TJX Companies, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended February 2, 2013. This is an annual filing, not a standalone Q4 filing. FY2013 had 53 weeks; FY2012 had 52 weeks. The fourth quarter of FY2013 included 14 weeks.
Business context
TJX operates more than 3,000 off-price apparel and home-fashions stores across the U.S., Canada and Europe, including T.J. Maxx, Marshalls, HomeGoods, Winners, HomeSense and T.K. Maxx. It emphasizes opportunistic buying, lean inventories and rapidly changing merchandise. In December 2012, TJX acquired online retailer Sierra Trading Post for approximately $196 million.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $25.878 billion | $23.191 billion |
| Income from continuing operations / net income | $1.907 billion | $1.496 billion |
| Diluted EPS | $2.55 | $1.93 reported; $1.99 adjusted |
| Same-store sales growth | 7% on a 52-week basis | 4% |
| Pre-tax margin | 11.9% | 10.4% reported; 10.7% adjusted |
| Cost of sales, buying and occupancy | 71.6% of sales | 72.7% |
| SG&A | 16.4% of sales | 16.8% reported; 16.5% adjusted |
| Operating cash flow | $3.046 billion | $1.916 billion |
| Capital expenditures | $978 million | $803 million |
Management attributed FY2013 sales growth to 7% same-store growth, 3% from new stores and 2% from the 53rd week. The extra week added approximately $0.08 to diluted EPS and 0.2 percentage points to pre-tax margin. Lower markdowns and expense leverage supported margin improvement. Average per-store inventory, including distribution centers but excluding Sierra Trading Post, was down 6% year over year.
At year-end, cash and cash equivalents were $1.812 billion, short-term investments $236 million, working capital $1.951 billion and total assets $9.512 billion. Long-term debt, excluding current installments, was $775 million; debt was 17.4% of total capitalization. TJX reported no borrowings under its two $500 million revolving credit facilities at year-end. Total contractual obligations were $10.683 billion, including $6.719 billion of operating lease commitments.
FY2013 cash from operations rose by $1.130 billion year over year, helped by earnings, inventory and accounts-payable movements, and higher accrued liabilities. Cash used for repurchases and dividends was approximately $1.345 billion and $324 million, respectively.
Material changes and segment results
- Marmaxx sales rose 11%; same-store sales increased 6%, and segment margin increased to 14.6% from 13.5%.
- HomeGoods sales rose 18%; same-store sales increased 7%, and segment margin increased to 12.2% from 10.4%.
- TJX Canada sales rose 9%; same-store sales increased 5%, reversing a 1% decline. Segment margin rose to 14.2% from 13.0%.
- TJX Europe sales rose 14%; same-store sales increased 10%, and segment margin rose to 6.6% from 2.4%, reflecting improved execution and lower markdowns.
- General corporate expense increased to $335 million from $228 million, including higher foundation contributions, a reserve adjustment, Sierra Trading Post acquisition costs, incentive compensation, systems investment and office-expansion costs.
- FY2012 comparisons are affected by A.J. Wright consolidation costs; the filing presents adjusted, non-GAAP comparisons that exclude specified items. FY2013 also includes the extra week and the Sierra Trading Post acquisition.
Outlook, risks and unusual items
For FY2014, TJX planned approximately 150 net new stores, ending with about 3,200 stores, and projected capital expenditures of $925–$950 million. It expected to repurchase approximately $1.3–$1.4 billion of stock and planned a quarterly dividend of $0.145 per share, subject to Board approval. Management planned a small, controlled T.J. Maxx website launch in the second half of FY2014. The filing provides no specific FY2014 earnings guidance.
Unusual items included a $27 million pension-expense correction for prior years, which management said was not material to current- or prior-year financial statements; a $16 million increase in the reserve for former-operation lease obligations; and acquisition-related costs for Sierra Trading Post. The former-operations reserve was $45.2 million at year-end. TJX also disclosed ongoing wage-and-hour class or collective actions seeking unspecified damages; it was unable to predict the outcome or loss amount.
Principal risks include merchandise-buying and inventory execution, competition, store-growth and lease commitments, consumer demand and seasonal or severe weather, labor costs and staffing, international operations and foreign exchange, supply-chain and commodity costs, pension funding, tax and legal matters, and information-system disruption. TJX disclosed a customer-data intrusion discovered in 2006 and continuing data-security obligations. A hypothetical 10% adverse currency movement could have reduced FY2013 pre-tax income by approximately $65 million. Management and the auditor reported effective internal control over financial reporting as of February 2, 2013.
Key facts for investors to verify
- Separate underlying growth from the 53rd week, store openings, repurchases and the differing adjusted/non-GAAP comparison basis.
- Confirm whether margin gains—especially in Europe—persist as markdowns, inventory turns and customer traffic change.
- Assess planned FY2014 store expansion, capital spending and digital investment against operating cash generation.
- Review lease commitments, former-operation obligations, pension liabilities and the terms and maturity profile of debt.
- Monitor the wage-and-hour litigation, tax exposures, currency sensitivity and data-security risks, including any subsequent developments.