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TJX Companies is adding new countries to its treasure-hunting map — looking to further boost business outside its strong U.S. marketplace. The Massachusetts-based owner of T.J. Maxx and Marshalls announced a pair of international endeavors this summer: a joint venture with Mexico’s Grupo Axo and an investment in Dubai-based Brands for Less. These moves add to TJX’s existing global presence — spread across Canada, six European countries including the U.K., and Germany, and Australia — and advance its larger plan to capitalize on the worldwide growth of off-price retail. The industry has boomed in recent years, taking market share from traditional department stores and appealing to inflation-wary consumers in the U.S. and abroad. TJX executives, in particular, have worked to create what they call a “treasure hunt” feel to stores to keep customers coming back for more. With these moves, TJX is “planting seeds in the regions as part of their long-term goal to have a global footprint in off-price,” Citi analyst Paul Lejuez said in a recent CNBC interview. The Grupo Axo partnership and Brands for Less investment were both somewhat unexpected on Wall Street when they were announced in early June and August, respectively. But internally, TJX felt the time was ripe, CEO Ernie Herrman said on TJX’s Aug. 21 earnings call . That’s due, according to Herrman, to the company amassing enough talented employees to commit to the expansion initiatives with “the right replacement” waiting in the wings. A couple of years ago, Herrman said he would have been “reticent to pull from the core business.” But now, he feels the company is able, in his words, “to take advantage of expanding globally in a manner that has really no risk to the core.” A major area of expertise that TJX’s employees can bring its new partners: close relationships with vendors to ensure its stores are stocked with clothes, home decor, and other things people want to buy. TJX wants to apply its “secret sauce merchandising talent” to sweeten its investment, Herrman said when discussing Brands for Less, specifically. “We can afford to have people be involved to help them, which helps them and it helps our investment.” Scale works in TJX’s favor, Lejuez said. “Being the one global player in off-price does give them a lot of advantages with the vendor community,” creating multiple pipelines to sell products across the U.S., Canada, Europe and Australia, the Citi analyst said. “Add Mexico and the Middle East into the mix, it gives them more options.” Burlington Stores and Ross Stores are TJX’s two main domestic competitors. TJX invested $360 million for a 35% stake in Brands for Less, which has more than 100 stores primarily located in the United Arab Emirates and Saudi Arabia. TJX said the investment will start benefiting earnings in its next fiscal year, which begins in February 2025. Its first move of the summer was inking a joint venture with diversified retailer Grupo Axo. Under the agreement, TJX owns 49% and Axo owns 51% of the joint venture, which will encompass the latter’s brick-and-mortar business in Mexico, specifically. Grupo Axo’s off-price store brands in the country are Promoda, Reduced, and Urban Store. TJX is expanding from a position of strength, which was on display again in its beat-and-raise second quarter late last month. This gave us confidence to raise our price target on the stock to $130 from $115 while keeping our 2 rating , meaning we would want to see a pullback in shares before considering further buys. TJX has continued to gain share of the retail market, appealing to consumers who are feeling their budgets strained by inflation and enjoy walking through aisles in search of good deals and unsure of what new clothes and decor may be in store. The stock’s performance reflects the underlying success of its stores. Shares of TJX have risen roughly 25% year to date, ahead of the S & P 500 ‘s more than 16% gain over the same period. The advance has given TJX Companies a market capitalization of nearly $133 billion — dramatically exceeding that of Target , at roughly $70 billion, and even Nike , which is currently worth around $123 billion. TJX YTD mountain TJX stock performance year-to-date. TJX’s outsized gain has resulted in a price-to-earnings valuation that has Wall Street split. The stock currently trades at 26.6 times forward earnings estimates, above its five-year average of 23.8, according to FactSet. Bernstein retail analyst Aneesha Sherman defended TJX’s premium multiple because “it’s proven to be so high quality and defensive.” She added, “Regardless of what kind of macro scenario you paint for the back half or even for next year, they’re going to be pretty resilient.” Citi’s Lejuez, on the other hand, can’t justify recommending clients buy the stock at this valuation. That prompted him to downgrade TJX to neutral from buy after its earnings pop in August, while acknowledging momentum isn’t slowing anytime soon. Indeed, there’s little debate on Wall Street that TJX’s business is well-positioned for more growth in the U.S. and beyond. TJX’s U.S. business is its primary growth vector and by far its largest market, accounting for a little more than three-quarters of total revenue in the 12 months ended Feb. 3, 2024. TJX International, which covers Europe and Australia, was about 12.5% of sales, while its Canadian segment contributed just over 9%. It’s not always been smooth sailing for TJX outside the U.S., particularly in Europe, according to Bernstein’s Sherman. Its growth there has at times been stunted by “the complexities of operating in diverse European markets with varying local requirements,” she said. It started T.K. Maxx in the U.K. and Ireland in 1994 and then brought the brand to more of Europe, starting with Germany in 2007, followed by Poland in 2009 and Austria, and the Netherlands nine years ago. The company’s past challenges in Europe appear to have shaped its approach to the Brands for Less investment and Grupo Axo joint venture, Sherman said. “If they want to expand internationally to a set of smaller markets, they need to do it with some local expertise rather than trying to do it organically,” Sherman said. That is smart because “the European division is slower growing and much lower margin than the rest of the group,” she said. Grupo Axo will “provide the operational knowledge on the ground” in Mexico to go along with TJX’s buying expertise and vendor relationships, Sherman said. “They know the market really well, they know the customer, they have buyers – all that is going to remain untouched.” But with its off-price buying expertise and vendor relationships, TJX can help Grupo Axo get better brands in its stores, Sherman suggested. Brands for Less has a similar setup in the Middle East. “This is an off-price retailer that’s been on the ground for decades,” Sherman said. “They know their market really well, [but] they’re looking for an external investor with more knowledge on off-price,” she explained. This is where TJX’s secret sauce of product turnover, more volume and higher throughput in the stores comes in. These are skills that “TJX perfected in their own business,” Sherman said. To be sure, Citi’s Lejuez cautions this international expansion may not move the dial much at all over the next couple of years, arguing there could be some growing pains for TJX in these new markets even with the local partners. But taking the long-term view for the off-price model, Lejuez said that within the next 10 to 15 years, “perhaps one of these newly announced regions they’re entering turn into a growth story in the future.” (Jim Cramer’s Charitable Trust is long TJX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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Shoppers come and go the TJ Maxx store at the Mall at Prince George’s on August 17, 2022 in Hyattsville, Maryland.
Chip Somodevilla | Getty Images
TJX Companies is adding new countries to its treasure-hunting map — looking to further boost business outside its strong U.S. marketplace.