November 20, 2018 / 1:36 PM / 19 days ago

TJX's holiday profit forecast disappoints as freight, labor costs bite

(Reuters) - TJX Cos Inc’s (TJX.N) holiday-quarter earnings forecast fell largely below analysts’ estimates on Tuesday, as the off-price retailer faces rising freight and labor costs, sending its shares down as much as 7 percent.

A T.J. Maxx store which is owned by TJX Cos Inc in Pasadena, California U.S., May 15, 2017. REUTERS/Mario Anzuoni

Several retailers have warned that a shortage of truck drivers, new driver regulations and higher fuel prices would make moving freight much costlier this year. Wages are also rising in a tightening U.S. labor market.

TJX said it expects the rising transportation and wage costs to cut next year’s profit by about 4 percent.

“Unfortunately, the environment is not playing into our plans to have us picking up next year on our (earnings per share),” Chief Executive Officer Ernie Herrman said on a conference call with analysts.

In addition to costs, TJX is facing tough competition from online firms and other retailers such as Macy’s (M.N) and Nordstrom (JWN.N), which have been focusing more on their off-price businesses.

Unlike other brick-and-mortar retailers, which have closed stores and invested in e-commerce as shoppers move online, TJX has largely depended on deep in-store discounts to drive traffic.

The retailer expects higher costs during the current quarter to hurt profits by 5 percent, resulting in earnings of 66 cents to 67 cents per share. Analysts on average were expecting 71 cents, according to IBES data from Refinitiv.

The tepid forecasts overshadowed TJX’s better-than-expected third-quarter sales. The company reported a 7 percent rise in comparable-store sales in the quarter ended Nov. 3, above the 4.1 percent Wall Street had estimated.

The company’s treasure-hunt format, which encourages shoppers to hunt for deals across a swath of products and brands in stores, helped drive its 17th consecutive quarter of traffic growth.

Comparable-store sales in the company’s biggest unit, Marmaxx, rose 9 percent, marking the best growth in at least two years.

Net income surged 18.8 percent to $762.3 million, or 61 cents per share, from a year earlier.

The company’s net sales climbed 12.2 percent to $9.83 billion, beating analysts’ expectations of $9.49 billion.

TJX’s smaller rival Ross Stores Inc’s (ROST.O) fourth-quarter forecast for same-store sales on Tuesday was also below analysts’ estimates.

TJX’s shares, which touched a five-month low of $45.56, were down 3.7 percent at $47.17 in late afternoon trading. As of Monday, the stock had risen nearly 28 percent this year.

Reporting by Soundarya J in Bengaluru; Editing by Shinjini Ganguli

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