TJX

Business Context and Reporting Period

This Form 10-Q covers The TJX Companies, Inc. for the quarter ended July 31, 1999, and the twenty-six weeks ended July 31, 1999. The company operates off-price retail chains including T.J. Maxx, Marshalls, Winners, T.K. Maxx, HomeGoods, and A.J. Wright. The report notes that results for the first six months are not necessarily indicative of full-year results due to seasonal influences, with higher sales typically realized in the second half of the fiscal year.

Key Financial Metrics

Margins (26 Weeks Ended 7/31/99): Cost of sales was 74.4% of net sales; Selling, general and administrative (SG&A) expenses were 15.8% of net sales; Pre-tax income margin was 9.7%.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 13% for the quarter and 11% for the six-month period compared to the prior year, driven by same-store sales growth and new store openings.
• Profitability: Net income increased significantly, rising from $84.9 million to $114.7 million for the quarter and from $172.6 million to $242.3 million for the six months.
• Margin Expansion: Cost of sales as a percentage of net sales decreased (74.4% vs. 75.5% prior year) due to improved merchandise margins and inventory management. SG&A expenses also decreased as a percentage of sales (15.8% vs. 16.5%).
• Liquidity: Cash and cash equivalents decreased from $461.2 million at the beginning of the year to $47.2 million at period end. This decline was primarily due to a $232.2 million stock repurchase program and a $392.1 million increase in merchandise inventories.
• Debt: The company borrowed $59.6 million in short-term debt in late July to fund stock repurchases, whereas no short-term debt was outstanding at the beginning of the year.

Outlook, Risks, and Management Commentary

• Stock Repurchases: The company completed a $250 million repurchase program in October 1998 and announced a new $750 million program. During the six months ended July 31, 1999, it repurchased 7.2 million shares for $232.2 million.
• Year 2000 (Y2K) Readiness: The company estimates total Y2K project costs at approximately $13 million, with $12 million incurred as of July 31, 1999. Remediation of IT systems is complete, with final testing expected by the end of the third quarter of fiscal 2000. Contingency plans are being finalized to address potential failures in third-party systems.
• Contingencies: The company maintains contingent liabilities for leases of former divisions (Zayre, HomeBase, BJ's, Hit or Miss) but believes these will not have a material effect on financial condition. A $15 million reserve (after-tax $9 million) was recorded in the prior year for Hit or Miss lease liabilities.
• Corporate Expenses: General corporate expenses decreased in the six-month period compared to the prior year, which included a $5.5 million charge for a write-off of a note receivable and higher deferred compensation charges.

Investor Verification Checklist

• Verify the sustainability of same-store sales growth rates (ranging from 5% to 17% across banners) in the upcoming holiday season.
• Monitor the impact of the significant inventory build-up ($392 million increase) on future working capital and cash flow.
• Confirm the status of the $750 million stock repurchase program and its effect on share count and liquidity.
• Review progress on Y2K remediation for critical third-party vendors and utilities as the transition date approaches.
• Assess the effectiveness of inventory management strategies in maintaining improved merchandise margins.