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Dive Brief:
TJX Companies posted a rare miss on Wednesday, reporting that Q2 comp sales at its U.S. Marmaxx division rose just 1% year over year, well below its own and analyst expectations. Comps in the segment grew 6% last quarter and 3% a year ago.
The segment is the company’s largest and includes the U.S. stores and e-commerce of T.J. Maxx, Marshalls and Sierra. Marmaxx net sales rose 3% to $9.1 billion, driven mostly by new stores.
CEO Ernie Herrman blamed merchandising missteps, telling analysts on a Wednesday call that “it’s more about what we didn’t have in the mix.”
Dive Insight:
In a wide host of measures, TJX did well in Q2, as it usually does, but its feeble comp growth at Marmaxx is in sharp focus.
Overall, net sales in the period topped $15 billion, with sales up 5.4% and comps up 4%. Net sales at HomeGoods in the U.S., which includes the Homesense banner, rose 10% to $2.5 billion, with comps up 7%. In the Canada business, net sales rose 6% to $1.5 billion, with comps also up 6%. In Europe plus Australia — its expanding international business — net sales rose 11% to over $2 billion, and comps grew 7%.
The bottom line benefited from tariff refunds, as the company collected $331 million of what it’s owed, which boosted net income in Canada and overseas. Overall net income rose 22% to $1.5 billion.
But the weakness in the U.S., in the off-price retailer’s largest business segment, occupied analysts, who wondered what might be going on aside from the merchandising mishaps described by executives. There are a few possibilities.
In Q2, some spending that normally would go to off price likely went elsewhere, according to GlobalData Managing Director Neil Saunders. Prime Day and competing sales in June distracted deal-seekers, rivals like Ross and Nordstrom Rack have become more competitive, and mainstream apparel retailers have been more promotional lately, he said.
“It also partly blunts the Marmaxx value message, even if temporarily,” he said in emailed comments. “This, in our view, impacts Marmaxx more than other off-price players as its somewhat more affluent consumers shop round more at middle-market players, so they’re more exposed to these offers and deals.”
Many analysts are waiting to see what happens at Ross, which reports late Thursday. While off-price retailers, including TJX, have grabbed market share from department stores for eons, some think they could start to take from each other.
“Ross should come closer to a 9% comp, and some of that has to be coming from TJX, right?” William Blair analyst Dylan Carden said by phone.
On the conference call, Herrman said Marmaxx already showed improvement at the start of Q3 and that there would be even “greater improvement by the holiday selling season.” Comps were the same whether or not stores had nearby competition from other off-price retailers.
“Which, by the way, the good and the bad of that is, it tells us it’s our own execution,” he said.
The transaction decline didn’t seem to be related to conversion or better deals at other stores, either. “We are convinced that the issues were self-inflicted and within our control, and we have made good progress working through them,” Herrman said.
In previous quarters with stronger comps, though, Herrman has emphasized price and TJX’s ability to raise prices even while undercutting mainstream retailers. With apparel prices rising significantly recently, in part due to tariffs, Marmaxx therefore had a lot of opportunity to raise prices and push up comps. But with inflation pressuring consumers, that opportunity may be drying up, according to Carden.
It’s not necessarily that merchandising flubs didn’t affect sales, but that they may not be the full story, Carden said. In recent earnings calls, Wolverine World Wide, (which owns its namesake brand, Hush Puppies, Saucony and Merrell), among others, and ThredUp are among the companies reporting that consumers are growing more prickly around price, he said. On the call Wednesday, Herrman himself said that “in this environment” price increases at TJX would probably moderate.
The apparel space more broadly is likely to give up pricing power in the second half of the year and into 2027, according to Carden.
“I think this bill is what’s coming due,” he said. “In my coverage, most of the companies are speaking to some incremental price sensitivity. So I don’t think you can kind of be so confident as to say, ‘Oh well, if we only had had blue shirts as opposed to purple shirts, we would have comped 3%.’”
The last time Marmaxx comps were so weak was nearly a decade ago, and back then the company “was slow to diagnose” the problem, blamed the weather and only fully addressed it nine months later, according to a Wednesday research note from Wells Fargo analysts led by Ike Boruchow.
“This is all to say, we aren’t out of the woods just yet,” Boruchow said.