Portfolio Manager Joshua Honeycutt of Mar Vista Investment Partners says that as the largest off-price apparel and home goods retail chain in the world, TJX Companies Inc (TJX) operates a competitively advantaged global sourcing platform.
“Unlike Nike or Tiffany, who predominantly built their moats around global brands, TJX has built its economic moat around global scale and cost advantages,” Honeycutt says. “The company operates a competitively advantaged global sourcing platform, which consists of 900 buyers and 16,000 vendors. This sourcing advantage allows TJX to acquire and sell consumer products 30% to 40% below department-store prices while turning inventory 40% faster.”
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Honeycutt says TJX should continue compounding intrinsic value in the low double digits through new store expansion and consistent same-store sales growth. He also believes the company can triple its international store base.
“The management team at TJX are excellent stewards of capital. Future uses for free cash flow will be international store growth and smart share repurchases. TJX currently trades 18 time normalized free cash flow, which is a slight premium to the market. Although it is not as cheap as it once was, we think TJX represents an above-average business at an average price,” Honeycutt says.
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