TJX Companies, Inc. — Q1 FY2023 Form 10-Q
Reporting period: 13 weeks ended April 30, 2022; comparable period ended May 1, 2021. Amounts are in U.S. dollars. TJX operates more than 4,700 off-price apparel and home-fashion stores across the U.S., Canada, Europe and Australia, alongside e-commerce sites.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Net sales | $11.406 billion | $10.087 billion |
| Income before taxes | $852 million | $721 million |
| Net income | $587 million | $534 million |
| Diluted EPS | $0.49 | $0.44 |
| Pre-tax margin | 7.5% | 7.2% |
| Cost of sales, including buying and occupancy | 72.1% of sales | 71.9% |
| SG&A | 18.4% of sales | 20.5% |
| Effective tax rate | 31.1% | 26.0% |
| Net cash used in operating activities | $634 million | $433 million |
| Net cash used in investing activities | $324 million | $225 million |
Sales rose 13%; diluted EPS increased from $0.44 to $0.49 despite a $218 million investment impairment that reduced EPS by $0.19. The reported pre-tax margin includes a 1.9 percentage-point impairment impact. Operating cash outflow reflected working-capital movements, including inventory investment and lower accrued expenses. Property additions were $314 million.
At April 30, 2022, cash and cash equivalents were $4.295 billion, merchandise inventories were $6.990 billion, and current liabilities were $10.019 billion. Long-term debt was $3.356 billion; no short-term borrowings or commercial paper were outstanding. TJX had $1.5 billion of revolving credit capacity available and reported compliance with credit-facility covenants. Operating lease liabilities totaled approximately $9.353 billion.
Material changes and operating trends
- U.S. comparable-store sales were flat. The prior-year U.S. open-only comparable-store measure increased 17%, so it is not directly equivalent.
- Reported sales growth also reflected a more fully open store base: prior-year stores were temporarily closed for 14% of potential store days overall, including 25% in Canada and 69% internationally.
- Segment sales and profit: Marmaxx sales were $6.872 billion and segment profit $904 million; HomeGoods $2.036 billion and $122 million; TJX Canada $1.082 billion and $127 million; TJX International $1.417 billion and $13 million. International sales grew 163% and Canada sales 41%, substantially reflecting fewer pandemic-related closures.
- HomeGoods sales fell 5% and segment margin declined to 6.0% from 11.7%, amid lower comparable sales, freight costs and markdowns. Marmaxx margin rose to 13.2% from 12.4%; Canada margin rose to 11.7% from 9.3%; International returned to a 0.9% margin from a 41.1% loss margin.
- Average per-store inventories, including distribution-center inventory but excluding goods in transit, were up 35% reported and 37% at constant currency year over year.
- Cash declined from $6.227 billion at fiscal year-end to $4.295 billion. TJX repurchased and retired approximately 9.5 million shares for about $607 million and paid $309 million in dividends. A new $3.0 billion repurchase authorization was approved; approximately $3.2 billion remained available under existing programs at quarter-end.
Outlook, risks and unusual items
- TJX expected fiscal 2023 capital spending of approximately $1.7–$1.9 billion, funded by operating cash flow. The filing provides no specific earnings or sales guidance in the text provided.
- Management attributed higher cost-of-sales ratio primarily to lower merchandise margin; approximately 220 basis points of incremental freight costs outweighed strong markon and benefits from pricing initiatives. Lower COVID-related store payroll costs helped reduce the SG&A ratio.
- The $218 million impairment represented the entire carrying value of TJX’s minority investment in Familia. Following Russia’s invasion of Ukraine, TJX committed to divesting the investment; the company estimated no associated tax benefit.
- Management cited uncertainty from COVID-19, inventory management, sourcing and transport, labor availability and costs, consumer demand, competition, currency movements, commodity prices, litigation and other risks. Fuel and foreign-exchange hedges mitigate some exposures but do not eliminate them.
- Legal proceedings arose in the ordinary course of business; accrued amounts were described as immaterial. Unrecognized tax benefits were $273 million; audit resolutions could reduce them by up to $44 million over the next 12 months.
Key facts for investors to verify
- Whether flat U.S. comparable sales and weaker HomeGoods trends persist, distinguishing current comparable-store results from pandemic-affected prior-year comparisons.
- Whether elevated inventory converts to sales without greater markdowns, and how freight, wages and supply-chain costs affect margins.
- Cash generation and liquidity after working-capital needs, planned capital spending, dividends and share repurchases.
- Progress and final proceeds, if any, from divesting the impaired Familia investment, and any related tax or other consequences.
- Debt maturities, lease obligations, foreign-exchange and fuel exposures, and developments in tax audits or legal contingencies.