Why TJX Stock Dropped Today
Key Points
TJX stock beat on sales and earnings in Q2.
Tariff refunds inflated profits in Q2, and more refunds are coming.
TJX stock still looks expensive, tariffs gains notwithstanding.
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The TJX Companies (NYSE: TJX) stock tumbled 6% in early trading Wednesday despite beating on earnings this morning, before recovering to a 1.3% decline as of 10:15 a.m. ET.
Heading into the report, analysts expected TJX to earn $1.19 per share, and TJX beat that number, reporting $1.22. Sales roughly matched expectations at $15.2 billion for the quarter.
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TJX Q2 earnings
Sales increased 5% year over year, and same-store sales (SSS) in particular grew a faster than expected 4%. Non-GAAP earnings were up 11% year over year, and earnings calculated under generally accepted accounting principles (GAAP) -- which included a big refund of tariffs earlier collected by the Trump Administration -- exploded 24% higher to $1.36 per share.
Management noted that almost all of its brands grew faster than expected. Only Marmaxx (the company's biggest division and the one that includes the T.J. Maxx and Marshalls chains) underperformed.
What's next for TJX
Underperforming in your biggest division isn't great news, and in Q3, management says growth might average only 2% or 3%. TJX still expects to end the year with 3%-4% comp growth, plus growth from new store openings.
Earnings-wise, the company anticipates GAAP profits of about $1.37 per share in Q3, and roughly $5.33 for the full year -- both numbers including windfall gains from tariff refunds that won't repeat.
Is this good or bad news? Well, valued on the full-year earnings projection, TJX appears to be trading for about 28 times current year earnings. Factor in about a 4% rate of store growth and no more than 4% growth in same-store sales, though, and we're looking here at a high double-digit P/E stock with only a high single-digit growth rate.
For a retail stock like TJX, that's probably too expensive, so I'll pass on today's sale.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends TJX Companies. The Motley Fool has a disclosure policy.
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