TJX

Business Context and Reporting Period

Company: The TJX Companies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: October 25, 2008 (Third Quarter of Fiscal 2009)
Business Overview: TJX is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide, operating chains including T.J. Maxx, Marshalls, HomeGoods, Winners, and T.K. Maxx. The company operates under a seasonal model with higher sales typically realized in the second half of the fiscal year.

Key Financial Metrics

Material Changes vs. Prior Period

• Sales Growth: Net sales increased 2% in the quarter and 5% year-to-date, driven by a 5% increase in store count and 4% increase in selling square footage. Consolidated same-store sales decreased 1% in the quarter (excluding currency impact, they increased 1%) and increased 2% year-to-date.
• Profitability: Income from continuing operations increased 1% in the quarter and 39% year-to-date. The year-to-date improvement was significantly aided by the absence of a $215.9 million computer intrusion provision recorded in the prior year's comparable period.
• Discontinued Operations: TJX sold Bob's Stores in August 2008, recording an after-tax loss of approximately $18 million. Results for Bob's Stores are now classified as discontinued operations.
• Foreign Currency Impact: The strengthening U.S. dollar negatively impacted same-store sales by 2 percentage points in the quarter. However, favorable mark-to-market adjustments on inventory hedges improved the cost of sales ratio.
• Stock Repurchases: The company repurchased 7.2 million shares in the quarter and 21.2 million shares year-to-date, totaling $676.1 million in cost for the nine-month period.

Guidance, Outlook, and Risks

• Management Commentary: Management noted that while difficult economic conditions affected consumer spending, the off-price model allowed for leaner inventories and increased inventory turns. Customer traffic increased across virtually all divisions.
• Capital Spending: Capital spending for fiscal 2009 is anticipated to be approximately $575 million.
• Computer Intrusion Reserve: As of October 25, 2008, the reserve for the 2007 computer intrusion was $58 million. A $7 million credit to the reserve was recorded in the current quarter, increasing net income by approximately $4 million. Management notes that actual costs may vary materially from estimates.
• Liquidity: The company maintains $1 billion in revolving credit facilities with $894.1 million available as of the period end. Short-term commercial paper borrowings were $105.9 million.
• Risks: Key risks include the impact of global economic slowdowns on consumer spending, potential costs exceeding the computer intrusion reserve, foreign currency exchange rate fluctuations, and the ability to manage inventory effectively in a volatile market.

Investor Verification Checklist

• Computer Intrusion Liability: Verify the adequacy of the $58 million reserve against ongoing litigation and settlement costs related to the 2007 data breach.
• Discontinued Operations: Confirm the final accounting treatment and any remaining contingent liabilities associated with the sale of Bob's Stores.
• Foreign Currency Exposure: Assess the impact of currency translation on future earnings, particularly given the significant negative impact on the current quarter's same-store sales.
• Inventory Levels: Monitor inventory turns and per-store inventory levels, which were down 6% year-over-year, to ensure alignment with sales demand in a weak economic environment.
• Share Repurchase Program: Track the remaining $810 million authorization under the current stock repurchase plan and its impact on future earnings per share.