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TJX in the ‘sweet spot’

By Steven Syre
Globe Columnist / September 4, 2009

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The people who watch the retail industry were working up a sweat yesterday, trying to find the good-news story hidden in more dreary sales statistics reported from America’s stores.

Sales declined last month compared with August 2008, and were down for an astonishing 12th straight month. The back-to-school season doesn’t appear to be going well.

Retailers encouraged despite August decline. B8.

The positive message: Sales declined at a slower pace than expected, perhaps a sign that business was getting better in an upside-down kind of way. There may be some truth to that, but it’s not my idea of upbeat news.

You have to drill down deeper into the sales reports for that, to find a few individual retailers reporting strong results and generating legitimately good news. TJX Cos. of Framingham is at the top of that short list.

“There’s no doubt TJX has been one of the best performers throughout this downturn,’’ says Ken Perkins, president of Retail Metrics Inc.

TJX, the company that operates TJ Maxx and Marshalls, among other store chains, is selling what America wants in a revival of value-conscious shopping. The retailer of off-price apparel is in the right place at the right time. But that’s only part of the story.

Among other strengths, TJX has long been recognized by investors and analysts as a skilled buyer of apparel. That strength has become especially valuable in the current retailing environment as store closings and inventory cuts have made more higher-end merchandise available with less competition bidding to buy it.

“The company is in the sweet spot with the consumer right now and it’s certainly more than just the environment,’’ says stock analyst Patrick McKeever Jr. of MKM Partners, who recommends TJX shares. “They’re taking advantage of better merchandise availability at better terms.’’

TJX sales were up 6 percent in August. Sales at comparable stores were up 5 percent, way above the industry’s average decline of 2.9 percent and even better than the company’s own executives had anticipated.

More impressively, August was the sixth straight month TJX managed to produce same-store sales above results for the same period in the previous year. In the retail meltdown of 2009, TJX has produced better results month in and month out. The immediate future looks pretty good, too.

“While still early, September is off to a solid start and merchandise margins continue to be strong,’’ president Carol Meyrowitz said yesterday.

Modestly higher sales have helped generate much higher profits this year. TJX earnings from continuing operations were up about 20 percent through the first two quarters of the year.

That performance has created a boom in TJX shares this year. After a steep decline during the last five months of 2008, the company’s stock has soared 73 percent so far in 2009. Yesterday shares gained 92 cents to close at $35.75. The stock stands just $1.25 below its all-time high.

Look at the latest retail sales report and you will see a predictably strong showing by many kinds of value-oriented companies. Ross Stores Inc., the public company that most resembles TJX, reported August same-store sales up 6 percent. Kohl’s Corp., more of a value department store operator, said sales inched up 0.2 percent last month. The August star of the value retailing crowd, Aeropostale Inc. reported same-store sales jumped 9 percent.

But discounting didn’t guarantee retailers better business in August. Companies such as BJ’s Wholesale Club Inc. of Natick, Costco Wholesale Corp., and Target Corp. all reported lower same-store sales for last month. TJX may have enjoyed an advantage over some other retailers this year thanks to business geography. Though the company operates nearly 2,700 stores across the United States and abroad, a large percentage of its business is located in the Northeast and mid-Atlantic states, which have avoided the worst country’s worst economic conditions.

So what happens when the economy finally recovers? McKeever points out that TJX executives tell investors their company will do better in a good economy. But TJX’s relative advantage over other retailers will diminish then.

That’s a judgment for another day, perhaps sometime next year. For now, TJX is the best story retailing has to sell.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.