peers fight aggressively to keep their own sales marching higher.

For the fourth quarter, Herrman and his team believe revenue at existing locations will rise by between 2% and 3%, which would translate into gains of roughly 5% for the year compared to initial expectations for just a 1% to 2% uptick. Detracting from that good news is the fact that executives are bracing for more cost pressures that will push operating margin down slightly.

Still, TJX is on track to log its 23rd consecutive year of annual sales gains in 2018, which is a testament to the ability of its value-focused selling model to work across a wide range of economic conditions. That track record has management feeling confident that the company can grow its global store base significantly over the next few years, as its treasure-hunt approach allows it to fend off full-price and off-price peers even as consumer spending shifts toward online sales channels.

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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.