The TJX Companies, Inc.- Financial and Strategic Analysis Review

Transcription

1 The TJX Companies, Inc. - Financial and Strategic Analysis Review Publication Date: Nov-2015 Company Snapshot Key Information The TJX Companies, Inc., Key Information Web Address Financial year-end January Number of Employees 198,000 NYSE TJX Key Ratios The TJX Companies, Inc., Key Ratios P/E EV/EBITDA Return on Equity (%) Company Overview The TJX Companies, Inc. (TJX) is an off-price apparel and home fashions retailer. The company offers apparel including footwear and accessories, home basics, accent furniture, lamps, rugs, wall decor, decorative accessories and giftware; and other merchandise such as jewelry, designer services and accessories. It serves through on-store and online transactions. TJX distributes the products through a network of distribution centers and stores. It caters to retail and commercial customers in the US, Canada, Bermuda, Australia, Poland, Italy, India, UK, Ireland and Germany. SWOT Analysis The TJX Companies, Inc., SWOT Analysis Strengths Weaknesses Debt/Equity 0.38 Operating profit margin (%) Dividend Yield 0.01 Note: Above ratios are based on share price as of 18-Nov-2015 Share Data The TJX Companies, Inc., Share Data Price (USD) as on 18-Nov EPS (USD) 3.15 Book value per share (USD) 6.23 Shares Outstanding (in million) Operational Base Strong Operating Performance Increasing Working Capital Opportunities Business Expansion Growth in Online Retail Strategic Acquisition Rising Debt Burden Highly Dependent on Domestic Market: the US Threats Growing Counterfeit Goods Market Highly Competitive Market Changing Consumer Preferences Performance Chart The TJX Companies, Inc., Performance Chart ( ) Financial Performance The company reported revenues of (US Dollars) US$29,078.4 million for the fiscal year ended January 2015 (FY2015), an increase of 6% over FY2014. In FY2015, the company s operating margin was 12.3%, compared to an operating margin of 12.2% in FY2014. In FY2015, the company recorded a net margin of 7.6%, compared to a net margin of 7.8% in FY2014. Page 1

2 Key Information The TJX Companies, Inc., Key Information Corporate Address 770 Cochituate Road, Ticker Symbol, Stock TJX [New York Stock Exchange] Framingham, MA, 01701, United Exchange States Telephone No. of Employees 198,000 Fax Fiscal Year End January URL Revenue (in USD Million) 29,078.4 Industry Locations Consumer Packaged Goods, Retailing Australia, Bermuda, Canada, Germany, Ireland, Italy, Poland, United Kingdom, United States Company Overview The TJX Companies, Inc. (TJX) is an off-price apparel and home fashions retailer. The company offers apparel including footwear and accessories, home basics, accent furniture, lamps, rugs, wall decor, decorative accessories and giftware; and other merchandise such as jewelry, designer services and accessories. It serves through on-store and online transactions. TJX distributes the products through a network of distribution centers and stores. It caters to retail and commercial customers in the US, Canada, Bermuda, Australia, Poland, Italy, India, UK, Ireland and Germany. TJX is headquartered in Framingham, Massachusetts, the US. Page 2

