Will Elevated Costs Undermine The TJX Companies' Off-Price Edge?

The TJX Companies TJX is feeling the strain of elevated operating costs, particularly in wages and sourcing. In the first quarter of fiscal 2026, selling, general and administrative (SG&A) expenses rose to 19.4% of sales, up 20 basis points (bps) from the prior-year quarter, primarily due to higher store payroll costs. Gross margin declined 50 bps to 29.5%, with unfavorable inventory hedge adjustments adding to the pressure.

The bigger concern lies ahead. Management expects fiscal second-quarter gross margin to decline another 40 bps year over year to 30%, citing tariff-related costs on merchandise already in transit when new duties took effect in March and April. While the company is pursuing mitigation strategies, such as pricing adjustments and sourcing shifts, cost pressures remain. For fiscal 2026, The TJX Companies projects gross margin between 30.4% and 30.5%, a 10-20 bps drop from the prior year. SG&A is expected to be 19.3%, a slight decrease from last year's 19.4%.

While TJX continues to execute its off-price model steadily, ongoing inflation in wages, freight and tariffs introduces added complexity to maintaining the gross margin. As a retailer positioned on delivering branded value at competitive prices, its ability to manage these rising costs without compromising pricing appeal will be closely watched. Striking the right balance between margin preservation and value positioning remains important in an increasingly competitive retail environment.

TJX’s Peer Comparison: DG and BURL Face Cost Squeeze

Dollar General DG is grappling with cost inflation. In the first quarter of fiscal 2025, Dollar General reported an 8.5% year-over-year increase in SG&A, which rose 77 basis points to 25.4% of sales. The uptick was caused by higher labor costs, incentive compensation, and repairs and maintenance. Dollar General expects SG&A to remain under pressure in the fiscal second quarter, with a larger year-over-year increase in incentive compensation as it laps last year’s accrual reversal.

Burlington Stores BURL is also facing cost headwinds. In the first quarter of fiscal 2025, Burlington saw SG&A expenses rise 4.8% year over year, while sourcing costs jumped to $197 million, up from $183 million. As a percentage of sales, sourcing costs ticked up 10 basis points. Burlington projects adjusted EBIT margin in the range of down 30 bps to flat year over year in the fiscal second quarter, with additional pressure from lease-related costs and shifting expense timing.

TJX’s Price Performance, Valuation and Estimates

Shares of The TJX Companies have lost 8.2% in the past month compared with the industry’s decline of 5%.

From a valuation standpoint, TJX trades at a forward price-to-earnings ratio of 26.74X, down from the industry’s average of 32.42X.

The Zacks Consensus Estimate for TJX’s fiscal 2026 earnings implies year-over-year growth of 4.7%, whereas its fiscal 2027 earnings estimate indicates a year-over-year uptick of 10.3%.

TJX stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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