TJX Companies

TJX's second-quarter results featured a 4% comparable sales increase and adjusted EPS of $1.22 (up 11%). Adjusted gross margin expanded 70 basis points (to 31.4%), reflecting improved merchandise margins. This gain was partly offset by a 20-basis-point rise in operating costs from higher wages.

Why it matters: We view this quarter as a testament to the resilience of TJX's diversified global model, as strong performance across HomeGoods, TJX Canada, and TJX International more than compensated for execution hiccups at Marmaxx, underscoring the broad appeal of its off-price treasure hunt. Marmaxx comparable sales grew just 1% on lower transactions, on a transient merchandising mix lapse, with early third-quarter signs pointing upward. Meanwhile, HomeGoods and international banners posted robust 6% to 7% growth. TJX implemented added merchandise planning controls to address Marmaxx's slip-up, which we look favorably upon to support our forecast for a 3.5% comparable store sales CAGR over the next decade as they capitalize on the endless supply of excess inventory in the wholesale market.

The bottom line: We plan to raise our $125 fair value estimate for wide-moat TJX by a high-single-digit percentage, primarily reflecting an increase in annual store openings as well as incorporating greater-than-expected second-quarter profitability. We see TJX shares as overvalued as we surmise the market is pricing in operating margins rising to a midteens rate by decade's end (up from 11.9% in fiscal 2026), which we think overstates the level of gains that can be achieved amid an intensely competitive retail landscape. Management expanded its long-term store target by 500 locations to 7,500 total stores. We believe this expansion along with plans to accelerate annual unit growth to 4% (from 3%) signals strong confidence in the firm's real estate pipeline and the ongoing availability of high-quality inventory.

We have raised our fair value estimate for TJX to $136 per share from $125, reflecting a larger unit-growth runway and stronger-than-expected near-term profitability following the second quarter. Management increased its long-term store potential outlook to 7,500 locations from 7,000 and plans to acclerate the cadence of annual unit growth that we have incoporated into our revised forecast, which implies a fiscal 2028 price/earnings multiple of 23 times.

Marmaxx remains the primary driver of TJX’s earnings power, representing about 61% of consolidated revenue and, together with Canada, more than 80% of operating income. We forecast US Marmaxx to grow at a 6.2% CAGR, driven by steady comparable sales gains (3.5%) and unit growth of nearly 80 stores annually. We expected continued market share gains as TJX reinforces its value proposition through deep vendor relationships, disciplined cost controls, and a curated assortment that resonates across income cohorts amid persistent value-conscious consumer behavior. Canada should deliver low-single-digit sales growth, supported by its mature footprint and strong store-level productivity.

HomeGoods represents the firm’s most compelling long-term growth lever, in our view. We forecast an 7.8% revenue CAGR, reflecting 4% annual comparable sales growth and approximately 50 net new stores per year. As store density increases and merchandising execution improves, we expect HomeGoods to accelerate its profit contribution to nearly 20% of operating income by the end of our forecast, up from about 15% today, while roughly doubling its share of the US home furnishings market to 10%.

On a consolidated basis, we project revenue to compound at 6.5% annually, and operating margins to expand from 11.9% in fiscal 2026 to 12.7% by the end of our explicit forecast. The profit gains are driven primarily by SG&A leverage, with expenses declining from 19.1% to 18.6% of sales. This reflects the inherent scalability of TJX’s business model where the firm’s merchant network and store base support higher inventory throughput without a proportional rise in overhead costs.

We assign TJX a wide economic moat rating, driven primarily by a durable cost advantage and supported by intangible assets. In our view, TJX has built an off-price sourcing and distribution ecosystem that is difficult to replicate at scale, allowing the firm to consistently offer branded merchandise at compelling values while still generating profitability. Quantitatively, TJX’s 10-year average returns on invested capital of roughly 36% has exceeded our 7.5% estimated weighted average cost of capital and we think this gap will persist for at least the next two decades.

The cornerstone of TJX’s wide moat stems from a procurement-led cost edge. TJX is consistently able to source high-quality, branded merchandise at attractive prices through an opportunistic buying model that addresses inventory imbalance. Brands and full-price retailers tend to hold excess product due to issues like forecasting errors, seasonality mismatches, and order cancellations. TJX provides a reliable, high-throughput outlet for this excess inventory, enabling vendors to clear goods efficiently while limiting brand dilution and avoiding the overt promotional cadence that can erode full-price channels. In turn, TJX can acquire merchandise at costs that enable it to price 20%-60% lower than department stores, a value proposition that resonates with its target customer base—women aged 25-50 in the middle- to upper-income cohort, who are value-conscious and brand-aware. We believe this consistent value proposition and broad, fresh assortment support frequent visits and high conversion, reinforcing its buying scale and flywheel.