3 The TJX Companies, Inc. - SWOT Analysis SWOT Analysis - Overview The TJX Companies, Inc. (TJX) is an off-price retailer of apparel and home fashions across the regions of the US, Canada and Europe. Its strong operational base, increasing working capital and improved operational performance are its major strengths. But, high debt burden is a cause of concern for the company to look upon. The company could benefit from strategic acquisition and growth potential of e-retail. However, highly competitive market, increasing counterfeit goods market and changing consumer preferences could pose various challenges to the company. The TJX Companies, Inc. - Strengths Strength - Operational Base TJX s strong market position and robust operational base enables it maintain a competitive edge over its peers. With strong market presence, the company is much better placed to expand its market share and customer base. TJX is one of the leading player in the apparel and home fashion market in the US, Canada and Europe. It operates a network of more than 3,300 apparel and home fashion retail stores across the US, Canada, UK, Ireland and Germany. It operates through Marmaxx, HomeGoods, TJX Canada and TJX Europe segments. Its T.J. Maxx and Marshall s chain of stores are the largest off-price retailers in the US with over 2,094 stores; HomeGoods consist of over 487 stores; its TJX Canada operates over 234 stores across Canada; its TJX Europe has 407 T.K. Maxx stores and 975 homesense stores. Strong market position helps the company better serve its customer base. Strength - Strong Operating Performance TJX reported strong growth in its operating performance for the FY2015. The company s strong operational performance increases investors confidence and provides positive outlook for the future. The company reported revenue of US$ million for the FY2015, registering an increase of 6% over revenues for FY2014. The increase in revenue is due to the increased revenues from Marmaxx, HomeGoods, TJX Canada and TJX Europe. The increased revenues led to a marginal increase in operating income, which increased to US$ million in FY2015, an increase of 7.1% from US$ million in FY2014. Such growth in operating income resulted in improvement in the company's net income. For the FY2015, the company's net income increased to US$ million, reflecting an increase of 3.6% over that in the previous year. The company also showed improvement in its operating margin for the FY2015, which stood at 12.3%, as compared to 12.2% in FY2014. The increase in operating margin indicates that the company's revenue increased at a higher rate than that of its expenses. Strength - Increasing Working Capital The company reported increase in its working capital during FY2015. Improved Working capital coupled with adequate cash reserves could help the company s short term business operations and to meet capital expenditures. In FY2015, the company reported working capital of US$2,785 million, as compared to working capital of US$2,550 million in FY2014. The increase in net working capital was due to increase in current assets. In FY2015, the company's total current assets increased by 10.7% to US$6,715 million, as compared to US$6,067.9 million in FY2014. The company s cash and short term investments increased to US$2,776.3 million in FY2015 from US$2,444.4 million in FY2014, reflecting an increase of 13.6% over that in FY2014. The TJX Companies, Inc. - Weaknesses Weakness - Rising Debt Burden The company reported huge debt in FY2015. Increasing debt could have a major impact on the 0operational performance of the company as a major portion of its earnings would be diverted to servicing of its debt obligations. This could be of concern to the investors and make it difficult for the company to raise funds on favorable terms from the market. TJX s total debt as of FY2015 was US$ million, which increased 27.4% over the previous year. As a result, the company s debt to equity ratio increased to 0.4% in FY2015 from 0.3% in FY2014. If it fails to comply with any of the debt service requirements, the debt could become due and payable prior to its scheduled maturity. In case, the company fails to comply with any of these requirements, the debt could become due and payable prior to its stated maturity. Such huge debt increases the debt servicing obligations of the company and impacts its cash flows adversely. It could limit TJX s ability to raise debt in future and pursue other strategic opportunities. It would also increase the company s vulnerability to adverse economic and industry conditions. Weakness - Highly Dependent on Domestic Market: the US TJX limits its revenue generation opportunities by having its operations confined to a geographic region. The business operations of the company are primarily confined to the US with a significant portion of its revenue coming from its domestic market despite its presence in Europe and Canada. As a result, the company gets directly linked to the social, political, and economical conditions prevailing in these regions. The retail sector going global has seen many companies expanding their operations to enhance revenue generation. Many foreign companies have also entered the US market. TJX Page 3

