Framingham, Mass.-based TJX Companies, Inc. (TJX - Get Rating) and Bed Bath & Beyond Inc. (BBBY - Get Rating), which is headquartered in Union, N.J., are two prominent players in the retail industry. TJX operates as an off-price apparel and home fashions retailer that sells family apparel, home fashions, fine jewelry and accessories, and other merchandise worldwide. It operates through four segments—Marmaxx; HomeGoods; TJX Canada; and TJX International. BBBY operates a chain of retail stores that sells domestic merchandise, home furnishings, consumables, and various juvenile products internationally. It also operates Decorist, an online interior design platform that provides personalized home design services.

Despite the recent resurgence of COVID-19 cases, rising inflation, and supply chain disruptions, retail sales rose for two straight months—0.9% in August and 0.7% in September. An expected increase in consumer spending ahead of the holiday season, supported by an improving job market, should further drive the industry’s growth. With increasing foot traffic at  brick-and-mortar stores ahead of a holiday season, the National Retail Federation (NRF) expects holiday sales to rise between 8.5% -10.5% during November and December. The global retail industry is expected to grow 7.2% in 2021. So, both BBBY and TJX should benefit.

While BBBY has declined 60.3% in price over the past nine months, TJX has surged 2.3%. TJX is a clear winner with 26.6% gains versus BBBY’s negative returns in terms of the past year’s performance. But which of these stocks is a better pick now? Let’s find out.

Recent Financial Results

TJX’s net sales for its fiscal second quarter, ended July 31, 2021, increased 81.1% year-over-year to $12.08 billion. The company’s pre-tax income came in at $1.05 billion, versus a $92.02 million loss in the prior-year period. Its net income came in at $785.68 million, versus a $214.22 million net loss in the year-ago period. And its EPS came in at $0.64, compared to an $0.18 per share loss in the prior-year period. As of July 31, 2021, the company had $7.11 billion in cash and cash equivalents.

For its fiscal second quarter, ended August 28, 2021, BBBY’s net sales decreased 26.2% year-over-year to $1.98 billion. The company’s adjusted gross profit came in at $674.75 million, representing a 30% decline from the prior-year period. BBBY’s operating loss was $84.11 million for the quarter, compared to a $270.54 million operating profit in the year-ago period. While its adjusted net income decreased 94.1% year-over-year to $3.70 million, its adjusted EPS decreased 92% year-over-year to $0.04. The company had $970.59 million in cash and cash equivalents as of August 28, 2021.

Past and Expected Financial Performance

TJX’s revenue and tangible book value have grown at CAGRs of 4.6% and 7.1%, respectively, over the past three years. The company’s total assets have grown at a 26.8% CAGR over the past three years.

Analysts expect TJX’s EPS to increase 851.6% year-over-year in the current year and 14.6% next year. They expect its revenue to increase 49.7% year-over-year in the current year and 6.5% next year while its EPS is expected to grow at a 126.2% rate per annum over the next five years.

In comparison, BBBY’s revenue and tangible book value have decreased at CAGRs of 9.5% and 25.2%, respectively, over the past three years. And its total assets have grown at a 6.1% CAGR over the past three years.

BBBY’s EPS is expected to rise 181.6% year-over-year in the current year and 81.2% next year. Its revenue is expected to decline 11.4% year-over-year in the current year and marginally next year. The stock’s EPS is expected to grow at an 88.7% rate per annum over the next five years.

Valuation

In terms of non-GAAP forward P/E, TJX is currently trading at 22.56x, which is 39.3% higher than BBBY’s 16.19x. And in terms of forward EV/Sales, BBBY’s 0.43x compares with TJX’s 1.76x.

Profitability

TJX’s trailing-12-month revenue is almost 4.7 times higher than BBBY’s. TJX is also more profitable, with a 10.1% EBITDA margin versus BBBY’s 7.1%.

Also, TJX’s 5.8% and 45.4% respective net income margin and ROE compare favorably with BBBY’s negative returns.

POWR Ratings

While TJX has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, BBBY has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

TJX has a B grade for Quality, which is consistent with its higher-than-industry profitability ratios. TJX’s 11.1% trailing-12-month return on total capital is 42.4% higher than the 7.8% industry average. BBBY’s C grade for Quality is in sync with its slightly lower-than-industry profitability ratios. BBBY has a 4.6% trailing-12-month return on total capital, which is 41.4% lower than the 7.8% industry average.

TJX has a B grade for Sentiment, which is consistent with favorable analyst estimates. Analysts expect TJX’s revenue to grow 49.7% year-over-year in the current year to $48.11 billion. However, BBBY’s F grade for Sentiment is in sync with unfavorable expectations. BBBY’s revenue is expected to decline 11.4% year-over-year to $8.18 billion in the current year.

Of the 63 stocks in the A-rated Fashion & Luxury industry, TJX is ranked #14. BBBY is ranked #43 of 60 stocks in the C-rated Home Improvement & Goods industry.

Beyond what we’ve stated above, our POWR Ratings system has also rated BBBY and TJX for Growth, Stability, Value, and Momentum.

Get all BBBY ratings here. Also, click here to see the additional POWR Ratings for TJX.

The Winner

Because the demand for retail goods is expected to increase over the holiday season, both TJX and BBBY should benefit. However, higher profitability and better analyst sentiment make TJX a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Fashion & Luxury industry, and here for those in the Home Improvement & Goods industry.

TJX shares were trading at $66.65 per share on Monday afternoon, up $1.16 (+1.77%). Year-to-date, TJX has declined -1.32%, versus a 24.25% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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