TJX Companies, Inc. — Q3 FY2020 Form 10-Q
Reporting period: Thirteen and thirty-nine weeks ended November 2, 2019, compared with periods ended November 3, 2018. TJX operates more than 4,500 off-price apparel and home-fashions stores across the U.S., Canada, Europe, and Australia. Results are unaudited; the company notes that retail sales and income are generally higher in the second half of its fiscal year.
Financial performance
| Metric | Q3 FY2020 | Q3 FY2019 | Nine months FY2020 | Nine months FY2019 |
|---|---|---|---|---|
| Net sales | $10.45 billion | $9.83 billion | $29.51 billion | $27.85 billion |
| Net income | $828 million | $762 million | $2.29 billion | $2.22 billion |
| Diluted EPS | $0.68 | $0.61 | $1.86 | $1.75 |
| Pre-tax margin | 10.7% | 10.7% | 10.4% | 10.8% |
| Cost of sales, buying and occupancy | 71.2% of sales | 71.1% | 71.5% | 71.1% |
| SG&A | 18.0% of sales | 17.9% | 18.0% | 18.0% |
- Sales and comps: Sales rose 6% in both the quarter and nine-month period. Comparable sales increased 4% in each, versus 7% and 6%, respectively, in the prior-year periods. Customer traffic drove comp growth across all four major segments. Store count was up 5% and selling square footage up 4% year over year.
- Cash flow: Nine-month operating cash flow was $1.87 billion, down from $2.48 billion. The company attributed the decline chiefly to inventory growth relative to accounts payable and a prior-year benefit from prepaid expenses. Capital expenditures were $993 million; investing cash outflow was $998 million.
- Liquidity and debt: Cash and cash equivalents were $2.06 billion at November 2, 2019, versus $3.03 billion at fiscal year-end. Long-term debt was $2.24 billion; no short-term borrowings, commercial paper, or amounts under the two $500 million revolving facilities were outstanding. TJX reported compliance with credit covenants and said available cash, operations, and credit facilities were adequate for the next fiscal year.
- Leases: Adoption of the new lease standard added approximately $9 billion of right-of-use assets and lease liabilities. At November 2, operating lease liabilities totaled $9.23 billion. This accounting change substantially increased reported assets and liabilities; prior-year balance sheets were not restated.
- Shareholder returns: TJX returned $778 million through repurchases and dividends in Q3. Nine-month cash repurchases were $1.19 billion and dividends paid were $795 million. Approximately $2.0 billion remained authorized for repurchases at quarter-end.
Material changes and segment trends
- Sales growth slowed from 12% in the comparable prior-year quarter and nine-month period to 6% in both current periods; comp growth also moderated.
- Q3 pre-tax margin was unchanged year over year, while the nine-month margin declined 0.4 percentage points. Higher supply-chain costs and lower merchandise margin, including freight and tariff pressures, weighed on results; strong comps, favorable markon, and expense leverage partly offset the pressure.
- Marmaxx Q3 sales rose 6% and segment margin edged up to 12.9%. HomeGoods sales rose 8%, but margin fell to 10.9%, reflecting slower comps and store-growth investment. TJX Canada sales rose 4%, while margin fell to 15.7%, affected by currency, freight, payroll, and merchandise-margin pressures. TJX International sales rose 6%, while margin declined to 6.9%, amid incentive costs, merchandise-margin pressure, and derivative mark-to-market effects.
- Q3 diluted EPS increased to $0.68 from $0.61; management estimated share repurchases contributed approximately 3% to EPS growth. The prior-year comparison included a $36.1 million non-cash pension settlement charge, which reduced prior-year EPS by $0.02.
Outlook, commentary, and risks
- No full-year sales, profit, or EPS guidance is stated in the provided filing text. Management anticipated fiscal 2020 capital spending of approximately $1.3 billion and planned $1.5–$1.75 billion of fiscal-year share repurchases, subject to business, market, and liquidity conditions.
- Management cited U.S. tariffs on China-origin goods as a source of margin pressure and said effects on pricing, demand, and currency were uncertain. It also warned that Brexit—particularly a hard Brexit—could disrupt merchandise flows, labor, and European operations, with potentially significant short-term effects. Supply costs, foreign exchange, consumer demand, labor, inventory management, and seasonal disruptions are among the other identified risks.
- On November 18, 2019, after quarter-end, TJX invested $225 million for a 25% minority stake in Russian off-price retailer Familia. TJX has a board appointment right and will use equity-method accounting, reporting its share of Familia’s results on a one-quarter lag.
- Other notable items: TJX launched Marshalls.com during the quarter. Net unrecognized tax benefits were $245.8 million; a potential decrease of up to $33 million over the next 12 months could reduce tax expense. The filing describes ordinary-course litigation, including wage-and-hour cases, with an immaterial amount accrued. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Key facts for investors to verify
- Whether comp-sales momentum and customer traffic persist, and how average basket and regional or segment trends develop.
- Whether tariffs, freight, supply-chain costs, currency movements, and inventory levels continue to pressure margins and operating cash flow.
- How planned capital spending, buybacks, and dividends affect cash balances and liquidity; assess lease obligations separately from funded debt.
- Potential operational or financial effects of Brexit and the performance and accounting impact of the Familia investment.
- Developments in tax examinations and legal proceedings, and any changes to the company’s stated outlook or risk assessments.