4 could look forward to expand its geographic presence to mitigate the current risk concentration and enhance its investment returns. The TJX Companies, Inc. - Opportunities Opportunity - Business Expansion Addition of new stores is one of the strategies of TJX to develop into a global, off-price, value company. The company s total stores number increased to 3,395 in FY2015 from 3,219 in FY2014. The company s total floor space increased from 73,209 sq ft in FY2014 to 76,537 sq ft in FY2015. For FY2016, the company intends to open 181 new stores including Marmaxx (70), HomeGoods (40), TJX Canada (20) and TJX Europe (50). Such network expansion could help the company better reach and serve its customer base. Opportunity - Growth in Online Retail The company could benefit from the growth in online retail market, which enables it to generate substantial amount of revenue in the future. With the increase interactive methods and limitless content, the retail e-commerce is growing at a faster rate. According to industry estimates, the sales in the UK, Germany, France, Sweden, the Netherlands, Italy, Poland and Spain is expected to reach GBP billion in 2015 and GBP billion in In the US, the online sales are estimated to reach US$ billion in 2015 and US$ billion in According to the US Government, the E-commerce sales currently average out at 6.8 percent of total sales. Also, the U.S. Department of Commerce reported that e-commerce accounted for 7.0% of total retail sales in the first quarter of 2015 and is expected to grow further. The company has strengthened its presence in the online channel by adding stores to the online supermarkets network and subsequently strongly positioned to exploit the opportunities offered by the Japanese market. Opportunity - Strategic Acquisition Strategic acquisitions supplement the company's core growth and enable it to expand business, add new products, and improve geographical reach. In July 2015, the company entered into an agreement to acquire Trade Secret from Gazal Corporation Limited. Trade Secret is an off-price retailer and operates 35 stores in Australia. Through the acquisition, the company enters into Australian market, where the company operates one of its 13 buying offices. The TJX Companies, Inc. - Threats Threat - Growing Counterfeit Goods Market The company as a major player in the casual, athletic and fashion footwear domains faces significant challenges related to the huge influx of counterfeit products across the globe, which could have a significant negative impact on its business. Such high penetration of counterfeit merchandise may lower the sales of the company and adversely affect its profit margins. Moreover, as the customers end up buying counterfeit products bearing the look-alike brand labels, the low quality of these counterfeits affects the consumer confidence and also tarnishes the brand image of the genuine company. According to estimates by the Counterfeiting Intelligence Bureau (CIB) of the International Chamber of Commerce (ICC), counterfeit goods make up 5 to 7% of world trade. Also, the global trade in illegitimate goods has increased from US$5.5 billion to about US$600 billion annually. Moreover, the apparel and footwear industries lose approximately US$12 billion in revenue each year from counterfeiting. The company is prone to these challenges related to the counterfeiting of products and the rise in Counterfeit goods market could affect its business growth prospects. Threat - Highly Competitive Market The company faces intense competition from various players in its business sector and location. Its major competitive factor that affects their business includes members, employees, warehouse sites, product availability, customer service and product offerings, quality and price. TJX faces competition through local, regional and national retailers with low-cost operators such as American Eagle Outfitters, Inc., Charlotte Russe Holding Inc. and Charming Shoppes, Inc., both in the regional and in foreign countries. Additionally, the company competes with discount retailers, wholesalers and distributors, as well as commerce retailers, wholesalers and catalog businesses as well as international competition edges with super center stores, wholesale clubs, internet-based retailers and catalog businesses, variety and specialty stores etc. TJX s competitors may have greater financial resources, better access to merchandise, and greater market penetration. Such an intense competition poses a threat to the company s existing market share. Threat - Changing Consumer Preferences The company operates in global clothing and apparel domains and its business depends principally on the customer preferences, changing consumer demands and the changing trends. The company has to adapt quickly to these changes to increase or maintain its business in the competitive footwear industry. The consumers purchasing decisions are highly subjective and could be influenced by various factors, such as brand image, marketing programs and product design. The company should anticipate and respond to these changing consumer preferences in a time based manner. Although the Page 4

5 company has a consistent focus on innovation and creativity to stay abreast of emerging lifestyle and fashion trends affecting the casual, athletic and fashion footwear, however, any failure to identify and respond to change in consumer preference and the rapidly changing fashion trends could adversely affect consumer acceptance of company s products and brands in turn affecting its future business growth. NOTE: The above strategic analysis is based on in-house research and reflects the publishers opinion only Page 5