Financial Roundup: TJX Income Rises on Openings, Target Earnings Slip on Price Pressures and Lenzing Scores With Specialty Fibers

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photo credit: Lenzing

Off-price giant TJX pushed past aggressive store expansion plan, Target earnings miss their mark on soft pricing and Lenzing spins solid results on specialty fiber growth.

The TJX Companies

In a Nutshell: TJX said customer traffic and transactions were strong and up at every major division in the third quarter. The off-price giant, which opened 139 new locations during the third quarter alone, surpassing its goal of operating 4,000 stores by the end of the fiscal year, said consolidated merchandise margin increased, crediting the flexibility of its off-price business model. Overall, the company said it sharply executed its off-price fundamentals of opportunistic buying, lean inventory discipline, and being strategic and targeted in the flow of merchandise to stores, which helped drive margins. TJX said the fourth quarter is off to a strong start and it sees numerous opportunities for the holiday selling season across its retail banners.

Sales: Net sales for the third quarter ended Oct. 28 increased 6 percent to $8.76 billion from $8.29 billion a year earlier, and consolidated comparable store sales were flat compared to last year’s 5% increase. The Marmaxx division, the largest unit consisting of Marshall’s and TJX stores, saw net sales inch up less than 1 percent to $5.3 billion.

Earnings: Net income for the third quarter increased 16.7% to $641.44 million compared to $549.79 million in the year-ago period. Gross profit margin for the third quarter was 29.8%, up 0.3 percentage points versus the prior year thanks to gains related to the company’s inventory hedges and an increase in merchandise margin, partially offset by higher supply chain costs and expense deleverage on the flat consolidated comparable store sales.

CEO’s Take: Ernie Herrman, chief executive officer and president of TJX, said: “For the third quarter, consolidated comparable store sales were flat versus last year’s strong 5% increase. Certainly, the hurricanes had a negative impact during the quarter. Additionally, we believe that warmer temperatures in the U.S. during the quarter dampened demand for apparel at our Marmaxx division. We have excellent inventory liquidity to capitalize on the plentiful opportunities we are seeing for quality, branded merchandise in the marketplace. We have many initiatives underway to drive sales and traffic and are excited about our marketing campaigns.”

Target Corp.

In a Nutshell: Target Corp. saw sales rise in the third quarter with continued gains in digital revenue, while earnings declined on fulfillment costs and a promotional pricing environment. The company said an improved goods assortment now includes thousands of new items from eight exclusive brands launched throughout 2017, including Hearth and Hand with Magnolia, a new home goods partnership with Chip and Joanna Gaines. Target said customers this holiday season can expect to experience elevated in-store service reflecting its investments in wages, training and additional hours for employees, while finding more value through a combination of sharp pricing and attractive deals.

Sales: Sales in the third quarter ended Oct. 28 increased 1.4 percent to $16.7 billion from $16.4 billion last year, reflecting a 0.9 percent comparable sales increase combined with the benefit from sales in non-mature stores. Comparable digital channel sales grew 24 percent and contributed 0.8 percentage points to comparable sales growth. Target expects fourth quarter comparable sales growth of flat to 2 percent, which would translate into full-year comparable sales growth of flat to 1 percent.

Earnings: Earnings before interest expense and income taxes fell 17.8% in the quarter to $869 million from $1.06 billion in third quarter 2016. Third quarter EBIT margin rate was 5.2% compared with 6.4% a year earlier. Third quarter gross margin rate was 29.7% compared with 29.8% in the year-ago period, reflecting pressure from digital fulfillment costs and the company’s pricing and promotion efforts, partially offset by cost savings.

CEO’s Take: Brian Cornell, chairman and chief executive officer of Target, said, “We’re very pleased with Target’s third quarter performance, including traffic and sales growth that demonstrate we’re building on the progress we saw in the first half of the year. The investments we’re making in our business will help Target drive long-term success and ensure we’re well positioned to deliver for guests in the all-important holiday season. While we expect the fourth-quarter environment to be highly competitive, we are very confident in our holiday season plans.”

Lenzing Group

In a Nutshell: The Lenzing Group generated substantial increases in revenue and earnings in the first nine months of the 2017 financial year compared to the prior-year period. The company is continuing the implementation of its sCore TEN strategy to expand the offering of specialty fibers and be even closer to its customers and business partners.

[Read more about Lenzing: Lenzing Launches First Filament Fiber, Tencel Luxe]

Sales: Consolidated revenue for the first nine months of the year climbed 9.4% year-on-year to 1.73 billion euros ($2.04 billion) compared to 1.58 billion euros ($1.87 billion) in the first nine months of 2016. Lenzing attributed the increase mainly to higher prices for all three fiber generations–Tencel, modal and viscose.

Earnings: Consolidated earnings before tax, depreciation and amortization rose 23.9% to 397.1 million euros ($469.07 million), corresponding to an EBITDA margin of 23 percent, up from 20.3% in the prior-year period. Net profit for the period improved 35.3% to 219.3 million euros ($259.05) from 162.1 million euros ($191.48 million) a year earlier.

CEO’s Take: Stefan Doboczky, CEO, said, “In the first three quarters of 2017, we successfully captured value in a very positive market environment and we continue to implement the sCore TEN strategy with great discipline. The opening of our new application innovation center in Hong Kong is an important step to boost our regional innovation capabilities. We were particularly proud to launch Tencel Luxe as a sign of Lenzing’s ongoing commitment to innovation and sustainability. After three excellent quarters we are confident to deliver substantially better operating results in 2017 compared to 2016, but at the same time we do expect more headwinds in 2018.”

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