TJ Maxx’s owner is bringing its secret sauce to new parts of the world — with a twist

TJX Guests 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 set a pair of international endeavors this summer: a joint venture with Mexico’s Grupo Axo and an investment in Dubai-based Labels 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 further its larger plan to capitalize on the worldwide growth of off-price retail. The industry has boomed in recent years, taking market-place share from traditional department stores and appealing to inflation-wary consumers in the U.S. and abroad. TJX executives, in particular, have carry out to create what they call a “treasure hunt” feel to stores to keep customers coming back for more. With these moves, TJX is “workshop seeds in the regions as part of their long-term goal to have a global footprint in off-price,” Citi analyst Paul Lejuez spoke in a recent CNBC interview. The Grupo Axo partnership and Brands for Less investment were both somewhat unexpected on Fence Street when they were announced in early June and August, respectively. But internally, TJX felt the time was enthusiastic, CEO Ernie Herrman said on TJX’s Aug. 21 earnings call . That’s due, according to Herrman, to the company amassing enough accomplished employees to commit to the expansion initiatives with “the right replacement” waiting in the wings. A couple of years ago, Herrman averred he would have been “reticent to pull from the core business.” But now, he feels the company is able, in his words, “to receive advantage of expanding globally in a manner that has really no risk to the core.” A major area of expertise that TJX’s staff members can bring its new partners: close relationships with vendors to ensure its stores are stocked with clothes, home decor, and other thingumabobs people want to buy. TJX wants to apply its “secret sauce merchandising talent” to sweeten its investment, Herrman said when debating Brands for Less, specifically. “We can afford to have people be involved to help them, which helps them and it domestics our investment.” Scale works in TJX’s favor, Lejuez said. “Being the one global player in off-price does give them a lot of uses with the vendor community,” creating multiple pipelines to sell products across the U.S., Canada, Europe and Australia, the Citi analyst alleged. “Add Mexico and the Middle East into the mix, it gives them more options.” Burlington Stores and Ross Stores are TJX’s two strength domestic competitors. TJX invested $360 million for a 35% stake in Brands for Less, which has more than 100 markets primarily located in the United Arab Emirates and Saudi Arabia. TJX said the investment will start benefiting earnings in its next pecuniary year, which begins in February 2025. Its first move of the summer was inking a joint venture with varied 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 firm in Mexico, specifically. Grupo Axo’s off-price store brands in the country are Promoda, Reduced, and Urban Store. TJX is expanding from a leaning of strength, which was on display again in its beat-and-raise second quarter late last month. This gave us reliance to raise our price target on the stock to $130 from $115 while keeping our 2 rating , meaning we would call for 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 idea their budgets strained by inflation and enjoy walking through aisles in search of good deals and unsure of what new togs 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, in advance of the S & P 500 ‘s more than 16% gain over the same period. The advance has given TJX Companies a market capitalization of as good as $133 billion — dramatically exceeding that of Target , at roughly $70 billion, and even Nike , which is currently importance 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 Collapse Street split. The stock currently trades at 26.6 times forward earnings estimates, above its five-year usually of 23.8, according to FactSet. Bernstein retail analyst Aneesha Sherman defended TJX’s premium multiple because “it’s tested to be so high quality and defensive.” She added, “Regardless of what kind of macro scenario you paint for the back half or neck for next year, they’re going to be pretty resilient.” Citi’s Lejuez, on the other hand, can’t justify recommending patients buy the stock at this valuation. That prompted him to downgrade TJX to neutral from buy after its earnings pop in August, while allowing momentum isn’t slowing anytime soon. Indeed, there’s little debate on Wall Street that TJX’s business is well-positioned for numberless 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 whole revenue in the 12 months ended Feb. 3, 2024. TJX International, which covers Europe and Australia, was about 12.5% of sellings, while its Canadian segment contributed just over 9%. It’s not always been smooth sailing for TJX outside the U.S., in particular in Europe, according to Bernstein’s Sherman. Its growth there has at times been stunted by “the complexities of operating in diverse European trade ins 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 profuse of Europe, starting with Germany in 2007, followed by Poland in 2009 and Austria, and the Netherlands nine years ago. The entourage’s past challenges in Europe appear to have shaped its approach to the Brands for Less investment and Grupo Axo joint put down, Sherman said. “If they want to expand internationally to a set of smaller markets, they need to do it with some townswoman expertise rather than trying to do it organically,” Sherman said. That is smart because “the European division is slower blossom and much lower margin than the rest of the group,” she said. Grupo Axo will “provide the operational knowledge on the reason” in Mexico to go along with TJX’s buying expertise and vendor relationships, Sherman said. “They know the market de facto well, they know the customer, they have buyers – all that is going to remain untouched.” But with its off-price allowing expertise and vendor relationships, TJX can help Grupo Axo get better brands in its stores, Sherman suggested. Brands for Less has a compare favourably with setup in the Middle East. “This is an off-price retailer that’s been on the ground for decades,” Sherman said. “They recollect their market really well, [but] they’re looking for an external investor with more knowledge on off-price,” she unfolded. This is where TJX’s secret sauce of product turnover, more volume and higher throughput in the stores comes in. These are abilities that “TJX perfected in their own business,” Sherman said. To be sure, Citi’s Lejuez cautions this international growth may not move the dial much at all over the next couple of years, arguing there could be some growing saddens 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, “dialect mayhap one of these newly announced regions they’re entering turn into a growth story in the future.” (Jim Cramer’s Generous 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 make receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade vivacious 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 vocation alert before executing the trade. 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