Yahoo Finance TJX Companies Sees Operating Margin Decline in 2Q16, but Why?
TJX Companies Impresses Investors in 2Q16, Raises Outlook
Margins in 2Q16
TJX Companies’s (TJX) gross margin increased by 50 basis points to 29.1% in 2Q16 on a year-over-year basis. The second quarter ended on August 1, 2016. The gross margin rise is attributed to buying and occupancy leverage on stronger sales. Merchandise margins in the quarter were flat, despite the adverse impact of currency headwinds and higher supply chain costs.
Despite better sales, TJX Companies’ operating margin declined in 2Q16.
Decline in 2Q16 operating margin
TJX Companies’ operating margin declined to 12.2% in 2Q16 from 12.4% in 2Q16. The decline was caused by a 70 basis points rise in selling, general, and administrative expenses as a percentage of sales, up to 16.9%.
A wage increase was one factor that led to higher expenses. Earlier this year, TJX Companies announced that its US store workers would earn at least $9 per hour beginning in June 2015. The company will also boost the wages for all hourly US store workers who have been employed for at least six months to at least $10 per hour in 2016.
Besides the higher wages, TJX Companies’ operating margin was also effected by higher investments to support growth, increased pension costs, and a planned contribution to the TJX Foundation.
The company’s international segment margins were impacted by currency headwinds. Excluding the impact of currency headwinds, the adjusted segment profit margins of TJX Canada and TJX Europe were up by 10 basis points and 30 basis points, respectively.
Comparison with peers
For the comparable second quarter, Ross Stores (ROST) reported an operating margin of 13.9%. Nordstrom (JWN), Macy’s (M), and Kohl’s (KSS) clocked operating margins of 10.2%, 7.1%, and 9.9%, respectively.
Pure-play off-price retailers enjoy higher margins than department stores. This is because of their lean business models, low-cost structures, and strong inventory management systems.
TJX Companies and Ross Stores together account for 0.3% of the portfolio holdings of the iShares MSCI ACWI ETF (ACWI) and 0.8% of the First Trust Consumer Discretionary AlphaDEX Fund (FXD).
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