Why TJX Companies Stock Got Thrashed in August

TJX Companies (NYSE: TJX) had a rough time in late summer, at least as far as its stock was concerned. The company, best known for operating the TJ Maxx and Marshalls chains of discount department stores, released its latest quarterly earnings report, and investors found it dispiriting.

So too did several analysts, with two going so far as to downgrade their recommendations on the retailer. This combination of factors drove TJX's stock down by almost 15% last month.

Image source: Getty Images.

Not good enough for Mr. Market

TJX reported its fiscal 2027 second-quarter figures on Aug. 19, revealing that total net sales were just under $15.2 billion, up 5% year over year. That was on the back of comparable sales growth of 4% across all of the company's divisions (which comprises the Marmaxx unit of TJMaxx and Marshalls, plus the HomeGoods brand and operations in Canada and overseas).

In terms of profitability, TJX also posted improvements. Net income under generally accepted accounting principles (GAAP) climbed by a robust 22% to $1.52 billion. On a non-GAAP (adjusted), per-share basis, that line item rose by 11% to $1.22.

Neither metric was far from its corresponding consensus analyst estimate. Revenue was basically in line with the average prognosticator projection, while the company's adjusted net profit was slightly above the collective expectation of $1.19.

Those trailing numbers didn't keep investors up at night, but stocks trade on future potential, not past results -- and that was the issue with this earnings report.

This, even though TJX actually raised its bottom-line guidance for the entirety of 2027 -- and for the second time in a row. Adjusted net income for the year is now expected to be $5.15 to $5.20 per share, up from the previous forecast of $5.08 to $5.15. It left its "comps" guidance intact at 3% to 4%. It added that it aims to increase its store count by 4% in fiscal 2028.

Yet the increased profitability range still sits under the average analyst estimate of $5.22 per share for the year. Investors can be rather unforgiving of companies that fall even an inch short of forward projections.

A pair of downgrades

So can analysts. Several professional TJX trackers lowered their price targets on the stock in the wake of the earnings release.

Two of them took the additional step of downgrading their TJX recommendations. Jefferies' Corey Tarlowe reduced his to hold from buy, while Gordon Haskett's Chuck Grom changed his from buy to accumulate (a midpoint between buy and hold). This had the expected negative effect of dampening sentiment on the retailer's stock.

TJX had done well in previous quarters, so this latest one looked weak in comparison. Unfortunately, the preceding frames have helped crank up its stock price, so now it appears a bit expensive on valuation grounds. I'm not down on the company, which isn't doing badly at all, but I'd be hesitant to buy the stock at its current level.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group and TJX Companies. The Motley Fool has a disclosure policy.