TJX Companies, Inc. — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2022, ended October 30, 2021. Fiscal 2022 ends January 29, 2022. Comparisons with fiscal 2021 are affected by pandemic-related store closures in the prior year; management also compares results with fiscal 2020, before the pandemic.
Financial performance
| Metric | Third quarter | First nine months |
|---|---|---|
| Net sales | $12.53 billion, up 24% year over year; $10.5 billion in fiscal 2020 | $34.70 billion, up 64% year over year; $29.5 billion in fiscal 2020 |
| Net income (loss) | $1.023 billion, versus $867 million | $2.343 billion, versus a $235 million loss |
| Diluted EPS | $0.84, versus $0.71; $0.68 in fiscal 2020 | $1.92, versus a $0.20 loss; includes a $0.15 debt-extinguishment charge |
| Pre-tax margin | 11.0%, versus 10.0%; 10.7% in fiscal 2020 | 9.1%, versus (2.0)%; 10.4% in fiscal 2020 |
| Cost of sales, including buying and occupancy | 70.5% of sales, versus 69.8%; 71.2% in fiscal 2020 | 71.0%, versus 78.6%; 71.5% in fiscal 2020 |
| SG&A | 18.3% of sales, versus 19.6%; 18.0% in fiscal 2020 | 19.0%, versus 22.8%; 18.0% in fiscal 2020 |
Quarterly sales were up 20% and open-only comparable-store sales were up 14% versus fiscal 2020. For the first nine months, those measures were up 18% and 17%, respectively. The company had no stores classified under its historical comparable-store definition for these periods. E-commerce represented less than 3% of total sales.
Segment performance in the quarter: Marmaxx sales were $7.21 billion and segment profit was $990 million; HomeGoods sales were $2.25 billion and profit was $263 million; TJX Canada sales were $1.30 billion and profit was $169 million; TJX International sales were $1.76 billion and profit was $127 million. HomeGoods and Canada profit were below the prior-year quarter, principally reflecting margin pressure, while Marmaxx and International profit increased.
Cash flow, balance sheet, and capital allocation
- Nine-month operating cash flow was $1.95 billion, down from $4.28 billion. Management attributed the decrease primarily to higher inventory and the timing of merchandise payments, as well as repayment of rent deferrals; higher net income partly offset these effects.
- Cash and cash equivalents were $6.79 billion at October 30, 2021, down from $10.47 billion at fiscal year-end. Merchandise inventory was $6.63 billion, up 33% year over year (31% on a constant-currency basis) and up 6% versus fiscal 2020.
- Long-term debt carrying value was $3.35 billion, with no current portion reported. TJX repaid $2.75 billion of debt during the first nine months and reported more than $90 million in expected annualized interest savings. The early redemptions produced a $242 million pre-tax extinguishment charge.
- All $1.5 billion of revolving-credit capacity was available, with no borrowings outstanding. TJX said cash, operating cash flow, and available facilities were adequate for operating needs over the next 12 months.
- Nine-month capital expenditures were $716 million. The company expected fiscal 2022 capital investment of $1.2–$1.4 billion, funded from operating cash flow.
- TJX paid $1.09 billion for share repurchases and $942 million in dividends in the first nine months. Management planned fiscal 2022 repurchases of approximately $1.75–$2.0 billion and expected a similar fourth-quarter dividend of $0.26 per share, subject to board approval. Approximately $1.9 billion remained authorized for repurchases.
Changes, outlook, and risks
- Stores were closed for approximately 1% of potential store days in the quarter and 6% year to date, versus 1% and 27% in the corresponding fiscal 2021 periods. U.S. stores remained open throughout the first nine months; closures continued in parts of Europe, Canada, and Australia.
- Management cited higher freight costs, distribution-capacity investment, and wages as pressures expected to continue into the next fiscal year. Strong markon and lower markdowns supported merchandise margin in some segments, but freight and supply-chain costs offset some of the benefit.
- COVID-19 resurgence, restrictions, store closures, workforce challenges, consumer demand, inventory management, sourcing and transportation, currency and commodity movements, and litigation are among the disclosed risks. The duration and severity of pandemic impacts remain uncertain.
- Brexit-related customs and compliance requirements have increased operational complexity and costs in Europe; duties on some goods sourced outside the U.K. and EU, and recruitment challenges, may continue to affect the division.
- A U.S. putative wage-and-hour class action is pending. TJX reported only immaterial accruals for certain legal proceedings. Unrecognized tax benefits were $287 million; possible reductions over the next 12 months could range from zero to $45 million.
- The filing does not provide a clear full-year sales or EPS forecast. Management stated that fiscal-year capital investment and repurchase plans, and the expected dividend, were as described above.
Key facts for investors to verify
- Whether sales and open-only comparable-store growth persist once pandemic-related comparisons and store restrictions normalize.
- Whether freight, distribution, and labor costs continue to pressure margins, particularly in HomeGoods and the foreign segments.
- Inventory levels, availability, and turnover, given inventory growth and the working-capital effect on operating cash flow.
- Execution of debt reduction, capital-spending, repurchase, and dividend plans while maintaining liquidity.
- Developments in COVID-19 restrictions, Brexit-related costs, and the disclosed wage-and-hour litigation and tax exposures.