TJX Cos Inc, the parent company of T.J. Maxx, has revised its annual profit forecast in light of a decrease in cost pressures. The company hopes that this adjustment will help offset any potential decline in consumer spending on discretionary items. However, although TJX’s first-quarter revenue missed estimates, the company, along with other major retailers like Target Corp, expects a sluggish second quarter due to persistent inflation. This inflation is causing consumers to rethink non-essential purchases such as furniture and kitchenware.

According to analyst Jessica Ramirez from Jane Hali and Associates, consumers are currently only buying essential home products for everyday use. This change in consumer behavior has resulted in a 7% decrease in U.S. comparable-store sales for TJX’s HomeGoods brand. The company had previously warned that this business segment would experience a slowdown for two consecutive quarters.

Despite the decline in revenue, TJX’s gross margin saw a boost of 1 percentage point, reaching 28.9%. This increase can be attributed to a reduction in expenses after months of grappling with high costs in raw materials, labor, and freight. Consequently, shares of TJX rose approximately 3% in morning trading. Additionally, the company surpassed expectations for first-quarter profit and maintained its annual sales forecast.

However, UBS analyst Jay Sole believes that investors prioritize sales over margins, and the revenue miss may hinder significant growth in the stock. Net sales for the quarter ending April 29 grew 3.3% to $11.78 billion, slightly below the estimated $11.82 billion.

TJX now expects an adjusted profit per share between $3.39 and $3.48 for 2024, compared to the previous range of $3.29 to $3.41. However, this new forecast falls short of the estimated $3.55. The company’s current-quarter forecast for diluted earnings per share of 72 to 75 cents also falls below estimates of 79 cents. Overall, comparable store sales are predicted to increase by 2% to 3%, slightly lower than the expected 3.07%.

Despite the challenges posed by inflation and evolving consumer behavior, TJX remains optimistic about its future profitability. The company believes that the easing of cost pressures will play a crucial role in successfully navigating these uncertainties.

Useful links:
1. TJX website
2. Reuters article on TJX’s profit forecast