10-Minute Investment Autopsy No. 17: TJX Companies (TJX)
A boring retailer that quietly beat the market darlings
If you haven’t read the guide to the 10-Minute Investment Autopsy series, you can find it here.
The Original Thesis
Who: Lloyd Khaner
When: April 2006
What: TJX (ticker: TJX)
The Thesis:
TJX is a company of off-price retailers selling branded items 20%-60% off
Major brands are T.J. Maxx and Marshalls
Former CEO, Ben Cammarata, came back last year when the company wasn’t doing well. He knows the business really well and owns a lot of stock
There wasn’t one big problem, but rather a series of small things due to poor execution
The solution is just returning to basics and executing better (e.g. hiring new buyers to refresh the merchandise, reduce square footage growth to improve operations and margins)
Lloyd thinks that once execution is fixed the company can grow square footage 7%-8% per year with 3%-4% same-store sales growth
He believes net margins will expand from 4.2% in 2006 to 4.7% in three years
Management is committed to returning money to shareholders via buybacks, with $650M (5% of shares outstanding) targeted for 2006
Stock trades at less than 16x Lloyd’s earnings estimate for 2006 of $1.55, which he considers very cheap given that he expects earnings to grow in the high teens
He believes the stock should see multiple expansion to the 18x-19x range and should double in a couple of years as a result
These are the highlights of TJX’s then-recent financials up to the point when Lloyd was presenting his thesis:
This is the stock chart up to the time when Lloyd presented his thesis:
Pause here. Think through the thesis and the facts and decide what you agree with, what you disagree with and whether you would invest based on the information available.
What Happened (Just the Facts)
TJX shareholders handily beat the market over the 5 years following when Lloyd presented his thesis, with the stock producing a 18%+ per year return vs. the S&P 500 at 3%.
There is a lot more to the case:
The Autopsy - the reasons for what happened
The Lessons that you can apply to your own investing
Discussion Questions for you to think about and discuss with other thoughtful investors in the weekly case thread