TJX Companies, Inc. — Form 10-Q Summary
Reporting period: Thirteen weeks ended April 28, 2012, the first quarter of fiscal 2013. Fiscal 2013 is a 53-week year ending February 2, 2013. Results are unaudited and may not indicate full-year performance; TJX generally realizes higher sales and income in the second half.
Financial results
| Metric | Q1 FY2013 | Q1 FY2012 |
|---|---|---|
| Net sales | $5.798 billion | $5.220 billion |
| Income before taxes | $681.4 million | $429.6 million |
| Net income | $419.2 million | $266.0 million |
| Diluted EPS | $0.55 | $0.34 reported; $0.39 adjusted for A.J. Wright-related items |
| Cost of sales, buying and occupancy as % of sales | 71.8% | 73.3% reported; 73.1% adjusted |
| SG&A as % of sales | 16.2% | 18.3% reported; 17.1% adjusted |
| Pre-tax margin | 11.8% | 8.2% reported; 9.6% adjusted |
| Operating cash flow | $704.6 million | $143.1 million |
| Property additions | $254.3 million | $226.1 million |
| Cash dividends declared per share | $0.115 | $0.095 |
Same-store sales rose 8%, compared with 2% in the prior-year quarter. Management attributed the increase to strong customer traffic and a slight increase in average transaction value. Sales growth also reflected approximately 4% from new stores and a negative 1% foreign-currency effect. Store count and selling square footage each increased 4% year over year. Consolidated average inventory per store, including distribution-center inventory, was down 7%.
The effective tax rate was 38.5%, versus 38.1%; management attributed the increase primarily to expiration of the U.S. Work Opportunity Tax Credit. Net interest expense was $8.8 million, roughly unchanged.
Liquidity, debt and capital allocation
- At April 28, 2012, cash and cash equivalents were $1.564 billion and short-term investments were $174.9 million. Current assets totaled $5.232 billion and current liabilities $3.152 billion.
- Long-term debt carrying value was $774.5 million: $375 million of 6.95% notes due 2019 and $400 million of 4.20% notes due 2015. The estimated fair value of long-term debt was $927.2 million.
- TJX had two $500 million revolving credit facilities, with no amounts outstanding or borrowed during the quarter. Management said cash, internally generated funds and credit facilities were more than adequate for operating needs over the next fiscal year.
- Cash from financing activities was a net outflow of $331.8 million, including $297.3 million in cash payments for share repurchases and $70.8 million in dividends paid. Separately, TJX reported repurchasing and retiring 6.5 million shares for $250 million; repurchases are recorded on a settlement basis, so cash outlays may differ because of timing.
Material changes and segment performance
- Reported sales increased 11% and diluted EPS increased 62% year over year. The prior-year quarter included a $49.3 million A.J. Wright segment loss and conversion and reopening costs; adjusted prior-year EPS was $0.39, making the comparable EPS increase 41%. Adjusted figures are non-GAAP measures.
- Marmaxx sales rose 10%, same-store sales rose 8%, and segment margin improved to 15.5% from 13.9% reported (14.4% adjusted) in the prior-year quarter.
- HomeGoods sales rose 18%, same-store sales rose 9%, and segment margin increased to 11.7% from 9.0% reported (9.7% adjusted).
- TJX Canada sales rose 8%; same-store sales increased 6% versus a 3% decline. Segment margin improved to 11.1% from 6.1%, with a favorable year-over-year change in inventory-hedge mark-to-market adjustments contributing to the improvement.
- TJX Europe sales rose 14%; same-store sales increased 13% versus a 5% decline. The segment moved to $11.7 million profit from a $31.3 million loss, reflecting improved merchandise margins and expense leverage.
Outlook, risks and unusual items
- TJX expected fiscal 2013 capital spending of approximately $875 million to $900 million, including stores, renovations, offices and distribution centers. It planned approximately $1.2 billion to $1.3 billion of share repurchases during the fiscal year; timing and amounts may change.
- Management expected general corporate expenses to increase substantially in Q2, then moderate for the rest of the fiscal year because of timing of planned growth investments. No full-year earnings or sales guidance is provided in the filing text.
- Management cited buying and inventory management, consumer trends and spending, competition, expansion, foreign exchange, commodity prices, weather, seasonality, technology and data security, and legal and tax matters among risks that could affect results. It reported no material change in market-risk exposures or risk factors from its latest Form 10-K.
- The A.J. Wright consolidation was completed in the prior-year quarter; its closure and conversion costs affect reported comparisons. A former-operations reserve was $41.0 million at quarter-end, with most expected to be paid over three to five years. TJX also disclosed contingent lease exposure related to former BJ’s and Bob’s Stores locations that it considered remote.
- Net unrecognized tax benefits were $118.0 million. Tax examinations or proceedings could reduce these benefits by $1 million to $50 million over the next 12 months, potentially reducing tax expense.
- Foreign-currency and diesel hedges, and their mark-to-market effects, can affect reported margins and earnings. The filing states that derivatives are not used for speculative purposes.
Important facts for investors to verify
- Reconcile GAAP year-over-year comparisons with the non-GAAP adjusted prior-year figures excluding A.J. Wright consolidation and conversion costs.
- Assess how much of the quarter’s margin improvement—particularly in Canada—came from operating performance versus currency and hedge mark-to-market effects.
- Track whether strong comparable sales and lower per-store inventories persist, and whether planned store growth and capital spending generate expected returns.
- Compare announced repurchase plans with actual purchases and cash settlements, and evaluate the impact of buybacks on EPS and liquidity.
- Monitor former-operations lease obligations and the range and timing of possible tax-benefit changes.