There is 1 thing clear in The TJX Companies (NYSE: TJX) Q2 results, and that it is hitting its stride. The off-price retailers were expected to benefit from shifting consumer habits, and they are. It took a little longer than the market first anticipated, but the signs are clear that full-price retailers like Target (NYSE: TGT) are losing out to their off-price brethren.

The most glaring evidence: Target’s revenue declined, and guidance was lowered, while The TJX Companies' revenue grew and guidance was raised. The takeaway is that Target shares, which have been trending lower, could be heading lower, while TJX shares, which have been trending higher, could be heading higher. 

The TJX Companies Shows Strength in all Comparisons

The TJX Companies had a truly good quarter, given the environment foreshadowed by Home Depot (NYSE: HD) and Target. Between them, they paint a picture of sluggish sales, weaker-than-expected forecasts, and the possibility of underperformance, while TJX shows strength in all comparisons.

The TJX Companies produced revenue of $12.76 billion, up 7.8% compared to last year and beat by $0.310 billion. That margin, 250 basis points, is compounded by an improved profit margin. 

Sales are up 8% on a comp-store basis, with Marmaxx leading the way. Marmaxx sales are up 8%, with strength in discretionary apparel and home categories, where Target is losing share.

The best news is that the 8% comp is driven 100% by traffic with no pricing increases. That is a clear sign of the company’s appeal to consumers. Home Goods, TJX Canada, and TJX International grew by 4%, 1%, and 3%, and FX had a neutral impact. 

The impressive figure is the open-only comps. Open-only comps are up 20% across the system. 

The margin news is good. The gross profit margin increased by 260 basis points, the pretax profit margin by 120, and the GAAP earnings by 2300. The GAAP $0.85 is also $0.07, or more than 80% better than expected.

That led, and the top-line strength led the company to raise guidance for the next quarter and the year, and the new outlook might be cautious. Execs expect Q3 earnings from $0.95 to $0.98 with full-year EPS of $3.56 to $3.62.

That aligns with the consensus, possibly cautious, and far better than what could have been. If momentum persists, guidance may be raised again later this year. 

The TJX Companies is a Good Fit for Income Investors

The TJX Companies doesn’t have a high-yielding stock, but the 1.55% is reliable and compounded by the healthy balance sheet, an outlook for distribution growth, and share repurchases. The company’s cash flow topped $1.36 billion for the quarter, allowing for dividends, share repurchases, and debt reduction with little impact on the balance sheet.

The company’s cash position is up compared to last year, and the inventory is down, but all other metrics are relatively flat and align with a positive dividend outlook. Share repurchases roughly double the capital returned to shareholders via dividends. 

Shares of TJX surged more than 3% on the revised guidance and set a new all-time high. The market may enter consolidation at this rally stage, but upward momentum is present, and continuation is expected.

The analysts, which rate the stock a Moderate Buy, have been raising their price targets all year and are likely to continue that trend. Assuming that analysts do raise their targets, the consensus of $90 should move higher over the next few weeks and months and lead the market to another new high. If not, the stock could become range bound. 

Other names that may benefit from shopping down include Kohl’s (NYSE: KSS), which presents a deep value and high yield, and Ollies Bargain Outlets (NASDAQ: OLLI), a growth story. Both issued favorable reports and guidance and have markets rebounding or reversing.