By: Zacks Equity Research

TJX Companies (TJX) said Wednesday that a newer clothing mix and increased customer traffic helped profit soar 17% in the fourth quarter.

The operator of Marshalls, TJ Maxx and HomeGoods stores reported adjusted earnings of 62 cents per share for the quarter ended Jan. 28. The earnings were in line with the Zacks consensus estimate.

Earnings for the full year were $1.99 per share -- in line with the Zacks estimate and 14% higher than the year before. The earnings also exceeded the company's earlier forecast of $1.19 to $1.23 a share.

Foreign currency fluctuations added 1% to the full-year earnings, but did not impact the fourth quarter.

The company updated its earnings outlook for fiscal 2013 to between $2.21 and $2.31 per share, an 11% to 16% increase over the prior year. The Zacks Consensus estimate puts 2013 earnings at $2.27.

For the first quarter, the company expects diluted earnings per share of 45 cents to 47 cents, a 15% to 21% increase over a year earlier. The Zacks consensus estimate for the quarter is 47 cents a share.

Quarterly details

Sales in the quarter grew 6% from a year earlier to $6.7 billion -- in line with the Zacks consensus estimate. Full-year sales grew 6% to $23.2 billion, also in line with the Zacks estimate.

Same-store sales increased 4% in the quarter, driven by same-store sales growth of 5% at Marmaxx, 6% at Home Goods and 2% at TJX Europe. Sales saw a 1% decline in TJX Canada. Sales in Canada and Europe were impacted by unfavorable foreign currency exchange rates.

TJX's gross margin expanded 30 basis points from the prior year quarter to 27.4%. The margin expansion was mostly driven by buying and occupancy leverage. However, this was partially offset by flattish merchandise margins.

Selling, general and administrative costs as a percent of sales increased 20 basis points from the prior year to 15.8% in the fourth quarter.

TJX had $1.51 billion in cash at the end of the quarter, down from $1.74 billion a year earlier. Long-term debt was flat at $774.5 million, with shareholders equity of $3.21 billion. The company generated $1.92 billion in cash from operations.

The company repurchased $12.5 million in common stock in the quarter (adjusted for the two-for-one stock split) at a cost of $402 million. For the full year, the company repurchased 49.7 million shares (also adjusted for the split) at a cost of $1.4 billion.

Our take

We are encouraged by the company's flexible off-price business model, which allows it to react to market trends. TJX has a low cost structure compared to other traditional retailers, and it focuses aggressively on expenses throughout its business.

However, the highly competitive nature of the business is a matter of concern. Stiff competition from Kohl’s (KSS) and Target (TGT) coupled with slow recovery of the U.S. economy are matters of concern.

Currently TJX holds a Zacks No. 2 rank, implying a short-term "buy" recommendation. On a long-term basis, we maintain a "neutral" rating.

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