Analysts view TJX, Nordstrom as stand-outs among retailers
The TJX Companies (TJX) and Nordstrom (JWN) are in focus after analysts viewed the companies as stand-out retailers, especially since the companies compared like-for-like weeks when calculating first quarter comps. "IMPRESSIVE" TJX RESULTS: On Monday, Morgan Stanley analyst Kimberly Greenberger noted that Macy's (M), Kohl's (KSS) and J.C. Penney (JCP) chose to use a non-restated calendar when calculating 2018 comparable store sales for Q1, while TJX "rightly" compared like-for-like weeks, or February 4-May 5 of this year versus February 5-May 6 of last year. When taking this into consideration, TJX's Q1 results are "more impressive than first meets the eye," said Greenberger. In addition, the analyst said TJX's ability to adjust and recover from 3Q17's execution issues shows the superiority of the off-price business model. She also noted that TJX management reiterated several times that the buying environment remains plentiful, refuting bear case concerns that improving department store sales are driving a lack of quality branded merchandise in the off-price market. Greenberger said the company's scale and strategic and flexible business model support stable growth and she maintained an Overweight rating on the stock with a $99 price target. BUT KOHL'S TO FACE 'DIFFICULT' COMPS: Greenberger also noted that Kohl's will face increasingly difficult comps in the second half and said its "disappointing" 0.4% comp growth excluding the calendar shift in Q1 "doesn't bode well" for the rest of the year. She said the company's merchandise offering has lost resonance with customers over the past five years and is struggling to gain strong national brands for its assortment, leaving Kohl's in a weakened competitive state, especially when compared to the more compelling value of off-price retailers. In addition, drops in sales, declining store margins and revenue shift to the high variable cost e-commerce channel may make it challenging for the company to ever grow earnings again, Greenberg said. The analyst, who questioned if the company can achieve its 2018 guidance, kept an Underweight rating on Kohl's shares with a $45 price target. NORDSTROM "ON SALE": Meanwhlie on Monday, Deutsche Bank analyst Paul Trussell upgraded Nordstrom to Buy from Hold and raised his price target for the shares to $55 from $52. The analyst views the 10% pullback in shares since the retailer's Q1 results as overdone. He said he sees the opportunity for Nordstrom's multiple to recover as the company moves past off-price merchandising execution issues and lack of the clear calendar shift benefit. The analyst also noted that SG&A growth should continue to decelerate as the majority of generational investments have been made. In addition, Nordstrom has the best developed digital strategy within retail, with 29% of sales digitally enabled, Trussell said, and, combined with its relatively small store network and rising penetration of exclusive distribution brands, the company is well-positioned for market share gains as rivals right-size their footprint. The analyst said the stock is now "on sale." WHAT'S NOTABLE: On Tuesday, TJX reported Q1 GAAP earnings of $1.13 on revenue of $8.69B, beating analysts' estimates of $1.02 and $8.47B, respectively. The company also reported consolidated comparable store sales growth of 3% and a 4% comparable stores sales increase for its largest division Marmaxx. On Thursday, Nordstrom reported Q1 earnings per share of 51c on revenue of $3.47B, also exceeding the Street consensus of 44c and $3.46B, respectively. The company reported an increase in comparable store sales of 0.6%. PRICE ACTION: TJX rose 1% to $88.30 while Nordstrom was up about 4% to $47.55 at midday. Other peers, including including Kohl's, Macy's and J.C. Penney, are also higher.