TJX Companies, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Thirteen weeks ended July 31, 2021; the six-month period ended the same date. TJX operates more than 4,600 off-price apparel and home-fashions stores across the U.S., Canada, Europe and Australia, alongside e-commerce businesses. Fiscal 2022 ends January 29, 2022.
Financial results
| Metric | Q2 FY2022 | Six months FY2022 |
|---|---|---|
| Net sales | $12.1 billion; +81% year over year | $22.2 billion; +100% year over year |
| Net income | $786 million | $1.32 billion |
| Diluted EPS | $0.64 | $1.08 |
| Pre-tax margin | 8.7% | 8.0% |
| Cost of sales, including buying and occupancy, as % of sales | 70.6% | 71.2% |
| SG&A as % of sales | 18.4% | 19.4% |
For context, Q2 net sales rose 23% and open-only comparable sales increased 20% versus Q2 FY2020; first-half sales rose 16% and open-only comparable sales increased 18% versus the corresponding FY2020 periods. These open-only comparisons use stores open in the periods and compare with FY2020; TJX said it had no stores classified as comp stores under its historical definition.
Six-month operating cash flow was $947 million, versus $197 million in the prior-year period. Capital expenditures were $445 million. Cash and cash equivalents were $7.11 billion at July 31, 2021, down from $10.47 billion at fiscal year-end, primarily reflecting debt repayments and other financing outflows. Merchandise inventories were $5.09 billion, up 36% year over year, but essentially flat versus FY2020 on a reported basis.
Long-term debt was $3.35 billion, with no current debt maturities reported at quarter-end. TJX had $1.5 billion of unused revolving credit capacity and no outstanding borrowings under its revolving facilities; it reported compliance with facility covenants. Management said available cash, operating cash flow and credit facilities were adequate for operating needs over the next 12 months.
Material changes and operating trends
- Results improved sharply from FY2021, when widespread COVID-19 closures weighed on sales and earnings. TJX stores were closed for about 3% of Q2 FY2022 store days and 8% of first-half store days, compared with 31% and 41%, respectively, in the prior-year periods. U.S. stores were open throughout the first half; closures continued in parts of Canada, Europe and Australia.
- Against FY2020, Q2 diluted EPS was $0.64 versus $0.62, while first-half diluted EPS was $1.08 versus $1.19.
- HomeGoods delivered the strongest reported comparable-sales growth versus FY2020: open-only comps rose 36% in Q2 and 38% in the first half. Marmaxx comps rose 18% and 15%, respectively; Canada and International each rose 18% and 12% in Q2 and first-half periods.
- International reported a first-half segment loss of $48 million, despite Q2 segment profit of $174 million, reflecting the continuing impact of temporary closures and restrictions. Canada’s first-half sales remained below FY2020.
- Merchandise margin benefited from strong markon and lower markdowns, but higher freight and supply-chain costs, wages and COVID-related operating costs weighed on profitability. Government support programs contributed to results in both current and prior periods.
Capital allocation, outlook and risks
- TJX redeemed $2.75 billion of debt during the first half, including $2 billion of notes called in June. The early redemptions generated a $242 million pre-tax extinguishment charge, reducing Q2 pre-tax margin by 2.0 percentage points and diluted EPS by about $0.15. Management expects more than $90 million in annualized interest savings from the debt reductions.
- The company reinstated share repurchases in Q2, repurchasing about 4.6 million shares for approximately $300 million during the first half. It announced plans to repurchase approximately $1.25 billion to $1.5 billion of stock in FY2022; about $2.7 billion remained authorized at quarter-end. Q2 shareholder returns through repurchases and dividends totaled $614 million.
- First-half dividends declared were $0.26 per share. Management expected to declare a similar Q3 dividend, subject to Board approval. Expected FY2022 capital investment was $1.2 billion to $1.4 billion, primarily funded from operating cash flow.
- The filing does not provide a specific full-year sales or earnings forecast. Management cautioned that the pandemic’s duration and severity, possible renewed closures or occupancy restrictions, and related operating impacts remain uncertain.
- Brexit-related customs, regulatory and operating costs are affecting and may continue to pressure European profitability; recruitment and retention may also be affected. Higher freight costs, supply-chain capacity and wages, foreign exchange, consumer demand and labor availability are additional risks identified by management.
- Contingencies include a putative U.S. wage-and-hour class action; TJX recorded immaterial accruals for certain legal proceedings. It estimated approximately $8 million of contingent lease obligations and believes the likelihood of liability is remote. Unrecognized tax benefits were $280 million; tax matters could change, with a possible reduction in tax provision of up to $43 million over the next 12 months.
Most important facts for investors to verify
- Whether sales momentum and open-only comparable-sales growth persist as stores fully reopen, especially in Canada and International.
- Whether freight, supply-chain and labor-cost pressures offset merchandise-margin gains, and how inventory levels develop relative to FY2020.
- Actual FY2022 capital spending, share repurchases and dividends compared with management’s stated plans.
- The realization of expected annualized interest savings and the ongoing effect of debt redemptions on liquidity and interest expense.
- Further COVID-19 closures or restrictions, Brexit-related costs, and developments in the wage-and-hour litigation and tax exposures.