Off-price retailer The TJX Cos. Inc. expects wage increases to continue to drag on its profitability, executives said Feb. 28 during a conference call with analysts.
TJX CFO and Senior Executive Vice President Scott Goldenberg said the company anticipates that wage increases will have a negative impact of about 2% on fiscal 2019 EPS growth, similar to the impact it saw in fiscal 2018. He warned that wage hikes, especially those in Canada, will continue to negatively affect the company's profits beyond fiscal 2019, which ends Jan. 31, 2019.
"We continue to expect that wage increases will have an incremental negative impact beyond fiscal '19." he said.
Framingham, Mass.-based TJX reported fourth-quarter adjusted EPS that came in lower than expected as it forecast fiscal 2019 adjusted EPS ranging between $4.00 and $4.08, excluding an expected per-share benefit of 73 cents to 75 cents related to U.S. tax legislation.
Goldenberg said the impact of the wage increase on fiscal 2018 was more significant than expected and that as of a few months ago, the company had predicted an impact on EPS of 1%. He cited large wage increases in Ontario as well as British Columbia's recently announced decision to hike wages. TJX has a sizable presence in Canada, with about 454 stores in the country across its Winners, Marshalls and HomeSense banners.
Executives also discussed how unexpected higher freight costs and markdowns weighed on its fourth-quarter merchandise margins, particularly at its HomeGoods division. TJX's fourth-quarter pretax profit margin slipped 1.5% to 10.1% from the year-earlier period.
Goldenberg said he expects higher freight costs to continue to weigh on the company's fiscal 2019 deleverage, although not as much as in fiscal 2018.
"It is a continual deleverage," he said, citing a combination of factors behind the higher costs, such as a driver shortage and carrier consolidation.
"This lack of capacity that we had in the freight arena, which resulted in some delays at the ports, causing our product to arrive at the stores a bit later than we had anticipated," he explained. "And at HomeGoods, where we delivered the product on a just-in-time basis, probably more than any other division. This delay impacted sales and required additional markdowns, especially in some of our gift-giving categories."
TJX said it plans to open 238 net new stores in fiscal 2019, bringing its year-end total to 4,308 stores. That store growth, of 6%, is similar to the growth rate in fiscal 2018, Goldenberg said.
TJX CEO and President Ernie Herrman said the company sees especially strong opportunities for growth in the home segment for both its HomeGoods and HomeSense banners. HomeSense got its start in Canada and Europe, and TJX started rolling out locations in the U.S. in 2017. Herman said the company now expects to target — in the "long term" — 400 HomeSense stores in the U.S. The banner had just four U.S. locations as of the end of fiscal 2018.
"We believe we are significantly underpenetrated," he said. "[We] see plenty of a white space across the country for both chains."
