TJX Companies, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended January 31, 2015 (52 weeks). The filing also reports fourth-quarter results; the fiscal-year comparison is with the 52-week year ended February 1, 2014.
Business context and performance
TJX operates more than 3,300 off-price apparel and home-fashions stores across the U.S., Canada and Europe, alongside e-commerce businesses. Its model relies on opportunistic buying, fast inventory turnover and everyday prices generally 20%–60% below comparable department- and specialty-store prices.
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $29.08 billion | $27.42 billion |
| Net income | $2.22 billion | $2.14 billion |
| Diluted EPS | $3.15 | $2.94 |
| Operating cash flow | $3.01 billion | $2.60 billion |
| Capital expenditures | $912 million | $947 million |
| Cash and cash equivalents | $2.49 billion | $2.15 billion |
| Working capital | $2.79 billion | $2.55 billion |
| Long-term debt | $1.62 billion | $1.27 billion |
FY2015 sales rose 6%, supported by 4% growth from new stores and 2% same-store sales growth. Pre-tax margin was 12.2%, up 0.1 percentage point; cost of sales was 71.5% of sales, flat year over year, and SG&A was 16.1%, down 0.2 percentage point. Same-store sales growth slowed from 3% in FY2014. The filing reports a 2% increase in consolidated average per-store inventory at year-end.
Fourth quarter: Sales were $8.30 billion versus $7.81 billion; net income was $648.2 million versus $582.3 million; diluted EPS was $0.93 versus $0.81. The filing’s quarterly table does not provide a clear fourth-quarter margin value.
Segments and material changes
- Marmaxx: Sales increased 4% to $18.69 billion; same-store sales rose 1%; segment margin was 14.6%, unchanged.
- HomeGoods: Sales increased 14% to $3.41 billion; same-store sales rose 7%; segment margin increased to 13.6% from 12.9%.
- TJX Canada: Sales were essentially flat at $2.88 billion. Same-store sales rose 3%, but currency translation reduced reported sales growth by 7 percentage points. Segment margin fell to 13.6% from 14.1%.
- TJX Europe: Sales increased 13% to $4.09 billion; same-store sales rose 3%; segment margin increased to 8.2% from 7.6%.
Net income increased 4%, while diluted EPS increased 7%, aided by share repurchases that reduced weighted-average diluted shares. FY2015 included a $16.8 million pre-tax debt-extinguishment loss, reducing EPS by $0.01. FY2014 included approximately $80 million of tax benefits, adding $0.11 to EPS; comparisons are affected by that prior-year benefit. A stronger U.S. dollar materially affected international results and derivative marks late in FY2015.
Liquidity, capital allocation and outlook
Operating cash flow rose $408 million year over year. TJX spent $1.65 billion on share repurchases and paid $466 million in cash dividends during FY2015. The company issued $750 million of 2.75% notes due 2021 and redeemed $400 million of 4.20% notes due 2015. It reported no borrowings under its two $500 million revolving credit facilities and stated that cash, internally generated funds and credit facilities were adequate for operating needs over the next fiscal year.
Management expected FY2016 capital expenditures of approximately $975 million, funded from internally generated cash. It planned approximately $1.8–$1.9 billion of FY2016 share repurchases and a quarterly dividend of $0.21 per share, subject to Board approval. The filing announced a U.S. hourly-store wage increase to at least $9 beginning June 2015. Store-growth estimates indicated total stores increasing from 3,395 to approximately 3,576 in FY2016.
Risks, contingencies and unusual items
- Management warned that sharp currency movements could weigh more heavily on FY2016 results if exchange rates remained near late-FY2015 levels. A hypothetical 10% adverse currency movement could have reduced FY2015 pre-tax income by approximately $73 million.
- Key business risks include failure to source desirable merchandise at the right price and time, inventory forecasting and markdown exposure, competition, execution of international and e-commerce growth, labor costs, weather and supply-chain disruptions, and cybersecurity or information-system failures.
- TJX disclosed putative class and collective wage-and-hour lawsuits alleging, among other matters, employee misclassification and unpaid wages. Outcomes and potential losses were not estimable from the filing.
- Operating lease commitments totaled $7.61 billion in minimum payments; purchase obligations totaled $3.09 billion. The company also disclosed approximately $69 million of estimated contingent obligations on certain assigned or sublet leases outside its former-operations reserve.
- The funded pension plan’s projected benefit obligation rose substantially, including actuarial losses associated with lower discount rates and updated mortality assumptions. TJX made a voluntary $150 million pension contribution and did not anticipate required funded-plan contributions in FY2016.
Important facts for investors to verify
- Whether same-store sales and margins sustain growth, particularly at Marmaxx and in Canada.
- The actual FY2016 impact of currency movements, hedging marks and higher U.S.-dollar merchandise costs in Canada.
- Whether planned store growth, capital spending and buybacks are achieved while preserving operating cash flow and liquidity.
- Developments in wage-and-hour litigation, lease contingencies and pension funding assumptions.