Hurricanes, fashion missteps take toll on off-price giant
High-flying TJX didn’t fly quite so high in its third quarter, reporting a rare miss in sales.
The TJX Cos. reported flat same-store sales in its third quarter, citing the negative impact of a series of hurricanes during the period, unseasonably warmer temperatures and a fashion miss. Analysts had expected an increase of 2.4%.
Net sales for the quarter, ended Oct. 28, increased 6% to $8.8 billion, slightly below estimates. Same-store sales were flat compared to last year’s 5% increase. By brand, same-store sales were down 1% at Marmaxx (Marshalls and T.J. Maxx), and up 3% at Home Goods and 1% at TJX International.
Net income rose nearly 17% to $641.44 million, or $1 per share, on higher margins, compared to $550 million, or 83 cents per share, in the year-ago period. Gross profit margin came in at 29.8%, up from 29.5% last year.
“While sales were not as strong as we would have liked, we were pleased that sales trends at Marmaxx improved as the weather turned more seasonable,” said Ernie Herrman, CEO and president. “Further, customer traffic, or transactions, were strong and up at every major division. Importantly, our consolidated merchandise margin increased, which we believe speaks to the flexibility of our off-price business model.”
On the chain’s quarterly call, Herrman also cited fashion missteps, which he said would be corrected in the current quarter.
“It was absolutely a fashion miss … this was, really, on our own part a selection issue and had nothing to do with availability out there,” Herrman said.
Looking ahead, Hermann said the fourth quarter is off to a strong start.
“We have excellent inventory liquidity to capitalize on the plentiful opportunities we are seeing for quality, branded merchandise in the marketplace,” he said.
The retailer expects holiday-quarter same-store sales growth of 1%-2%. It maintained its fiscal 2018 profit forecast at the high-end of the range of $3.91 to $3.93 per share.
During the third quarter, the company increased its store count by 139 stores. As of October 28, 2017, the retailer operated a total of 4,052 stores in nine countries, the United States, Canada, the United Kingdom, Ireland, Germany, Poland, Austria, the Netherlands, and Australia, and three e-commerce sites.
Fitch: Large banks keep lid on retail sector exposure
The largest U.S. banks are keeping their exposure to the beleaguered retail sector in check, according to Fitch Ratings’ latest Banks Chart of the Month.
The retail sector is unlikely to threaten the banks’ ratings given their limited exposure, strong core earnings and healthy capital levels. However, disruption to retailers from e-commerce underscores the need for banks to stay abreast of technological change and adjust their exposures accordingly, advised Fitch.
Large banks are actively reducing exposure to the most challenged retail segments and using asset-based lending to limit their retail sector risk. Fitch estimates that balance sheet exposures to retailer commercial real estate and retail commercial loans represent 9% and 14%, respectively, of common equity tier 1 capital in aggregate across large Fitch-rated U.S. banks.
Retail exposure in banks’ securities portfolios is minimal. Only 2% of portfolios in aggregate are invested in CMBS that do not carry a government or government-sponsored entity guarantee.
U.S. retail loan default rates have risen sharply to about 7% this year (on a trailing 12-month basis) after several years below 1%.
“We forecast them to reach 10% next year as brick-and-mortar sales continue to decline in the face of online sales,” Fitch stated.
Not all retailers are equally challenged. Retailers of consumer staples are more susceptible to disruption from online competitors than convenience stores and grocery stores, for example, although Amazon’s recent acquisition of Whole Foods could signal that this is changing, according to Fitch.
Arts and crafts retailer makes two key digital moves
A.C. Moore Arts and Crafts is ramping up its digital offerings with an acquisition — and an investment.
The retailer’s parent company, Nicole Crafts, has acquired Blitsy, an online retailer of arts and crafts products that was founded in 2011. Blitsy will operate largely as an independent subsidiary of Nicole Crafts and remain based in Chicago, with access to A.C. Moore’s infrastructure and scale. A.C. Moore will leverage Blitsy’s e-commerce expertise and relaunch acmoore.com in 2018.
“We are joining the A.C. Moore family because there is a huge opportunity to utilize each other’s strengths and move faster toward our vision of delivering a truly rewarding and holistic experience to customers, teammates, and brand partners,” said Ross Petersen, co-founder and CEO of Blitsy.
In a second initiative, the A.C. Moore parent company secured an exclusive partnership as part of a major investment in handcraft marketplace Zibbet, a marketplace of some 50,000 independent artists, crafters and vintage collectors.
“A.C. Moore is entering a period of unprecedented growth,” said Anthony Piperno, owner and chief marketing & merchandising officer at A.C. Moore, which operates 135 stores across the East Coast. “These dynamic additions to our company can rapidly accelerate adoption of our proprietary product across a global audience of creative consumers and position our family as industry leaders among arts and crafts enthusiasts everywhere.”
A.C. Moore was advised on both transactions by EGL Holdings, an Atlanta-based boutique investment banking company.