AJ Wright Closure Earns Analyst Approval
TJX's decision to shutter its AJ Wright brand of stores may have come as a shock to the 4,400 impacted employees, but analysts who follow the Framingham-based company say the decision made good business sense.
"This is not something any company looks forward to doing, but it is what's best," said Daniel Hofkin, a retail sector analyst with William Blair and Associates in New York. "It's just more efficient for the company to focus on its core divisions."
TJX officials announced on Dec. 10 it would close 162 AJ Wright stores, which offer lower-end apparel.
About 71 AJ Wright stores will close while another 91 stores will be converted to either TJ Maxx or Marshall's stores by mid-February. About 3,400 AJ Wright employees will remain on and work at a new TJ Maxx or Marhsalls stores, while about 4,400 mostly part-time employees will be cut.
Hofkin described AJ Wright as the least profitable and most "sluggish" of TJX's four major U.S. brands, including TJ Maxx, Marshalls and HomeGoods.
But, Hofkin said, the move should not be interpreted as a sign of weakness at TJX, which announced in the third quarter that profits for the year had already eclipsed $1 billion.
"They are doing just fine, they are not in trouble at all," he said. "It's much better to see companies make moves like this from a position of strength compared to the other way around."
Demographic Shift
"Management has found that its core TJ Maxx and Marshalls chains...have been increasingly able to effectively address the moderate-income demographic that AJ Wright had targeted while also catering to value-conscious middle- to upper-income shoppers," Hofkin wrote in his most recent report about TJX.
The closure is expected to cost the company between $250 million and $280 million, according to SEC filings. During the next two quarters, the company expects to take a hit on its profits of between $150 million and $170 million combined.
But, by 2013 the company expects its profits to increase between $40 million and $50 million annually because of the move. That revenue will come from opening TJ Maxx and Marshalls stores where AJ Wright stores use to be.
The company has been stringing together quarter after quarter of profits and sales increases. The company's third-quarter sales increased 5 percent to $5.5 billion and profits rose from $348 million last year to $372 million this year. For the first nine months of the year the company reported more than $15.6 billion in sales.
Closing the AJ Wright stores will also accelerate the company's growth plans for TJ Maxx and Marshalls stores. While initially the company hoped to open between 2,000 and 2,100 new Marshalls and TJ Maxx stores in the coming years, that figure has been increased by between 300 and 400 additional new stores.
Other analysts agree the move was a good one.
Adrianne Shapira, a retail sector expert for Goldman Sachs & Co. in New York, said closure of AJ Wright is "an appropriate one both strategically and operationally," with "minimal impact" to the bottom line.
Overall, Hofkin, with William Blair, said the move is the company refocusing its efforts on its most profitable businesses. While it may mean a short-term hit and some bad publicity around the holiday season, it ultimately appears to be a strong move for the company in the long-term, he said.
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