Is TJX's 5% Drop Post Q1 Earnings a Caution or Opportunity?
The TJX Companies, Inc. TJX saw its shares drop 5% following the release of its first-quarter fiscal 2026 results on May 21, 2025. This performance marks a notable underperformance compared to the Zacks Retail - Discount Stores industry, the Zacks Retail and Wholesale sector, which slipped 1% and 0.5%, respectively, and the broader S&P 500, which advanced 0.2% during the same period.
The TJX Companies' Price Performance Post-Earnings
The TJX Companies has delivered relatively lower stock performance compared to some other major players in the discount retail sector, such as Dollar General Corporation DG, Dollar Tree DLTR and Costco Wholesale Corporation COST. During the same period, Dollar General Corporation, Dollar Tree and Costco Wholesale Corporation posted gains of 10.2%, 6.8% and 1.9%, respectively.
Notably, the pullback in TJX shares came despite the company surpassing expectations on both the top and bottom lines. Its fiscal first-quarter results exceeded the Zacks Consensus Estimate for earnings and revenue, reflecting continued strength in customer traffic and solid comparable store sales across all divisions.
Interestingly, the stock was trading near record levels ahead of the earnings release. Trading at $128.12 as of June 3, TJX shares are down 5.7% from their 52-week high of $135.85, which was reached on May 20, just a day before the earnings announcement.
This divergence between solid earnings performance and stock price weakness raises a critical question for investors: Is the pullback a short-term overreaction or a long-term buying opportunity?
TJX's Q1 Performance: Key Takeaways
The TJX Companies reported a strong start to fiscal year 2026, demonstrating solid performance across all divisions. Growth was broad-based, fueled by an increase in customer traffic in both U.S. and international markets. As a result, net sales reached $13,111 million, marking a 5% year-over-year increase, consistent on a constant currency basis. Consolidated comparable store sales rose 3%, primarily driven by higher customer transactions. However, earnings per share (EPS) were 92 cents per share, down from 93 cents reported in the year-ago quarter.
Breaking down the performance by segment, comparable store sales grew 2% at Marmaxx (U.S.), 4% at HomeGoods (U.S.), 5% at TJX Canada, and 5% at TJX International (Europe and Australia). Comparable sales increased in both apparel and home categories, underscoring TJX's effective strategy and positioning the company for long-term sustainability with a focus on driving customer transactions.
TJX Reaffirms Growth Outlook Amid Challenges
On its last earnings call, TJX highlighted a strong start to the fiscal second quarter and reaffirmed its focus on executing the core fundamentals of its off-price retail model. Management remains confident that the company's broad and compelling assortments, coupled with a resilient business model, will continue to attract value-conscious shoppers, even amid ongoing macroeconomic challenges and tariff-related pressures.
The company expects consolidated comparable store sales growth of 2% to 3% for the fiscal second quarter. Quarterly EPS are projected to range between 97 cents and $1.00, indicating a 1% to 4% increase compared to 96 cents in the prior year's period. For the full fiscal year 2026, TJX anticipates comparable store sales growth of 2% to 3%, consolidated sales to be in the range of $58.1 billion to $58.6 billion, up 3% to 4% with EPS forecasted between $4.34 and $4.43, an increase of 2% to 4% from the previous year's $4.26.
The TJX Companies' Strategic Strengths
TJX Companies remains upbeat about its long-term prospects, grounded in a strong business model and a proven ability to adapt through various retail and economic cycles. The company credits its resilience to the flexibility of its off-price model, the experience of its leadership team, and a well-established global buying network that taps into a wide range of vendors worldwide.
At the heart of TJX's strategy is its value proposition, delivering a compelling mix of brand, fashion, quality, and price, which continues to attract a broad and diverse customer base. This broad appeal is supported by a carefully curated mix of brands that sustain steady traffic. Backed by a flexible, global buying and supply chain model and a unique treasure-hunt shopping experience, it remains well-equipped to adapt to changing consumer preferences and capture market share in both stable and challenging economic conditions.
TJX has also benefited from solid growth in both its physical stores and e-commerce channels. The company is rapidly expanding its footprint in the United States, Europe, Canada, and Australia. In the first quarter of fiscal 2026 alone, TJX added 36 new stores, ending the quarter with a total of 5,121 locations. Further, with an increasing number of consumers resorting to online shopping, The TJX Companies has undertaken several initiatives to boost online sales and strengthen its e-commerce business.
Is TJX Stock's Discounted Valuation Good?
The TJX Companies is currently trading at a notable discount compared to its industry peers, making it an appealing option for value-focused investors. As of now, TJX trades at a forward 12-month price-to-earnings (P/E) ratio of 27.75X, which is significantly lower than the industry average of 34.17X. While its valuation is lower than that of Costco Wholesale Corporation, which trades at a significantly higher 54.42X, it remains above other discount retail peers such as Dollar General Corporation and Dollar Tree, which have P/E ratios of 19.48X and 17.89X, respectively.
TJX P/E Ratio (Forward 12 Months)
The TJX Companies is also trading well above its 50-day and 200-day moving averages, an important bullish technical indicator. This breakout is not just technical but reflects growing market confidence in its growth story.
TJX Companies: Navigating Cost Pressures and Global Risks
Despite its strengths, TJX faces several challenges that could impact its near-term performance. Rising operating costs, driven by inflationary pressures and wage increases, may put pressure on margins despite ongoing efforts to manage expenses. Additionally, continued trade tensions and tariffs on imports from China and other countries remain a concern, while foreign exchange headwinds could further weigh on profitability.
One of the key near-term risks for TJX is the impact of tariffs on both direct and indirect imports into the U.S. Management expects these pressures to weigh on fiscal second-quarter performance, with gross margin projected to decline by 40 basis points (bps) year over year to 30%. Despite mitigation strategies like pricing adjustments and sourcing shifts, the company forecasts a full-year gross margin contraction of 10 to 20 bps, which could strain profitability even if sales remain strong.
Additionally, TJX's international operations make it vulnerable to currency fluctuations. Management anticipates foreign exchange headwinds will reduce pretax profit margin by 10 to 20 basis points in fiscal 2026, presenting further risks to overall performance.
Downward Estimate Movement of TJX's Earnings
Reflecting cautious sentiment around The TJX Companies, the Zacks Consensus Estimate for EPS has seen downward revisions. Over the past 30 days, the consensus estimate has declined 2 cents to $1.00 for the current quarter and a cent to $4.46 for the fiscal year, respectively. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
Investor Takeaway for TJX
Following the post-earnings dip, The TJX Companies presents a mixed picture for investors. While the company delivered better-than-expected results in the fiscal first quarter, driven by solid customer traffic and broad-based sales growth, external headwinds continue to weigh on sentiment. Inflationary cost pressures, rising wages, tariffs and currency fluctuations are expected to pressure margins in the near term. Additionally, recent downward revisions in earnings estimates reflect growing investor caution. That said, TJX's resilient off-price model, strong global footprint, and consistent execution provide a solid foundation for long-term growth. With shares trading at a reasonable valuation relative to peers, investors may consider holding the stock as the company navigates short-term challenges. As macro conditions stabilize and cost pressures ease, TJX could be well-positioned to regain momentum.
The TJX Companies carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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