TJX Companies, Inc. — Form 10-Q Summary
Reporting period: Thirteen weeks ended May 4, 2013 (fiscal 2014 first quarter); compared with the thirteen weeks ended April 28, 2012. TJX operates more than 3,000 off-price apparel and home-fashion stores across the U.S., Canada and Europe, and includes Sierra Trading Post in Marmaxx.
Financial performance
| Metric | Q1 FY2014 | Q1 FY2013 | Change |
|---|---|---|---|
| Net sales | $6.190 billion | $5.798 billion | +7% |
| Net income | $452.9 million | $419.2 million | +8% |
| Diluted EPS | $0.62 | $0.55 | +13% |
| Pre-tax margin | 11.8% | 11.8% | Flat |
| Cost of sales, including buying and occupancy | 71.6% of sales | 71.8% | Improved 0.2 percentage points |
| SG&A | 16.5% of sales | 16.2% | Increased 0.3 percentage points |
| Net interest expense | $5.3 million | $8.8 million | Decreased |
| Operating cash flow | $280.7 million | $704.6 million | Down $423.8 million |
Same-store sales rose 2%, versus 8% growth a year earlier; growth reflected higher average transaction value and slightly higher traffic. Stores in operation grew 6% and selling square footage 5% year over year. Management said unseasonably cold weather affected many regions, while merchandise margins and inventory control remained strong. SG&A increased mainly from marketing and e-commerce costs. The effective tax rate was 38.1%, down from 38.5%, largely due to the extended Work Opportunity Tax Credit and favorable audit settlements.
Segments
- Marmaxx: Sales +6%; same-store sales +1%; segment margin 15.3%, down from 15.5%.
- HomeGoods: Sales +16%; same-store sales +7%; segment margin 12.9%, up from 11.7%.
- TJX Canada: Sales +1%; same-store sales −1%; segment margin 11.5%, up from 11.1%. Currency translation reduced sales growth by about 2 percentage points.
- TJX Europe: Sales +7%; same-store sales +4%; segment margin 2.3%, up from 1.7%. Currency translation reduced sales growth by about 3 percentage points.
Cash, debt and capital allocation
- At May 4, 2013, cash and cash equivalents were $1.990 billion and short-term investments were $238.0 million. Current assets were $5.976 billion versus current liabilities of $3.499 billion.
- Long-term debt was $1.274 billion, up from $774.6 million at February 2, 2013, following issuance of $500 million of ten-year notes bearing 2.50% (effective fixed rate 2.57%). No amounts were outstanding on the two $500 million revolving credit facilities.
- Operating cash flow declined primarily because inventory and related accounts-payable movements used $164 million, compared with providing $158 million a year earlier; timing of tax and incentive-compensation payments also weighed on the comparison. Property additions were $238.5 million.
- TJX repurchased 6.5 million shares for approximately $300 million and paid $83.2 million in dividends. Dividends declared were $0.145 per share, up from $0.115.
- About 40% of cash was held outside the U.S.; $276 million was in countries where TJX intends indefinite reinvestment of undistributed earnings. Management said cash, internally generated funds and credit facilities were more than adequate for operating needs over the next fiscal year.
Outlook, risks and contingencies
- Management expected fiscal 2014 capital spending of approximately $925–$950 million and planned approximately $1.3–$1.4 billion of share repurchases; repurchase timing and amount may change. No full-year earnings guidance is provided in the filing text.
- Management cited seasonal influences, weather, consumer spending, competition, inventory execution, labor costs, data security, technology, foreign exchange, commodity costs, international expansion, legal and tax matters, and real-estate activities among factors that could affect results. It reported no material change in market-risk exposures or previously disclosed risk factors.
- The former-operations reserve was $40.3 million; most is expected to be paid over the next three to five years, though actual costs and timing may differ. Potential liability on certain former-business leases was not reserved because management considered the likelihood of liability remote.
- Net unrecognized tax benefits were $124.8 million. Possible resolutions of tax examinations or proceedings over the next 12 months could reduce the tax provision by $1–$50 million.
- Derivative instruments had a net fair-value liability of $8.7 million at May 4. Diesel hedges covered about 50% of estimated diesel requirements for the remainder of fiscal 2014. Management noted risks from currency, fuel prices and weather; interim results may not indicate full-year results.
Most important facts to verify
- Whether same-store sales and segment margins sustain performance, particularly as prior-year comparisons were strong and weather affected the quarter.
- Whether the sharp year-over-year decline in operating cash flow reverses as inventory, payables, taxes and incentive payments normalize.
- Execution and returns on planned capital spending, store expansion, e-commerce investment and the announced share repurchases.
- Debt and liquidity developments following the $500 million note issuance, including the use of proceeds and continued availability of revolving facilities.
- Potential changes in former-operations lease obligations and the range of possible tax-benefit resolutions.