Crucially, TJX’s procurement advantage is rooted in decades of merchant expertise, global vendor relationships, and the flexibility to absorb variable deal flow. TJX leverages a global base of roughly 21,000 vendors (compared with roughly 7,000 for Ross Stores, 1,700 for Citi Trends, and 1,000 for Burlington), giving it a broad and diverse opportunity set to source product. This breadth reduces reliance on any single brand or category, improves negotiating leverage, and ensures that TJX can remain opportunistic, moving with speed, certainty, and the willingness to take less-than-full assortments. We posit that smaller off-price peers cannot match TJX’s buying volumes and breadth of vendor relationships, also limiting their negotiating power. Thus, peers typically have weaker access to branded opportunities, less favorable economics, and lower margin potential over time.

Consistent with this, the US off-price apparel market remains highly concentrated, underscoring the difficulty of replicating the model at. As of 2023, TJX’s Marmaxx division held roughly 49% of segment sales, followed by Ross (30%), Burlington (14%), and Nordstrom Rack (7%). Despite its brand recognition and resources, Nordstrom Rack lost over 2% of market share over the decade, while Marmaxx and Ross maintained their positions. In our view, this persistent concentration reflects structural barriers to entry and reinforces the difficulty of replicating TJX’s procurement-led model.

While TJX has successfully scaled its model in the US, international replication is more nuanced. Regional differences in fashion cycles, brand behavior, and supply chains can limit sourcing opportunities. As such, we view the US Marmaxx business as its strongest moat-bearing segment, with international operations representing growth opportunities rather than a direct extension of the same advantage.

TJX’s EBIT per square foot of $68, compared with Macy’s ($9), Burlington ($24), and Kohl’s ($8), further illustrates its ability to translate advantaged buying into consistent store-level productivity without the overhead burden of full-price retail. Because TJX need not present a consistent assortment in every store, it can react quickly to trends, adjust inventory allocation quickly, and maintain newness. This model reduces the need for heavy marketing and promotions and mitigates some of the inventory risk that plagues full-price retailers. By contrast, department stores and midtier apparel retailers often rely on promotions to clear excess inventory, pressuring operating margins and training customers to wait for markdowns. As a result, operating margins at retailers like Macy’s and Kohl’s remain in the midsingle digits, compared with low-double-digit margins at TJX.

TJX’s secondary moat source is its intangible assets, reflected in persistent customer demand across its banners. TJX generates roughly $572 in sales per square foot, exceeding Macy’s ($231), Burlington Stores ($341), and Kohl’s ($192), despite offering lower-priced, less-curated merchandise. In our view, this productivity gap exemplifies the strength of TJX’s treasure-hunt experience, brand trust, and ability to attract repeat traffic. The company’s scale and vendor relationships create a self-reinforcing advantage—a reliable outlet for excess inventory attracts more deal flow, which allows for a better treasure-hunt experience. Together this aids customer traffic and throughput, thus reinforcing its ability to buy at scale. We think the time and trust required to build a comparable vendor network make these advantages difficult to replicate.

We acknowledge TJX operates in an intensely competitive landscape. Peers like department stores and midtier apparel retailers have struggled with mall traffic pressure, promotional intensity, and higher operating costs, while digital channels have continued to take share in many discretionary categories. However, we believe the off-price model is less susceptible to pure e-commerce disruption than many traditional formats (less than 2% of TJX’s sales are online, compared with over one quarter at Macy’s and Kohl’s). We attribute this insulation to brands’ efforts to protect brand equity by limiting online discounting. Instead, excess inventory is primarily sold through stores, providing a more discreet distribution channel.

Unit growth to 7,500 stores (from 5,000) could enhance the firm’s ability to leverage fixed buying and distribution costs, exceeding a decade-long trend of roughly 3% annual EBIT per square foot growth.

Accelerated closures of midtier department stores could drive additional traffic toward TJX, capturing displaced spending faster than anticipated and pushing a higher comparable sales outlook.

Trade-down behavior among high-income cohorts could persist; if these shoppers retain off-price habits, larger average basket sizes would drive outsize revenue gains.

Sticky wage growth and shrink could permanently raise the cost floor, inhibiting meaningful margin expansion even as the sales base rises.

International expansion could dilute returns, as newer markets may fail to replicate the US-level brand awareness, vendor access, and store productivity.

Improved inventory discipline at brands and full-price retailers could structurally reduce off-price supply, limiting the availability of high-quality branded merchandise and weakening TJX’s ability to consistently source at favorable economics over time.