TJX Companies, Inc. — FY2020 Form 10-K
Business context and reporting period. TJX is a global off-price apparel and home fashions retailer operating T.J. Maxx, Marshalls, HomeGoods, Winners, T.K. Maxx and other banners. The fiscal year ended February 1, 2020 (52 weeks); comparisons are with the 52 weeks ended February 2, 2019. Although the request identifies 2019 Q4, this is an annual filing; fourth-quarter figures are included below.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $41.72 billion | $38.97 billion |
| Net income | $3.27 billion | $3.06 billion |
| Diluted EPS | $2.67 | $2.43 |
| Operating cash flow | $4.07 billion | $4.09 billion |
| Capital expenditures | $1.22 billion | $1.13 billion |
| Cash dividends declared per share | $0.92 | $0.78 |
- Comparable sales rose 4%, versus 6% growth in FY2019; traffic increased across all four segments. Store count grew 5% to 4,529, and selling square footage increased 4%.
- Pre-tax margin narrowed to 10.6% from 10.7%. Cost of sales, including buying and occupancy costs, rose to 71.5% of sales from 71.4%; SG&A rose to 17.9% from 17.8%. Higher supply-chain costs, wages, and technology spending contributed.
- Effective tax rate fell to 25.7% from 26.7%, principally because FY2019 included a 2017 Tax Act charge and the jurisdictional mix of income changed. FY2019 also included a $36.1 million non-cash pension settlement charge.
- Segment sales and operating trends: Marmaxx sales increased 7% and margin remained 13.5%; HomeGoods sales increased 10%, while margin fell to 10.7% from 11.6%; TJX Canada sales increased 4%, while margin fell to 12.8% from 14.3%; TJX International sales increased 8% and margin was 5.4% in both years.
- Fourth-quarter FY2020 sales were $12.21 billion, net income $984.8 million, and diluted EPS $0.81, compared with $11.13 billion, $841.5 million, and $0.68, respectively, in fourth-quarter FY2019.
Liquidity, debt and capital allocation
- At February 1, 2020, cash and cash equivalents were $3.22 billion; working capital was $1.74 billion. Operating cash flow was essentially flat year over year. Investing activities used $1.46 billion and financing activities used $2.41 billion.
- Long-term debt was $2.24 billion, primarily unsecured notes due in 2021, 2023 and 2026. No commercial paper or revolving-credit borrowings were outstanding at fiscal year-end. The company reported compliance with credit-facility covenants.
- Lease accounting adoption added $9.0 billion of right-of-use assets and lease liabilities at transition. At year-end, operating lease liabilities were $9.23 billion; total undiscounted lease payments were $10.22 billion. FY2020 reported total assets of $24.15 billion, but FY2019 was not restated, limiting balance-sheet comparability. Reported total debt to capitalization was 27.3%, excluding operating lease liabilities.
- TJX repurchased $1.6 billion of shares on a settlement-date basis and paid $1.07 billion in dividends during FY2020. A $225 million investment acquired a 25% non-controlling interest in Russian retailer Familia; no FY2020 earnings from that investment were recorded.
Outlook, risks and unusual items
- COVID-19 emerged after fiscal year-end. Effective March 19, 2020, TJX closed its stores and temporarily closed online businesses, distribution centers and offices. It drew $1.0 billion under revolving facilities, suspended share repurchases, reduced planned capital expenditures, reviewed expenses and merchandise purchases, and did not intend to declare a first-quarter FY2021 dividend.
- TJX withdrew the FY2021 first-quarter and full-year guidance issued in February 2020 and provided no updated outlook. Management said the pandemic’s duration and severity, and its effect on results, financial position and cash flows, could not then be reasonably estimated.
- Other uncertainties include Brexit-related supply-chain and customs costs, U.S. tariffs on China-sourced goods and related margin pressure, foreign-exchange exposure, freight costs, intense retail competition, labor and pension costs, cybersecurity, legal proceedings, and the company’s ability to manage inventory and store growth. Long-term leases and the seasonality of sales also matter; the second half generally generates higher sales and earnings.
- U.S. wage-and-hour class and collective actions were pending; TJX accrued an immaterial amount. The filing reports no material adverse effect from other disclosed contingencies as of the reporting date. PwC issued an unqualified audit opinion and concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Subsequent quarterly filings: store reopening pace, sales and traffic recovery, inventory levels, cash burn, liquidity, and any updated guidance.
- Cash, revolver borrowings, covenant headroom, capital spending, share repurchases and dividend policy after the March 2020 actions.
- Whether margin pressure from freight, tariffs, currency movements, wages and supply-chain costs persists, particularly in HomeGoods and Canada.
- Lease obligations and the effect of lease accounting when comparing balance-sheet measures with prior periods or peers.
- Developments in pending labor litigation, tax examinations, Brexit-related trade arrangements and the Familia investment.