TJX Companies, Inc. — Q3 Fiscal 2021 Form 10-Q
Business context and reporting period. This unaudited filing covers the 13 weeks and 39 weeks ended October 31, 2020, compared with the periods ended November 2, 2019. TJX operates off-price apparel and home-fashions retailers across the U.S., Canada, Europe and Australia. COVID-19 drove widespread store and online closures during the first half; by November 30, about 500 stores were temporarily closed, primarily in Europe.
Financial performance
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Net sales | $10.12B | $10.45B | $21.19B | $29.51B |
| Income (loss) before taxes | $1.02B | $1.12B | $(418.9)M | $3.08B |
| Net income (loss) | $866.7M | $828.3M | $(235.1)M | $2.29B |
| Diluted EPS | $0.71 | $0.68 | $(0.20) | $1.86 |
| Pre-tax margin | 10.0% | 10.7% | (2.0)% | 10.4% |
| Cost of sales as % of sales | 69.8% | 71.2% | 78.6% | 71.5% |
| SG&A as % of sales | 19.6% | 18.0% | 22.8% | 18.0% |
- Quarterly trends: Sales fell 3%; management attributed the decline mainly to lower customer traffic, partly offset by larger average baskets. Open-only comparable sales decreased 5%. Lower markdowns and stronger merchandise margin helped reduce the cost-of-sales ratio, but higher SG&A and interest expense weighed on results. The lower Q3 tax rate also benefited diluted EPS by approximately $0.09 year over year.
- Nine-month impact: Sales declined 28%, with stores closed in aggregate for approximately 27% of the period. The resulting loss reflected reduced sales, markdowns and costs continuing during closures, including fixed occupancy and COVID-related operating costs.
- Segment results: Q3 sales and profit were $5.78B and $665M for Marmaxx, $1.88B and $291M for HomeGoods, $1.03B and $177M for TJX Canada, and $1.43B and $87M for TJX International. HomeGoods was the standout, with sales up 19% and open-only comps up 15%. For the nine months, TJX International recorded a $303M segment loss; Marmaxx segment profit fell to $56M.
- Cash flow and liquidity: Operating cash flow was $4.28B for the first nine months, versus $1.87B a year earlier; investing cash outflow was $444M and financing cash inflow was $3.54B. Cash ended at $10.58B, versus $3.22B at fiscal year-end. Management said the operating cash flow benefit included higher accounts payable from extended merchandise-payment terms and other working-capital movements; it cautioned that deferred payments and normalization of terms may pressure future cash flow.
- Debt: Long-term debt, including current maturities, had a $6.23B carrying amount at October 31, versus $2.24B at February 1. TJX issued $4.0B of notes in April 2020 and had $749M of current maturities. It had $1.5B of revolving borrowing capacity, all available, and reported compliance with credit covenants. Interest expense, net, rose to $133.6M for the nine months from $7.0M, mainly due to new debt and lower interest income.
- Other balance-sheet items: Inventory was $5.00B, compared with $4.87B at fiscal year-end and $6.27B a year earlier. Management cited approximately $0.4B of inventory reductions in the first six months from markdowns and write-offs. Shareholders’ equity was $5.57B; operating lease liabilities totaled about $9.45B.
Outlook, risks and unusual items
- Management did not provide a full-year earnings or sales forecast in the supplied filing text. It expects fiscal 2021 capital spending of $0.6B–$0.8B, approximately 50 store openings, and continued suspension of share repurchases for the remainder of the year. It expects a $0.26-per-share dividend to be declared in Q4 and paid in March 2021, subject to Board approval.
- Management said existing cash, internally generated funds and credit facilities should be sufficient for operating needs and capital expenditures for at least 12 months. This assessment depends on uncertain pandemic developments and operating conditions.
- COVID-related risks include renewed or prolonged closures, capacity limits during holiday trading, changing customer behavior, added health and safety costs, supplier or logistics disruption, and possible asset impairment or reduced recoverability of deferred tax assets. Government programs reduced expenses by approximately $0.4B during the nine months; the Q3 impact was immaterial.
- Rent deferrals were negotiated for many stores, primarily with repayment in fiscal 2022. Approximately $1.0B of merchandise purchase orders were cancelled in Q1. The company reported immaterial impairment charges for the first nine months.
- Brexit could add customs, regulatory, supply-chain and labor costs for European operations; the future U.K.–EU trading relationship remained uncertain. U.S. tariffs on China-sourced goods continued to pressure margins, with the broader effects uncertain.
- After quarter-end, TJX issued $1.0B of notes due 2028 and 2031 and launched tender offers for up to $750M of certain notes. It expects a Q4 loss on early debt extinguishment, dependent on tender results.
- Contingencies include up to approximately $12M of undiscounted contingent lease obligations, for which management considers future liability remote, and wage-and-hour lawsuits; an immaterial litigation accrual was recorded.
Key facts for investors to verify
- Whether store closures, operating-hour restrictions and customer traffic improve or worsen, and how open-only comparable sales evolve.
- Whether cash generation remains strong after extended supplier-payment terms normalize and deferred payments come due.
- Debt refinancing and tender-offer outcomes, related extinguishment costs, and compliance with liquidity and leverage covenants.
- Whether the expected dividend is declared and how capital spending, store openings and the suspended buyback change.
- The extent of further inventory markdowns, COVID-related costs, Brexit or tariff impacts, and any material impairment or legal developments.