TJX Companies, Inc. — FY2016 Form 10-K Summary
Reporting period: Fiscal year ended January 30, 2016 (52 weeks). The filing also provides unaudited fourth-quarter results; this is an annual report, not a standalone quarterly filing. TJX operates more than 3,600 off-price apparel and home-fashions stores across the U.S., Canada, Europe and Australia, with e-commerce businesses.
Financial performance
| Metric | FY2016 | FY2015 | Change |
|---|---|---|---|
| Net sales | $30.945 billion | $29.078 billion | +6% |
| Net income | $2.278 billion | $2.215 billion | +3% |
| Diluted EPS | $3.33 | $3.15 | +6% |
| Same-store sales | +5% | +2% | Improved |
| Pre-tax margin | 11.8% | 12.2% | Down 0.4 percentage points |
| Cost of sales, buying and occupancy | 71.2% of sales | 71.5% | Improved 0.3 points |
| SG&A | 16.8% of sales | 16.1% | Increased 0.7 points |
| Operating cash flow | $2.937 billion | $3.008 billion | Down $71 million |
| Capital expenditures | $889 million | $912 million | Down $22 million |
FY2016 sales growth reflected 4% growth from new stores and 5% same-store-sales growth, partly offset by a 3% negative foreign-currency translation impact. Same-store growth was driven by traffic and higher units sold, offset by a lower average ticket. Foreign exchange reduced EPS by $0.09 versus FY2015. Share repurchases benefited EPS growth by approximately 3%.
Fourth quarter: Sales were $8.962 billion versus $8.304 billion (+8%); net income was $666.5 million versus $648.2 million (+3%); diluted EPS was $0.99 versus $0.93.
Liquidity, debt and capital returns
- Cash and cash equivalents were $2.095 billion at year-end, down from $2.494 billion; short-term investments were $352 million. Working capital was $2.370 billion.
- Long-term debt was $1.624 billion; no amounts were outstanding under the revolving credit facilities at year-end. Reported total debt was 27.4% of total capitalization.
- Operating cash flow was strong but declined year over year, chiefly reflecting inventory and accounts-payable timing, including higher packaway inventory. Merchandise inventory was $3.695 billion, up from $3.218 billion.
- FY2016 cash uses included $1.828 billion for stock repurchases and $544 million for dividends. The company expected to repurchase approximately $1.5–$2.0 billion of stock in FY2017.
- Minimum operating lease commitments totaled $7.998 billion, including $1.368 billion due within one year. These exclude certain occupancy costs; contractual obligations overall were $13.163 billion.
Material changes and segment performance
- Marmaxx: Sales rose 7% to $19.948 billion; same-store sales increased 4%. Segment margin declined to 14.3% from 14.6%, with wage and distribution costs and e-commerce weighing on results.
- HomeGoods: Sales rose 15% to $3.915 billion; same-store sales increased 8%. Segment margin improved to 14.0% from 13.6%.
- TJX Canada: Sales decreased 1% to $2.855 billion despite 12% same-store growth, as currency translation reduced reported growth by 16%. Segment margin fell to 13.1% from 13.6%.
- TJX International: Sales rose 3% to $4.227 billion; same-store sales increased 4%, offset in part by a 10% currency translation headwind. Segment margin declined to 7.5% from 8.2%, reflecting investment costs and lower merchandise margin.
- In October 2015, TJX acquired Australia’s Trade Secret, which had 35 stores, for approximately $59 million. Its results were included in TJX International from the acquisition date; management said pro forma results would not have materially affected reported sales, income or EPS.
Outlook, management commentary and risks
- Management described FY2016 as successful, citing sales growth, cash generation, store expansion and continued infrastructure investment. A U.S. hourly-wage initiative began in FY2016, with a further phase planned for FY2017.
- For FY2017, TJX planned approximately 60 new Marmaxx stores, 50 HomeGoods stores, 30 Canadian stores and 50 International stores. Planned capital expenditures were approximately $1.1 billion, funded from internally generated funds.
- The company planned a quarterly FY2017 dividend of $0.26 per share, subject to Board approval, or $1.04 annually—24% above FY2016 dividends declared.
- No broad FY2017 sales, earnings or margin guidance is provided in the filing text summarized here. Store-growth and spending plans are management estimates, not assurances.
- Key risks include execution of opportunistic buying and inventory allocation; currency and derivative volatility; rising payroll, freight and distribution costs; consumer demand, competition and weather; international expansion and supply-chain disruption; cybersecurity and information-system failures; and pension-market exposure.
- Several U.S. wage-and-hour class or collective actions and customer class actions concerning “compare at” pricing were pending. TJX said outcomes and potential losses could not be predicted. The filing also identifies tax audits and other legal and regulatory contingencies.
- Management reported effective disclosure controls and internal control over financial reporting; the independent auditor also opined that internal control was effective as of January 30, 2016.
Important facts for investors to verify
- Whether comparable-sales momentum and store growth continue, particularly given the lower average ticket and strong traffic contribution.
- Whether currency movements, merchandise costs and derivative mark-to-market effects continue to pressure Canada and International margins.
- Whether higher wages, distribution costs and infrastructure investment can be absorbed without further operating-margin deterioration.
- Cash conversion and inventory levels, including the effect of packaway inventory, alongside planned capital spending and shareholder returns.
- The status and any financial exposure from wage-and-hour, “compare at” pricing, tax and other contingencies; also review the substantial lease commitments.
- Execution and returns from Trade Secret and other international expansion, and the performance of the planned FY2017 store openings.