TJX Companies, Inc. — Form 10-Q Summary
Business context and reporting period
Off-price apparel and home fashions retailer operating Marmaxx, HomeGoods, TJX Canada and TJX Europe, with Sierra Trading Post included in Marmaxx. This filing covers the 13 weeks and 26 weeks ended August 2, 2014 (fiscal 2015 second quarter and first half), compared with periods ended August 3, 2013. Interim results are unaudited; the company notes that retail sales and income are generally higher in the second half.
Key financial results
| Metric | Second quarter | First half |
|---|---|---|
| Net sales | $6.917 billion, up 7% | $13.408 billion, up 6% |
| Net income | $517.6 million, up 8% | $971.9 million, up 4% |
| Diluted EPS | $0.73, versus $0.66 | $1.37, versus $1.28 |
| Pre-tax margin | 12.0%, unchanged | 11.6%, versus 11.9% |
| Cost of sales, including buying and occupancy | 71.4% of sales, up 0.2 percentage points | 71.7%, up 0.3 percentage points |
| SG&A | 16.2% of sales, improved 0.5 percentage points | 16.4%, improved 0.2 percentage points |
For the first half, operating cash flow was $1.076 billion, compared with $811 million; property additions were $425 million, versus $497 million. Cash and cash equivalents were $2.183 billion and short-term investments were $285 million at August 2. Long-term debt was $1.624 billion; no borrowings were outstanding under the two $500 million revolving credit facilities, and TJX reported compliance with their covenants. Current assets were $6.594 billion and current liabilities $3.825 billion.
First-half declared dividends were $0.35 per share, versus $0.29. TJX repurchased 14.0 million shares for $799.8 million in the first half. Weighted-average diluted shares declined to 709.2 million from 730.8 million.
Material changes and segment performance
- Same-store sales rose 3% in the quarter and 2% for the first half, against increases of 4% and 3% a year earlier. Growth was driven by average ticket; traffic was essentially flat in the quarter and down slightly for the first half.
- New-store sales contributed 4% to sales growth in each period. Stores in operation increased 5% and selling square footage 4% year over year.
- Quarterly segment sales/profit: Marmaxx $4.494 billion/$685.6 million; HomeGoods $773.1 million/$94.6 million; Canada $695.9 million/$95.0 million; Europe $954.3 million/$55.6 million. HomeGoods and Europe reported stronger segment margins; Canada’s first-half margin declined to 10.7% from 12.5%, with currency-hedge mark-to-market effects and expense deleverage cited as factors.
- Quarterly SG&A benefited from a roughly $10 million reduction in casualty insurance reserves due to favorable claims experience. Store-supply and pension savings also contributed. Cost of sales was pressured by inventory-hedge mark-to-market effects, e-commerce mix and occupancy expense.
Outlook, commentary and risks
- Management expected fiscal 2015 capital spending of approximately $975 million and planned $1.6–$1.7 billion of share repurchases during the fiscal year. Repurchase timing and amount may change.
- Management said cash, internally generated funds and credit facilities were more than adequate for operating needs over the next fiscal year. About 49% of cash was held outside the U.S.; $323 million was in countries where undistributed earnings were intended to be reinvested indefinitely.
- In June 2014, TJX issued $750 million of 2.75% seven-year notes and used part of the proceeds to redeem $400 million of 4.20% notes in July. The redemption generated a $16.8 million pre-tax extinguishment loss, reducing quarterly diluted EPS by $0.02 after tax. The new notes’ effective fixed rate, including rate-lock costs, is 2.91%.
- Foreign exchange, inventory purchasing and hedge mark-to-market movements, consumer demand, competition, labor, technology and data security, weather, supply and merchandise risks, and international expansion are among the cited risks. Management reported no material change in primary market-risk exposures or previously disclosed risk factors. No material legal proceedings were reported.
- New revenue-recognition guidance was expected to become effective for TJX in fiscal 2018; the company was evaluating its impact.
Important facts for investors to verify
- Whether same-store sales and customer traffic trends persist, particularly as first-half comparable-sales growth slowed from the prior year.
- How gross-margin pressures, foreign-currency inventory hedges and e-commerce mix affect future profitability; first-half Canada results showed notable margin weakness.
- Whether the planned capital spending and share repurchases are achieved, and how repurchases are funded relative to cash generation and debt.
- Cash availability and potential tax or liquidity implications of funds held overseas, including the stated indefinite-reinvestment plans.
- The timing and final cash cost of former-operations lease obligations; the reserve was $22.0 million, and the filing notes other contingent leases considered remote.