[ISN] How TJX Avoided Wall Street's Wrath

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http://www.cio.com/article/179603

By Thomas Wailgum
February 05, 2008  
CIO.com

By the end of 2007, The TJX Companies, which owns T.J. Maxx, HomeGoods 
and Marshalls stores, had reported that approximately 100 million credit 
and debit card owners' information had been compromised by hackers, 
possibly dating back to 2003. The size and scope of the breach, as well 
as the lack of adequate security controls to mitigate the criminal 
activity, were breathtaking.

And yet Wall Street analysts didn't seem to care. In January 2007, when 
TJX first announced the "unauthorized intrusions," its stock traded 
around $29.The price hit a low of $26 in the spring as the scope of the 
breach expanded, but the stock price rebounded to a high of $32 in the 
fall. (In early February 2008, it was still trading around $32.)

In fact, the lack of financial fury by the analyst community was 
entirely predictable. Research from Emory University's Marketing 
Institute in 2006 found that when a company announces a security breach 
its stock price drops between 0.6 percent and 2.1 percent, which is 
usually not a huge hit to the bottom line.

To retail analyst Paula Rosenblum, a managing partner with Retail 
Systems Research, the reason why TJX was able to escape unscathed is 
simple: TJX's customers didn't care, so why should Wall Street.

"Sales continued to riseespecially same-store sales," a retail metric 
whose value trumps all else, she notes. "The fines that have been 
leveled against TJX metaphorically amount to a parking ticket, and even 
the most draconian statements by analysts that 'final costs may be a 
billion dollars' still borders on immaterial over a long enough time."

Another factor that saved TJX's stock price was the economy, says 
Patricia Edwards, a portfolio manager and managing director at 
Wentworth, Hauser and Violich who focuses on retail. "As we started to 
see cracks in the economy this past summer, all the department stores 
were making noises about too much inventory," Edwards says.

For TJX, economic conditions don't get any better than that because its 
stores feed off the inventory gluts of the department stores. "And when 
the economy gets rough, shoppers still want name-brand merchandise but 
at discount prices," Edwards says. "TJX delivers that in spades."

Now, as the economy seems even more unsettled than last summer, TJX 
seems well-positioned for the future. "Most of the lawsuits have been 
settled, the customers didn't blink, comparable store sales are up, 
earnings are on track and a down economy is always good for companies 
like TJX," Rosenblum says. "Why would Wall Street pummel them?"

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