Sierra Buy to Boost TJX's E-Business

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TJX58.25-0.600
KSS54.73-0.04

The leading off-price retailer TJX Companies Inc. (TJX) announced the purchase of Cheyenne, Wyoming-based off-price Internet retailer Sierra Trading Post. TJX expects the acquisition to be slightly accretive to its earnings starting fiscal 2014. It is a strategic acquisition by TJX to boost its online sales.

TJX bought Sierra Trading Post for $200.0 million in cash, subject to post-closing adjustments. TJX also acquired Sierra's office, warehouse and photography studios in Cheyenne, as well as its customer call centers and four outlet stores in Idaho, Nevada and Wyoming, as a part of the takeover.

Reportedly, Peter J. Solomon Company LLC and BofA Merrill Lynch were the financial advisors. Ropes & Gray LLP acted as the legal counselor.

Sierra Trading Post is a discount Internet retailer offering outdoor recreation, adventure gear, as well as footwear, clothing and home decor at 35% to 70% lower prices than those offered by other retailers. The company sells seconds, overstocks and closeouts.

Sierra Trading Post, which started its business with an office space of 500 square feet in 1986, has grown to over 500,000 square feet today. The company sells almost 1,000 branded products.

The acquisition is beneficial to TJX, which is already geared up to launch online brands for its HomeGoods and Marmaxx divisions. More and more retailers are focusing on online business, which expands their reach to a greater number of customers at a time.

TJX, which competes against Kohl’sCorporation (KSS), has been reporting an increase in comparable store sales for the past several quarters, driven by higher demand and increased consumer traffic.

We are encouraged by the company’s flexible off-price business model that allows it to act according to market trends. TJX has a low-cost structure compared to many other traditional retailers. It focuses aggressively on reducing expenses across its segments. Currently, we have a Neutral recommendation on the stock. TJX holds a Zacks #2 Rank (short term Buy rating).

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