Why TJX Doesn't Expect a Q3 Recovery From COVID-19

TJX Companies Inc. (NYSE: TJX) reported second-quarter fiscal 2021 results before markets opened Wednesday. The discount retailer reported a loss per share of $0.18 on revenues of $6.7 billion. In the same period a year ago, the company reported earnings per share of $0.62 on revenue of $9.8 billion. Second-quarter results also compare to the consensus estimates for a net loss per share of $0.01 and $6.6 billion in revenue.

The company’s stores were closed temporarily due to the COVID-19 pandemic for nearly one-third of the quarter. To account for the closures, TJX reported comparable sales on the basis of sales increases or decreases of comparable stores for the days the stores were open in the second quarter against sales for the same days in the prior year. E-commerce sales are also excluded, except for the Sierra stores. By that measure, comparable sales were down 3% year over year.

TJX operates some 4,557 stores worldwide along with four e-commerce sites. The lack of detail related to digital sales in the quarter speaks volumes about the company’s business.

Clothing stores were not deemed essential businesses during lockdowns related to the pandemic, and digital sales could not pick up the slack as they did for general merchandise (and grocery) chains like Walmart or Target.

What’s even worse for TJX is that cash support from the federal government has not been forthcoming for the current quarter. As the pandemic continues to surge in parts of the world, store closures almost certainly will continue. On top of that, in the United States, the lack of cash support for millions of unemployed Americans means that clothes shopping can be expected to be cut back. This year’s back-to-school shopping season, typically the second-best sales time of year for retailers, essentially has evaporated.

TJX expects third-quarter comparable sales (on the same basis as outlined above) to be down by 10% to 20% year over year. The company said this is “in-line with sales trends it has seen since the middle of July and through August month-to-date.”

Consensus estimates call for third-quarter earnings per share of $0.57 on sales of $10.2 billion. Last year’s third-quarter sales totaled $10.5 billion, and a 10% cut to that total is below that estimate. A 20% cut is even further below. Analysts will have to reevaluate their outlook for TJX and other department stores. This is not going to be pretty.

The stock traded down by more than 6% early Wednesday, at $53.73 in a 52-week range of $32.72 to $64.95. The consensus price target on the stock is $63.23. The company has suspended both dividend payments and share buybacks, and it began the third quarter with $6.6 billion in cash.