TJX's Beat and Raise: Why the Stock Still Dropped

The numbers from TJX's third quarter were unambiguously strong. The company delivered a clear beat on both top and bottom lines. It posted diluted earnings per share of $1.28, which topped the consensus estimate of $1.22. Revenue also came in ahead, with net sales of $15.1 billion surpassing the $14.80 billion expected. More importantly, the company raised its full-year outlook, lifting its full-year EPS guidance range to $4.63-$4.66.

This is the classic "beat and raise" scenario that typically fuels a stock rally. Yet, the market's reaction was the opposite. On the day of the report, TJX shares ended the session at $124.16, demonstrating a -1.03% change from the prior close. That drop put the stock well behind the broader market, which was up 0.28% on the S&P 500.

The central question for investors is stark: why did a clear beat and a raised guide lead to a sell-off? The answer lies in the gap between what was delivered and what was priced in. The market had already baked in a strong quarter, and the raised guidance may have simply met, rather than exceeded, the new, elevated expectations. This sets up the core dynamic of the story: the reality of the earnings print was good, but it was not good enough to overcome the high expectations that had been built.

The Guidance Reset: Where the Expectation Gap Opens

The stock's drop points directly to the forward view. While the raised full-year guide was a positive, the specific outlook for the critical fourth quarter introduced a significant reset. Management guided for fourth-quarter comparable sales growth of 2% to 3%. That range implies a clear deceleration from the 5% growth delivered in the just-completed third quarter.

More importantly, this new guidance comes in below the 5% growth the company itself reported for the same period last year. The market had priced in continued strong momentum, but the new outlook signals a tougher comparison and a more cautious near-term path. This creates a classic "sell the news" dynamic. The raised full-year guide was not enough to offset the near-term deceleration concerns that the Q4 outlook now highlights.

The setup is telling. After a quarter where sales and profits both beat expectations, the company chose to guide for a slower pace of growth in the following period. This conservative posture, even with a strong start to the quarter, suggests management sees headwinds on the horizon-whether from holiday spending patterns or last year's strong performance. For investors who had bid the stock higher on the expectation of sustained acceleration, this guidance reset was a disappointment. It narrowed the visibility on the near-term trajectory, creating an expectation gap where the reality of a slower fourth quarter was now priced in, even as the full-year picture remained solid.

Investor Sentiment and Positioning: A Sign of Doubt

The stock's underperformance is not an isolated event; it reflects a broader shift in investor positioning that suggests growing skepticism. The most telling signal came from a major institutional holder. Geneos Wealth Management cut its stake in TJX by 88.3% in the third quarter, selling the vast majority of its position. While other funds made modest moves, this dramatic reduction by a significant investor is a clear vote of confidence in the company's near-term outlook. It indicates that at least one large player saw the guidance reset as a reason to take profits or reduce exposure.

This institutional doubt contrasts sharply with the bullish sentiment still held by Wall Street analysts. The Street maintains a positive average price target of about $163.86, well above the current trading level. Yet, the stock's recent path tells a different story. Over the past month, TJX shares have gained just 0.74%, trailing both its sector's 0.87% gain and the broader S&P 500's 4.37% climb. This divergence is critical. It shows that despite analyst optimism, the stock is failing to attract capital or momentum from the broader market. The positive price targets are not translating into buying pressure.

The bottom line is a market that has already priced in the "beat and raise" narrative but is now questioning the sustainability of the growth trajectory. The institutional sell-off and the stock's persistent weakness relative to peers and the index signal that the expectation gap is widening. For all the positive guidance, the reality of a slower fourth quarter and the actions of a major holder suggest that the market is looking past the headline numbers to the near-term challenges ahead.

Catalysts and Risks: What to Watch Next

The current market pessimism hinges on a single, upcoming test. The primary catalyst is the release of TJX's fourth-quarter results in late February. That report will directly confront the company's own guidance, which calls for fourth-quarter comparable sales growth of 2% to 3%. The stock's recent weakness suggests the market is braced for a miss. If the actual print falls within that cautious range, it may be seen as a "beat the guide" scenario, potentially offering a relief rally. But if it comes in at the low end-or worse, below-the stock could face renewed selling pressure. The key will be whether the company can demonstrate that the slow start is a temporary holiday headwind or the beginning of a sustained deceleration.

Beyond the headline comp number, investors must watch the health of the holiday season's inventory and markdown trends. Management entered the quarter with inventory levels it described as well-positioned, supported by strong availability of branded merchandise. The sustainability of demand will be visible in how quickly that inventory moves and whether the company is forced into deeper discounts to clear stock. High markdowns would signal weakening consumer demand and pressure on margins, directly challenging the narrative of steady, branded demand that powered the third quarter's beat. This operational detail is the real-time data point that will confirm or contradict the guidance's caution.

The overarching risk is that this guidance reset becomes the new baseline. The raised full-year EPS guide to $4.63-$4.66 provides a floor, but the Q4 outlook sets a ceiling on near-term growth. If the February results confirm the 2-3% comp range, the market may permanently lower its expectations for TJX's growth trajectory. This would cap any near-term multiple expansion, keeping the stock tethered to its current valuation. The forward P/E of 31.05X is already elevated, and without a clear path to accelerating comps, the premium may be difficult to justify. For now, the stock's underperformance shows the market is already pricing in this more cautious reality.